As filed with the Securities and Exchange Commission on January 9, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SCNV ACQUISITION CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 3629 13-3952659
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification No.)
Classification No.)
7 Ben Zvi Road
Beer-Sheva, Israel 84893
(972) 7-628-0451
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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PROFESSOR HERMAN BRANOVER
President
SCNV Acquisition Corp.
7 Ben Zvi Road
Beer-Sheva, Israel 84893
(972) 7-628-0451
(Name, address and telephone number of agent for service)
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Copies of all communications to:
EMANUEL J. ADLER, ESQ.
Tenzer Greenblatt LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174-0208
Telephone: (212) 885-5000
Facsimile: (212) 885-5001
DAVID SCHAPIRO, ESQ.
Yigal Arnon & Co.
3 Daniel Frisch Street
Tel Aviv, Israel 33777
Telephone: 972-3-692-6856
Facsimile: 972-3-696-4770
STUART NEUHAUSER, ESQ.
Bernstein & Wasserman, LLP
950 Third Avenue, 10th Floor
New York, New York 10022
Telephone: (212) 826-0730
Facsimile: (212) 371-4730
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this 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 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class Offering Aggregate Amount of
of Securities to be Amount to Price Per Offering Registration
Registered be Registered Security (1) Price (1) Fee
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<S> <C> <C> <C> <C>
Units, each consisting
of one Share of
Common Stock, par
value $.01 per share,
and one Warrant to
purchase one share of
Common Stock(2) 1,679,000 Units $4.10 $6,883,900 $2,030.75
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Common Stock
included in the Units 1,679,000 Shares -- -- --
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Warrants to purchase
Common Stock
included in the Units 1,679,000 Warrants -- -- --
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Common Stock
issuable upon exercise
of the Warrants
included in the
Units(3) 1,679,000 Shares $5.50 $9,234,500 $2,724.18
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Underwriter's Unit
Purchase Option(4) 146,000 Warrants $.001 $146 (5)
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Units issuable upon
exercise of the
Underwriters Unit
Purchase Option 146,000 Units $4.92 $718,320 $211.90
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Common Stock
included in the Units
issuable upon exercise
of Underwriter's Unit
Purchase Option(3) 146,000 Shares -- -- --
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Warrants to purchase
Common Stock
included in the Units
issuable upon exercise
of the Underwriter's
Unit Purchase Option 146,000 Warrants -- -- --
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Common Stock
issuable upon exercise
of the Warrants
included in the Units
issuable upon exercise
of the Underwriter's
Unit Purchase
Option(3) 146,000 Shares $5.50 $803,000 $236.89
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Total Registration Fee ............................................................................ $5,203.72
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. It is
anticipated that the initial public offering price of the Units will be
$4.10. The value of each Share and Warrant included in a Unit is $4.00 and
$.10, respectively.
(2) Assumes the Underwriter's over-allotment option to purchase up to 219,000
additional Units is exercised in full.
<PAGE>
(3) Pursuant to Rule 416, there are also being registered such indeterminable
number of additional shares of Common Stock as may become issuable pursuant
to anti-dilution provisions contained in the Warrants, the Underwriter's
Unit Purchase Option and the warrants included in the Units underlying the
Underwriter's Unit Purchase Option.
(4) Represents warrants to be issued by the Company to the Underwriter at the
time of delivery and acceptance of the securities to be sold by the Company
to the public hereunder.
(5) None, pursuant to Rule 457(g).
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SCNV ACQUISITION CORP.
<TABLE>
<CAPTION>
Cross Reference Sheet for Prospectus Under Form SB-2
<S> <C>
1. Forepart of the Registration Statement and Outside Forepart of the Registration Statement and Outside Front
Front Cover Page of Prospectus...................................... Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................................... Inside Front and Outside Back Cover Pages of Prospectus
3. Summary of Information and Risk Factors............................. Prospectus Summary; Risk Factors
4. Use of Proceeds..................................................... Use of Proceeds
5. Determination of Offering Price..................................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution............................................................ Dilution
7. Selling Security Holders............................................ Not Applicable
8. Plan of Distribution................................................ Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings................................................... Not applicable
10. Directors, Executive Officers, Promoters and Control
Persons............................................................. Management
11. Security Ownership of Certain Beneficial Owners and
Management.......................................................... Principal Stockholders
12. Description of Securities........................................... Outside and Inside Front Cover Pages of Prospectus;
Prospectus Summary; Capitalization; Description of
Securities
13. Interest of Named Experts and Counsel............................... Not Applicable
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................................... Not Applicable
15. Organization Within Last Five Years................................. Certain Transactions
16. Description of Business............................................. Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operation........................................................... Condition and Results of Operations
18. Properties ......................................................... Business
19. Certain Relationships and Related Transactions...................... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................................ Risk Factors; Management
21. Executive Compensation............................................. Management
22. Financial Statements............................................... Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure................................ Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
PRELIMINARY PROSPECTUS DATED JANUARY 9, 1998
SUBJECT TO COMPLETION
1,460,000 Units
SCNV ACQUISITION CORP.
1,460,000 Shares of Common Stock and
Class A Redeemable Warrants to Purchase
1,460,000 Shares of Common Stock
Each Unit offered hereby consists of one share of common stock, $.01 par
value (the "Common Stock"), and one Class A Redeemable Warrant (the "Warrants")
of SCNV Acquisition Corp. (the "Company"). The securities comprising the Units
will become detachable and separately transferable on the date that is three
months after their issuance, unless earlier detached pursuant to an agreement
between the Company and the Underwriter. Each Warrant entitles the registered
holder thereof to purchase one share of Common Stock at a price of $5.50,
subject to adjustment in certain circumstances, at any time commencing
__________________, 1999 through and including ____________________, 2003. The
Warrants are redeemable by the Company at any time after becoming exercisable,
upon notice of not less than 30 days, at a price of $.01 per Warrant, provided
that the average of the closing bid quotations of the Common Stock on any ten
consecutive trading days ending within five days prior to the day on which the
Company gives notice has been at least $8.00 per share (subject to adjustment).
See "Description of Securities."
Prior to this offering there has been no public market for the Units,
Common Stock or Warrants and there can be no assurance that any such market will
develop. It is anticipated that the Units, and, once separately transferable,
the Common Stock and Warrants, will be quoted on the Nasdaq SmallCap Market
("Nasdaq") under the symbols "SOLMU," "SOLM" and "SOLMW," respectively. For a
discussion of the factors considered in determining the offering price of the
Units and the exercise price of the Warrants, see "Underwriting."
------------------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" COMMENCING ON PAGE 12
OF THIS PROSPECTUS AND "DILUTION."
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
Price Underwriting Proceeds
to Discounts and to
Public(1) Commissions(2) Company (3)
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Per Unit .......... $4.10 $.41 $3.69
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Total (4) $5,986,000 $598,600 $5,387,400
================================================================================
(1) The value of each Share and Warrant included in a Unit is $4.00 and $.10,
respectively.
(2) The Company has agreed to pay to the Underwriter a 3% nonaccountable
expense allowance and to sell to the Underwriter an option (the
"Underwriter's Unit Purchase Option") to purchase up to 146,000 Units. The
Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses, including the nonaccountable expense allowance
in the amount of $179,580 ($206,517 if the Underwriter's over-allotment
option is exercised in full), estimated at $580,000, payable by the
Company.
(4) The Company has granted to the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
219,000 additional Units on the same terms set forth above, solely for the
purpose of covering over-allotments, if any. If the Underwriter's
over-allotment option is exercised in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$6,883,900, $688,390 and $6,195,510, respectively. See "Underwriting."
The Units are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel and to certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify the offering and to reject any
order in whole or in part. It is expected that delivery of certificates
representing the securities comprising the Units will be made against payment
therefor at the offices of the Underwriter on or about , 1998.
-----------------------
Patterson Travis, Inc.
The date of this Prospectus is , 1998
<PAGE>
-----------------------
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish its stockholders with annual
reports containing audited financial statements and such other periodic reports
as the Company deems appropriate or as may be required by law.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE UNITS, COMMON STOCK AND WARRANTS.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE UNITS, SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, (i) all pro
forma share and per share data and information in this Prospectus give
retroactive effect to the acquisition, upon the consummation of this offering
(the "Acquisition"), by the Company of all of the issued and outstanding capital
stock of Solmecs Corporation N.V. (which, together with its wholly-owned
subsidiary Solmecs (Israel) Ltd., shall, unless the context otherwise requires,
be referred to herein as "Solmecs") in consideration of 700,800 shares of the
Company's Common Stock, and (ii) all as adjusted share and per share data and
information in this Prospectus assume no exercise of the Underwriter's
over-allotment option to purchase up to 219,000 additional Units. Information
contained herein regarding Solmecs has been provided by Solmecs and has also
been derived from the periodic reports filed with the Commission by Solmecs'
parent corporation, Bayou International, Ltd. ("Bayou").
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in these forward-looking statements. Factors that might cause
these possible differences include, but are not limited to, those discussed in
the "Risk Factors" section of this Prospectus.
All references to "dollars" or "$" in this Prospectus are to United States
dollars, and all references to "Shekels" or "NIS" are to New Israeli Shekels.
All currency conversions in this Prospectus reflect the exchange rate of NIS
into dollars as of September 30, 1997, which was 3.497 NIS to $1.00 or 1 NIS to
$.286.
The Company
SCNV Acquisition Corp. (the "Company") was organized to select, develop and
commercially exploit proprietary technologies, in various stages of development,
invented primarily by scientists who have recently immigrated to Israel from,
and by scientists and institutions in, Russia and other countries that formerly
comprised the Soviet Union. In furtherance of this goal, the Company will
acquire Solmecs Corporation N.V., a Netherlands Antilles company, the operations
of which are located in Israel, which owns certain technologies developed by
such scientists in the past and actively seeks to identify such technologies for
exploitation. The technologies of Solmecs and technologies identified by Solmecs
for exploitation are in various stages of development and include technologies
that have begun to be commercialized as well as technologies that the Company
believes are ready for commercialization in the near future.
The Company intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified. Initially the
Company, through its scientific, engineering and administrative personnel, will
seek to identify and analyze a number of proposed advanced technologies with
potential commercial viability. The Company will then assess the costs of
further research and development (including the building and testing of
prototypes, if required), seek to obtain intellectual property rights in viable
technologies, develop a business plan detailing the exploitation of such
technologies from the research and development phase through product
commercialization, develop and,
-3-
<PAGE>
in some instances, implement financing strategies to further such business
development plan, and suggest and, in some cases, assemble a team of scientists
and engineers most suitable for implementation of such business plan. Upon
completion of the business plan for each project, the Company may seek to
manufacture and market the project itself, enter into strategic alliances for
such commercialization, or sell or license the proprietary information and
know-how to third parties in consideration of technology transfer or license
fees. The Company believes that the recent mass immigration to Israel of highly
trained and experienced scientists and engineers, when combined with Western
technology, infrastructure and commercial skill, will provide an opportunity for
the Company to exploit innovative technologies and products. To a lesser extent,
the Company may seek to develop technologies invented by scientists from other
countries.
The Company's strategy is to identify and exploit innovative technologies
which represent advances over existing products or technologies. The Company
plans to implement its strategy through a four-step process:
o Identify potential business opportunities. The Company's personnel
consist of scientific and engineering experts with numerous
relationships with scientists who have recently immigrated from the
former Soviet Union, as well as with scientists, universities,
research institutes and industries in the former Soviet Union. The
Company intends to utilize such relationships in order to form a
database of proposals of advanced technologies and inventions from
which viable projects will be selected for acquisition and
development. The Company intends to hire financial experts with such
relationships after the consummation of this offering. The Company
will, where appropriate, seek to obtain intellectual property rights
to the technologies and inventions that it identifies for development.
o Assess project scientific and commercial viability. The Company,
through the use of specialized scientific and marketing experts, will
conduct tests on proposals compiled in the Company's database,
including market analysis and assessment of the cost and time required
for research, development and commercialization. The Company may also
construct prototypes in order to test technical feasibility.
o Create a business plan. Projects that demonstrate market and technical
feasibility will be developed into business and commercialization
plans ready for implementation. The plans created by the Company will
recommend scientific, financial and marketing personnel suited for
each project and will present a complete timeline, budget and
description of project implementation from the research and
development phase through end-user marketing. In addition, where
appropriate, the Company intends to apply for patents or copyrights
and will seek to obtain other proprietary protection for the
technologies.
o Commercialize technologies. Upon completion of the business plan, the
Company will achieve the manufacture and marketing of the technologies
in one of a number ways, including: the Company may develop,
manufacture and market the technology in house; the Company may choose
to enter into strategic alliances with companies with substantially
greater capital and expertise in the development, manufacture and
marketing of certain
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<PAGE>
products or technologies; and the Company may sell or license the
technologies and proprietary rights to third parties in consideration
of technology transfer or license fees.
The Company believes that Russian scientists have developed advanced
inventions and techniques in certain areas of research, including metallurgy,
coating and thin film technology, semiconductors, environmental technologies
(such as water purification and desalination), and energy technologies
(including conversion and conservation), as well as use of renewable energies
(such as photo-voltaics, which involves the direct conversion of solar energy
into electricity).
Upon the consummation of this offering, the Company will complete the
Acquisition, pursuant to which the Company will acquire, in a tax free
transaction, all of the issued and outstanding capital stock of Solmecs,
currently a wholly-owned subsidiary of Bayou International, Ltd. ("Bayou").
Bayou is a public company the Common Stock of which is traded in the
over-the-counter market. The current management of Bayou has not participated in
the organization of the Company and is not expected to play any role in the
management of the Company following the completion of this offering. Solmecs was
organized in 1980 to engage in the research, development and commercialization
of high efficiency, low pollution products in the energy conversion and
conservation fields. Solmecs currently seeks to select, acquire and commercially
exploit proprietary technologies, primarily invented by scientists in the former
Soviet Union. From 1980 until the mid-1990's Solmecs was primarily engaged in
the development of Liquid Metal Magnetohydrodynamics ("LMMHD") energy
conversion, a process developed approximately 20 years ago by Professor Herman
Branover, a Soviet emigre who is the President and a director of the Company.
The LMMHD energy conversion technology which is currently being utilized in a
developmental stage power plant facility, generates electric power (and, in most
cases, steam) by utilizing a non-conventional process in which an
electro-conducting fluid (such as molten lead) is forced through a magnetic
field. The Company believes that power generation facilities utilizing LMMHD
energy conversion technology will have a lower installed capital cost and higher
efficiency than conventional steam turbo-generator plants, resulting in lower
electricity costs and reduced pollutive effects. A study conducted in 1990 by an
independent consultant on behalf of Solmecs, confirmed the Company's beliefs
with respect to the lower installed costs and higher efficiency resulting from
an LMMHD-based facility. The Company believes that the further development and
commercialization of LMMHD power technology is consistent with its intent to
develop advanced technologies featuring competitive advantages over existing
products. Although the LMMHD power technology has been in development since the
late 1970's, it has not yet reached commercialization. In order to achieve
commercialization of such technology, the Company will be required to build a
commercial scale demonstration plant, which will involve a significant capital
expenditure. The Company intends to commence building such a plant within the
next few years, provided that it will be able to obtain the necessary funds for
such project.
The expertise and know-how in Magnetohydrodynamic ("MHD") phenomena
accumulated by Solmecs in the development of LMMHD power technology will be
applied to the development of new industrial processes. For example, Solmecs, in
cooperation with a scientist in Russia, has identified a potential use of MHD
phenomena in the growth of mono-crystals, which are among the critical
components of the electronic chip industry. The Company believes that the use of
constant and alternate magnetic fields for influencing the process of
mono-crystal growth will result in larger, higher quality (i.e. fewer
dislocations) crystals. It is believed that this will substantially increase the
commercial value of such mono-crystals. The Company intends to apply this method
specifically to mono-crystals of gallium-arsenide and cadmium-
-5-
<PAGE>
telluride, which compete with and may gradually replace silicon chips in the
computer and electronics industries.
The Company also intends to: (i) manufacture and market solar/electrical
hot-water tank control/display systems developed and tested by Solmecs; (ii)
market Russian-manufactured photo-voltaic cells for use in the conversion of
solar energy; and (iii) market plasma-chemically treated extra smooth rubber
gaskets developed and currently produced by a company in the former Soviet Union
for the aviation industry. Solmecs is currently in the process of marketing such
photo-voltaic cells and the Company believes that the other marketing activities
could begin immediately after the Acquisition. Two recent surveys performed for
Solmecs demonstrate the commercial viability of the hot-water tank
control/display system in the French and Israeli markets, respectively. In
addition, Solmecs identified approximately a dozen projects in the viability
testing stage, in which the Company may seek to invest, including new types of
centrifugal pumps with provisions for substantial savings of energy; new methods
of prediction of dispersion of contaminants in the atmosphere; and extraction of
carbon-dioxide from combustion gases. In addition, Solmecs currently sells its
consulting and development services to industry and research institutions in the
fields of LMMHD technology and liquid metal engineering. Such services are
currently being provided by Solmecs to the Israeli Dead Sea Works Industry
(LMMHD technology for magnesium handling). The Company has recently been
approached by the Nuclear Center of United Europe ("CERN"), located in Geneva,
Switzerland to provide its expertise in molten lead energy conversion in the
development of a safe nuclear power plant which will generate power from the
burning of nuclear waste. The Company and CERN are currently in discussions
relating to such services and have not arrived at any understanding to date.
Although Solmecs has been in operation since 1980, Solmecs has not
generated any meaningful revenues to date and the Company does not expect to
generate any meaningful revenues until such time, if ever, as it successfully
commercializes one or more of Solmecs' existing or future technologies or sells
proprietary rights relating to one or more of such technologies. Although the
Company believes that certain products that it owns or has identified are near
the commercialization stage, there can be no assurance that the Company will be
able to acquire rights to products it does not own or successfully manufacture
or market any products. In addition, while the Company will seek to implement
its four-step strategy involving identification of advanced technologies,
assessment of commercial viability, creation of a business plan and marketing
and commercialization with respect to the early stage technologies it will
acquire and develop in the future, there can be no assurance that the Company
will be able to successfully acquire or develop such technologies on
commercially reasonable terms, or at all. There can be no assurance that any
technologies developed or acquired by the Company will be commercially viable,
that markets for products derived from such technologies will not be limited or
that the Company will generate meaningful revenues from their commercial
exploitation or ever achieve profitable operations.
The Acquisition will take place simultaneously with the consummation of
this offering pursuant to an acquisition agreement (the "Acquisition Agreement")
to be entered into between Bayou, Solmecs and the Company. Bayou, the current
parent and sole shareholder of Solmecs, N.V., will receive 700,800 shares of
Common Stock in connection with the Acquisition.
The Company was organized under the laws of the State of Delaware on May
19, 1997. Unless the context otherwise requires, references herein to the
"Company" include Solmecs N.V., a registered
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<PAGE>
company in the Netherlands Antilles, and its wholly-owned subsidiary Solmecs
(Israel) Ltd., an Israeli corporation. The Company's principal executive offices
are located in Israel at 7 Ben Zvi Road, Beer-Sheva, Israel and its telephone
number is (972) 7-628-0451.
-7-
<PAGE>
The Offering
Securities offered.................. 1,460,000 Units, each Unit consisting of
one share of Common Stock and one
Warrant. The securities comprising the
Units will become detachable and
separately transferable on the date that
is three months after their issuance,
unless earlier detached pursuant to an
agreement between the Company and the
Underwriter. See "Description of
Securities."
Common Stock to be outstanding
after the offering(1)............. 2,920,000 shares
Warrants
Number to be outstanding
after the offering(2)........... 1,460,000 Warrants
Exercise terms.................... Exercisable commencing _______, 1999 (12
months following the date of this
Prospectus), each to purchase one share
of Common Stock at a price of $5.50,
subject to adjustment in certain
circumstances. See "Description of
Securities-- Redeemable Warrants."
Expiration date................... __________, 2003 (five years following
the date of this Prospectus).
Redemption........................ Redeemable by the Company, at any time
after becoming exercisable, upon notice
of not less than 30 days, at a price of
$.01 per Warrant, provided that the
average of the closing bid quotation of
the Common Stock on any ten trading days
ending within five days prior to the day
on which the Company gives notice has
been at least $8.00 per share (subject
to adjustment). The Warrants will be
exercisable until the close of business
on the date fixed for redemption. See
"Description of Securities--Redeemable
Warrants."
Use of Proceeds..................... The Company intends to use the net
proceeds of this offering for market
research and marketing activities,
research and development, establishment
of manufacturing capabilities,
acquisition of intellectual property
rights, costs relating to the
acquisition of Solmecs, repayment of
indebtedness and the
-8-
<PAGE>
balance for working capital and general
corporate purposes. See "Use of
Proceeds."
Risk Factors........................ The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution
and should not be purchased by investors
who cannot afford the loss of their
entire investment. See "Risk Factors"
and "Dilution."
Proposed NASDAQ symbols............. Units -- SOLMU
Common Stock -- SOLM
Warrants -- SOLMW
- ----------
(1) Does not include (i) 1,460,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 292,000 shares of Common
Stock reserved for issuance upon exercise of the Underwriter's Unit Purchase
Option and the warrants included therein; and (iii) 200,000 shares of Common
Stock reserved for issuance upon exercise of options available for future
grant under the Company's 1997 Stock Option Plan (the "Plan"). See
"Management - Stock Option Plan," and "Underwriting."
(2) Does not include any warrants referred to in clause (ii) of Note 1 above.
-9-
<PAGE>
SUMMARY FINANCIAL DATA
The balance sheet data as of June 30, 1997, has been derived from the
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The balance sheet data as of September 30, 1997,
is derived from the unaudited financial statements of the Company, which are
also included elsewhere herein. The unaudited financial information reflects all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair statement of the financial data for such period.
The Pro Forma Financial information should be read in conjunction with the
unaudited Pro Forma Financial Statements of the Company and Solmecs, the
Financial Statements of Solmecs for the year ended June 30, 1996 and 1997, that
have been audited by Luboshitz Kasierer & Co. (member firm of Andersen
Worldwide, SC), and the unaudited Financial Statements of Solmecs for the three
months ended September 30, 1996 amd 1997. These financial statements, including
the notes thereto, appear elsewhere in this Prospectus. In management's opinion,
all material adjustments necessary to reflect the effects of the Acquisition
have been made in the Pro Forma Financial Statements. The unaudited Pro Forma
consolidated statements of operations are not necessarily indicative of what the
actual results of operations of the Company would have been assuming the
Acquisition had been completed as of July 1, 1995, July 1, 1996 and July 1,
1997, respectively, nor is it necessarily indicative of the results of
operations for future periods. The results of the Pro Forma operations for the
three months ended September 30, 1996 and 1997, are not necessarily indicative
of results to be expected for any future period. The following selected
financial data are qualified by the more detailed Financial Statements included
elsewhere in this Prospectus and should be read in conjunction with such
Financial Statements and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Statements of Operation Data: Pro Forma(1) Pro Forma(1)
Year Ended June 30, Three Months Ended September 30,
-------------------- --------------------------------
1996 1997 1996 1997
-------------------- --------------------------------
<S> <C> <C> <C> <C>
Revenues $75,057 $57,276 $27,253 $7,343
Research and development costs 347,318 276,259 68,159 67,178
Cost of merchandise purchased 17,420 48,638 23,503 2,613
Marketing, General and
Administrative Expenses 443,614 383,219 74,556 92,545
Operating loss (733,295) (650,840) (138,965) (154,993)
Net loss (638,629) (661,324) (140,701) (152,019)
Net loss per share $(.44) $(.45) $(.10) $(.10)
<CAPTION>
Balance Sheet Data: June 30, 1997 September 30, 1997
------------- ------------------------------------
Actual Actual Pro forma(1) As adjusted(2)
------------- ------------------------------------
<S> <C> <C> <C> <C>
Total assets $25,000 $50,000 $180,480 $4,787,880
Working capital (deficit) 25,000 25,000 (105,143) 4,577,257
Current liabilities -- 25,000 250,063 175,063
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Long-term liabilities 17,408 17,408 229,090 211,682
Stockholders' equity (deficiency) 7,592 7,592 (298,673) 4,401,135
</TABLE>
(1) The unaudited Pro Forma financial information reflects the combined
financial position and the results of the Company and Solmecs as if the
Acquisition had been effective as of September 30, 1997, July 1, 1995, July
1, 1996 and July 1, 1997, respectively, without giving effect to the
offering. Such pro forma information gives effect to (i) the acquisition by
the Company, upon consummation of this Offering, of Solmecs in
consideration of the issuance to Bayou of 700,800 shares of Common Stock
accounted for as a purchase; (ii) the write-off of acquired research and
development in process of $3,106,265 (the "R&D Write-Off"); (iii) the
forgiveness (the "Loan Forgiveness") by Bayou of a loan to Solmecs, of
which $5,078,293 was outstanding as of September 30, 1997; (iv) the return
of Bayou's shares held by Solmecs (the "Bayou Share Return"); and (v) the
payment of $120,000 ($30,000 per quarter) to officers in connection with
employment agreements. See Pro Forma Financial Information.
(2) Gives effect to the sale of 1,460,000 Units offered hereby and the
anticipated application of the estimated net proceeds therefrom, including
the repayment of indebtedness in the amount of $50,000 and payment of costs
of the Acquisition in the amount of $100,000.
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<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Prospective investors should carefully consider the following risk factors
before making an investment decision.
Except for the historical information contained herein, the discussion in
this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as those discussed elsewhere in this
Prospectus.
1. Recent Organization; Limited Revenues of Solmecs; Explanatory Paragraph
in Independent Auditors' Report. Upon the closing of this offering, the Company
will be a successor to Solmecs, which has been in operation since 1980 and has
not generated significant revenues to date. Moreover, management of the Company
after the Acquisition will be substantially the same as management of Solmecs
prior to the Acquisition. The Company itself was organized in May 1997 and,
since its inception, the Company has been engaged principally in organizational
activities, including developing a business plan, and negotiating an agreement
relating to the Acquisition. Other than the operations of Solmecs, the Company
has no relevant operating history upon which an evaluation of its performance
and prospects can be made. Therefore, the Company will be subject to the risks,
expenses, delays, problems and difficulties frequently encountered in the
establishment of a new business. The Company does not expect to generate any
meaningful revenues for the foreseeable future and until such time, if ever, as
it successfully commercializes one or more of Solmecs' existing or future
technologies or sells proprietary rights relating to one or more of Solmecs's
existing or future technologies. Although the LMMHD power technology has been in
development since the late 1970's, it has not yet reached commercialization. In
order to achieve commercialization of such technology, the Company will be
required to build a commercial scale demonstration plant, which will involve a
significant capital expenditure. The Company intends to commence building such a
plant within the next few years, provided that it will be able to obtain the
necessary funds for such project. Solmecs has incurred significant losses since
its inception, resulting in an accumulated deficit of $12,564,895 at September
30, 1997, and losses are continuing through the date of this Prospectus. The
rate of loss is expected to increase after the Acquisition as the Company's
activities increase and losses are expected to continue for the foreseeable
future and until such time, if ever, as the Company is able to achieve
sufficient levels of revenue from the commercial exploitation of the Company's
technologies to support its operations. Historically, only a limited number of
early stage development companies successfully complete the research and
development of commercially viable technologies. There can be no assurance that
the Company's existing technologies will be commercially viable, that the
Company will be successful in acquiring rights to promising technologies, that
markets utilizing the Company's technologies will not be limited or that the
Company will generate meaningful revenues from the commercial exploitation of
the Company's early stage technologies or ever achieve profitable operations.
The Company's independent public accountants have included an explanatory
paragraph in their report on the Company's financial statements stating that the
fact that the Company is dependent upon its ability to raise resources to
finance its operations raises substantial doubt about the
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<PAGE>
Company's ability to continue as a going concern. In addition, Solmecs'
independent public accountants have included an explanatory paragraph in their
report on Solmecs' financial statements stating that certain factors create a
substantial doubt about Solmecs' ability to continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources," "Business" and Financial
Statements.
2. Significant Capital Requirements; Dependence Upon Proceeds to Fund
Research and Development Activities; Need for Significant Additional Financing.
The Company's capital requirements will be significant. The Company is dependent
upon the proceeds of this offering to finance the operations of the Company,
including the costs of market research and marketing activities, continued
research and development efforts, establishing manufacturing capabilities and
the acquisition of intellectual property rights. The Company anticipates, based
on management's internal forecasts and assumptions relating to its operations
(including assumptions regarding the timing and progress of the Company's
technologies), that the net proceeds of this offering will be sufficient to
satisfy the Company's contemplated cash requirements for at least 12 months
following the consummation of this offering. In the event that the Company's
plans change, its assumptions change or prove inaccurate, or if the proceeds of
this offering prove to be insufficient to fund operations, the Company could be
required to seek additional financing. The Company intends to engage in research
and development of two projects in the first year and four projects in the
second year (which may include an additional year's work on one or both of the
first year's projects) and believes that a number of such projects will enter
the commercialization stage during such two-year period. Completion of the
research, development and commercialization of the Company's technologies or any
potential application of such technologies will require significant additional
effort, resources and time including funding substantially greater than the
proceeds of this offering and otherwise currently available to the Company.
Moreover, the proceeds received in this offering may be insufficient to satisfy
the scheduled projects, requiring the Company to seek additional financing. The
Company has no current arrangements with respect to, or sources of, additional
financing, and it is not anticipated that existing shareholders will provide any
portion of the Company's future financing requirements. There can be no
assurance that additional financing will be available to the Company when
needed, on commercially reasonable terms, or at all. The inability to obtain
additional financing would have a material adverse effect on the Company,
including possibly requiring the Company to curtail or cease its operations. In
addition, any additional equity financing may involve substantial dilution to
the interests of the Company's then existing shareholders. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
3. Uncertainty of Feasibility of Company's Technologies and Product
Development. Many of the technologies identified by the Company are and will be
emerging innovative technologies. While certain of the technologies currently
owned or identified for potential acquisition by the Company, namely the hot
water tank display/control system, photovoltaic cells, rubber gasket treatments
and certain technologies based on MHD phenomena have been shown to be feasible
and commercially viable, research efforts relating to the balance of the
technologies identified by the Company are at best in the early stage, and the
Company is unable, at this time, to determine the feasibility of such
technologies or the commercial viability of any potential applications. Research
and development efforts remain subject to all of the risks associated with the
development of new products based on emerging and innovative technologies,
including, without limitation, unanticipated technical or other problems and the
possible insufficiency of the funds allocated to complete such development,
which could result in delay of research or development
-13-
<PAGE>
or substantial change or abandonment of research and development activities. In
addition, with technologies as complex as those in which the Company is or will
be engaged, technical problems and difficulties may arise resulting in delays
and causing the Company to incur additional expenses which would have a material
adverse effect on the Company. There can be no assurance that the Company's
efforts will result in the commercialization of any of the Company's current or
future technologies. The inability to successfully complete research and
development of such technologies, or delays in the completion of the research
and development of such technologies for use in potential applications,
particularly after the incurrence of significant expenditures, would have a
material adverse effect on the Company. See "Business."
4. New Technologies; Uncertainty of Certain Commercial Applications for the
Company's Technologies. The Company will be subject to all the risks and
uncertainties associated with developing early-stage technologies. The potential
size, timing and viability of market opportunities targeted by the Company are
uncertain. The Company's success will be dependent upon successfully completing
the research and development as well as the commercial exploitation of such
technologies. Market acceptance of the Company's current or future technologies
will also depend upon such technologies providing benefits comparable to other
current technologies. Many potential licensees of the Company's technologies may
manufacture products utilizing competing technologies and may, therefore, be
reluctant to redesign their products or manufacturing processes to incorporate
the Company's current or future technologies. There can be no assurance that the
Company's current or future technologies will be viable for any commercial
applications and, if viable, that potential licensees will utilize the Company's
technologies. Additionally, even if the completion of the research and
development of the Company's technologies results in commercially viable
applications, there can be no assurance that the Company will recover its
research and development costs in the foreseeable future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
5. Limited Marketing and Manufacturing Capabilities or Experience;
Dependence Upon Strategic Relationships. The Company has limited marketing
capabilities and resources or manufacturing capabilities. Therefore, the
Company's prospects will be significantly affected by its ability to market the
Company's technologies, sublicense the Company's technologies or successfully
develop strategic alliances with third parties for incorporation of the
Company's technologies into products manufactured by others. Informing potential
acquirers, licensees and other strategic partners of the benefits of the
Company's technologies and establishing satisfactory strategic alliances will
require significant financial and other resources. In addition, strategic
alliances may require financial or other commitments by the Company. There can
be no assurance that the Company will be able, for financial or other reasons,
to enter into strategic alliances on commercially acceptable terms, or at all.
Failure to do so would have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
6. Risks Associated with the Acquisition; Limited Recourse Against Solmecs'
Shareholder. Pursuant to the Acquisition Agreement, Bayou, the current sole
stockholder of Solmecs and a publicly-traded company, will receive 700,800
shares of Common Stock in connection with the Acquisition. The common stock of
Solmecs owned by Bayou represents substantially all of Bayou's assets. The
current market value of the common stock of Bayou is substantially lower than
the market value, based on the offering price of $4.00 per share, of the shares
of Common Stock to be issued to Bayou in this offering. Moreover,
-14-
<PAGE>
Bayou's obligation to indemnify the Company for breaches of representations and
warranties in the Acquisition Agreement is limited to the 700,800 shares of
Common Stock that Bayou will receive in connection with the Acquisition.
Consequently, the Company will have no recourse against Bayou for claims in
excess of the value of such shares.
7. Uncertainty of Intellectual Property Rights. The Company does not
currently have rights with respect to certain technologies which have been
identified by the Company for exploitation and which are described herein. There
can be no assurance that the Company will be able to successfully negotiate the
acquisition of intellectual property rights including licenses, with respect to
such technologies, on commercially reasonable terms, or at all. Failure to do so
could have a material adverse effect on the Company. In addition, certain of
such technologies and other technologies which the Company may identify for
exploitation in the future have been developed by scientists and institutions in
the former Soviet Union. Any acquisitions of intellectual property rights or
licenses from such scientists and institutions will be subject to uncertainties
with respect to the enforceability of intellectual property rights and other
agreements in the former Soviet Union. Solmecs currently owns six patents
related to the LMMHD technology which are registered in Israel, five of which
are registered in the United States and a number of which are registered in one
or more other countries, including Canada, France, Great Britain, Germany and
Italy. One of the patents was registered in the name of Ben Gurion University
and was assigned to Solmecs in February 1988. Pursuant to a 1981 agreement
between Solmecs and Ben Gurion University and B.G. Negev Technology and
Applications Ltd. ("BGU"), BGU agreed to assign all of its right, title and
interest in and to the patents and know-how to the LMMHD technology in return
for which Solmecs made an initial payment of $100,000 and agreed to pay
royalties of 1.725% of the sales price of all commercially produced systems, and
11.5% of income received from licensing of the LMMHD technology. In addition,
Solmecs has agreed to pay the inventor of technology incorporated in its hot
water tank control and display systems certain royalties on sales of products
incorporating such technology. The Company anticipates that it will file
additional patent applications in the United States and internationally to
protect future inventions conceived or innovative technologies obtained. There
can be no assurance that patents to be applied for will be obtained or that any
such patents will afford the Company commercially significant protection of the
Company's technologies. In addition, the patent laws of other countries may
differ from those of the United States as to the patentability of the Company's
technologies and the degree of protection afforded. Other companies and
institutions may independently develop equivalent or superior technologies and
may obtain patent or similar rights with respect thereto. Although the Company
believes that technologies to be acquired by the Company have been independently
researched and developed and that such technologies do not infringe upon the
rights of others, there can be no assurance that such technologies or other
technologies to be developed by the Company in the future do not and will not
infringe on the patents or other intellectual property of others. In the event
of infringement, the Company could, under certain circumstances, be required to
obtain a license or modify its methods or other aspects of the Company's current
technologies. There can be no assurance that the Company will be able to do so
in a timely manner, upon acceptable terms and conditions, or at all. Failure to
do any of the foregoing could have a material adverse effect on the Company.
There can also be no assurance that the Company will have the financial or other
resources necessary to enforce or defend a patent infringement action or that
the Company will elect to enforce an action in a timely manner. Moreover, if
products incorporating the Company's technologies are found to infringe upon the
patent or other intellectual property rights of others, the Company could, under
certain circumstances, become liable for damages, which could have a material
adverse effect on the Company.
-15-
<PAGE>
The Company may also seek to rely on proprietary know-how and trade secrets
and employ various methods to protect concepts, ideas and documentation of its
technologies. However, such methods may not afford complete protection, and
there can be no assurance that others will not independently develop similar
know-how or obtain access to the Company's know-how, trade secrets, concepts,
ideas and documentation. See "Business - Intellectual Property."
8. Competition; Technological Obsolescence. The products that will be based
on the Company's technologies will likely be used in highly competitive
industries. Numerous domestic and foreign companies are seeking to research,
develop and commercialize technologies similar to those of the Company, many of
which have greater name recognition and financial, technical, marketing,
personnel and research capabilities than the Company. There can be no assurance
that the Company's competitors will not succeed in developing technologies and
applications that are more cost effective, or have fewer limitations than, or
have other advantages as compared to, the Company's technologies. The markets
for the technologies and products to be developed or acquired by the Company are
characterized by rapid changes and evolving industry standards often resulting
in product obsolescence or short product lifecycles. Accordingly, the ability of
the Company to compete will depend on its ability to complete development and
introduce to the marketplace, directly or through strategic partners, in a
timely manner its proposed products and technologies, to continually enhance and
improve such products and technologies, to adapt its proposed products to be
compatible with specific products manufactured by others, and to successfully
develop and market new products and technologies. There can be no assurance that
the Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technologies obsolete or less marketable or that the Company will
be able to successfully enhance its proposed products or technologies or adapt
them satisfactorily. There can be no assurance that other companies are not
dedicated to identifying, obtaining and developing technologies of scientists
and engineers from the former Soviet Union. Any such competitors may have
greater financial, technical, marketing, personnel and other resources than the
Company. See "Business - Competition."
9. Dependence on Key Personnel. The success of the Company will be
dependent on the personal efforts of Professor Herman Branover, the Company's
President, and Dr. Shaul Lesin, the Company's Executive Vice President. Although
the Company intends to enter into employment agreements with Professor Branover
and Dr. Lesin, the loss of the services of either of them could have a material
adverse effect on the Company's prospects. The Company has obtained key man life
insurance policies with respect to Professor Branover and Dr. Lesin. The success
of the Company is also dependent upon attracting and retaining qualified
technical personnel, particularly scientific, engineering and marketing
personnel, particularly a senior scientist in the area of monocrystal
technology. See "Business-Employees" and "Management."
10. Currency Exchange Risks Associated with International Sales and Israeli
Operations. Because most of the Company's revenues may be derived in currencies
other than NIS, while a significant portion of the Company's expenses are
expected to be incurred in NIS, the Company may be adversely affected by
fluctuations in currency exchange rates. The dollar cost of the Company's
operations in Israel is influenced by the timing of, and the extent to which,
any increase in the rate of inflation in Israel over the rate of inflation in
the United States is not offset by the devaluation of the NIS in relation to the
dollar. The Company's dollar costs in Israel will increase if inflation in
Israel exceeds the devaluation of the NIS
-16-
<PAGE>
against the dollar or if the timing of such devaluation lags behind inflation in
Israel. Over time, the NIS has been devalued against the dollar, generally
reflecting inflation rate differentials. Likewise, the Company's operations
could be adversely affected if it is unable to guard against currency
fluctuations in the future. To date, the Company has not engaged in hedging
transactions. In the future, the Company may enter into currency hedging
transactions to decrease the risk of financial exposure from fluctuations in the
exchange rate of the dollar against the NIS; however, no assurance can be given
that the Company will enter into such transactions or that such measures will
adequately protect the Company from material adverse effects due to the impact
of inflation in Israel.
11. Control of the Company. Upon the consummation of this offering, the
current stockholders of the Company together with the sole stockholder of
Solmecs will beneficially own, in the aggregate, 50% of the outstanding shares
of Common Stock (assuming no exercise of the Underwriter's overallotment option,
or the Warrants) and will therefore be able to exert considerable influence over
the Company. However, other than the acquisition agreement relating to the
Acquisition, which provides for the initial make-up of the Company's Board of
Directors following the Acquisition, there is no agreement or understanding
between Bayou, the sole stockholder of Solmecs, and the remaining stockholders
and management of the Company as to the control or management of the Company
following the consummation of this offering. See "Management," "Principal
Stockholders" and "Certain Transactions."
12. Broad Discretion in Application of Proceeds; Benefit to Related
Parties. Approximately $757,400 (16%) of the estimated net proceeds of this
offering has been allocated to working capital and general corporate purposes.
Accordingly, the Company's management will have broad discretion as to the
application of such proceeds. Additionally, a portion of the proceeds of this
offering allocated to working capital will be used to pay the salaries of
executive officers (which are currently being negotiated and are anticipated to
be approximately $300,000 per year for each of the two years following this
offering). See "Use of Proceeds," "Certain Transactions" and Pro Forma Financial
Information.
13. Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $2.49 per share (or 62%) between the adjusted net
tangible book value per share after the offering and the initial public offering
price of $4.00 (assuming $.10 of the initial public offering price is attributed
to the Warrant included in the Unit). See "Dilution."
14. No Dividends. The Company has not paid any cash dividends to date and
does not expect to pay cash dividends in the foreseeable future. See
"Description of Securities--Dividends."
15. Shares Eligible for Future Sale. Upon consummation of this offering,
the Company will have 2,920,000 shares of Common Stock outstanding (assuming no
exercise of the Warrants or outstanding options or warrants), of which the
1,460,000 shares of Common Stock offered hereby will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). All of the remaining 1,460,000 shares of Common Stock
outstanding are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act. Of such restricted securities, 700,800
shares will become eligible for sale pursuant to Rule 144 commencing 90 days
from the date of this offering and 759,200 shares will become eligible for sale
commencing May 19, 1998. Notwithstanding the foregoing, all of the holders of
such shares have agreed not to sell such shares for a period of 24 months from
the date of this Prospectus without the Underwriter's prior written consent.
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<PAGE>
The Company has granted certain demand and "piggy-back" registration rights to
the Underwriter with respect to the securities issuable upon exercise of the
Underwriter's Unit Purchase Option. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or even the availability of such
shares for sale will have on the market prices prevailing from time to time. The
possibility that substantial amounts of Common Stock may be sold in the public
market may adversely affect the prevailing market price for the Common Stock and
could impair the Company's ability to raise capital through the sale of its
equity securities. See "Shares Eligible for Future Sale" and "Underwriting."
16. No Assurance of Public Market; Arbitrary Offering Price; Possible
Volatility of Market Price of Units, Common Stock and Warrants. Prior to this
offering, there has been no public trading market for the Units, Common Stock or
Warrants. There can be no assurance that a regular trading market for the Units,
Common Stock or Warrants will develop after this offering or that, if developed,
it will be sustained. Moreover, the initial public offering price of the Units
and the exercise price of the Warrants have been determined by negotiations
between the Company and the Underwriter and, as such, are arbitrary in that they
do not necessarily bear any relationship to the assets, book value or potential
earnings of the Company or any other recognized criteria of value and may not be
indicative of the prices that may prevail in the public market. The market
prices of the Company's securities following this offering may be highly
volatile as has been the case with the securities of other emerging companies.
Factors such as the Company's operating results and announcements by the Company
or its competitors may have a significant impact on the market price of the
Company's securities. In addition, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
the stock of many companies have experienced wide price fluctuations which have
not necessarily been related to the operating performance of such companies.
Although it has no obligation to do so, the Underwriter intends to make a market
in the Units, Common Stock and Warrants and may otherwise effect transactions in
the Units, Common Stock and Warrants. If the Underwriter makes a market in the
Units, Common Stock or Warrants, such activities may exert a dominating
influence on the market and such activity may be discontinued at any time. The
prices and liquidity of the Units, Common Stock and Warrants may be
significantly affected to the extent, if any, that the Underwriter participates
in such market. See "Underwriting."
17. Possible Delisting of Securities from Nasdaq System; Risks Relating to
Low-Priced Stocks. It is currently anticipated that the Company's Units and,
upon detachability, the Common Stock and Warrants will be eligible for listing
on Nasdaq upon the completion of this offering. In order to continue to be
listed on Nasdaq, however, the Company must maintain $2,000,000 in net tangible
assets or net income of $500,000 in two of the last three years or market
capitalization of at least $35,000,000; and a $1,000,000 market value of the
public float. In addition, continued inclusion requires two market makers and a
minimum bid price of $1.00 per share. The failure to meet these maintenance
criteria in the future may result in the delisting of the Company's securities
from Nasdaq, and trading, if any, in the Company's securities would thereafter
be conducted in the non-Nasdaq over-the-counter market. As a result of such
delisting, an investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities.
Although the Company anticipates that its securities will be listed for
trading on Nasdaq, if the Common Stock were to become delisted from trading on
Nasdaq and the trading price of the Common Stock were to fall below $5.00 per
share on the date the Company's securities were delisted, trading in such
securities
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<PAGE>
would also be subject to the requirements of certain rules promulgated under the
Exchange Act, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Company's securities, which
could severely limit the market price and liquidity of such securities and the
ability of purchasers in this offering to sell their securities of the Company
in the secondary market.
18. Potential Adverse Effect of Warrant Redemption. The Warrants are
subject to redemption by the Company, at any time commencing on
__________________________, 1999, upon notice of not less than 30 days, at a
price of $.01 per Warrant, provided that the average of the closing bid
quotations of the Common Stock on any ten consecutive trading days ending within
five days prior to the day on which the Company gives notice has been at least
$8.00 per share (subject to adjustment). Redemption of the Warrants could force
the holders to exercise the Warrants and pay the exercise price at a time when
it may be disadvantageous for the holders to do so, to sell the Warrants at the
then current market price when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which is likely to be substantially less than
the market value of the Warrants at the time of redemption. See "Description of
Securities-- Redeemable Warrants. "
19. Possible Inability to Exercise Warrants. The Company intends to qualify
the sale of the securities offered hereby in a limited number of states.
Although certain exemptions in the securities laws of certain states might
permit the Warrants to be transferred to purchasers in states other than those
in which the Warrants were initially qualified, the Company will be prevented
from issuing Common Stock in such states upon the exercise of the Warrants
unless an exemption from qualification is available or unless the issuance of
Common Stock upon exercise of the Warrants is qualified. 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
Warrants reside. In such a case, the Warrants held by purchasers will expire and
have no value if such Warrants cannot be sold. Accordingly, the market for the
Warrants may be limited because of these restrictions. Further, a current
prospectus covering the Common Stock issuable upon exercise of the Warrants must
be in effect before the Company may accept Warrant exercises. There can be no
assurance the Company will be able to have a prospectus in effect when this
Prospectus is no longer current, notwithstanding the Company's commitment to use
its best efforts to do so. See "Description of Securities--Redeemable Warrants."
20. Indemnification of Directors and Officers. The Company's Certificate of
Incorporation provides for the Company to indemnify each director and officer of
the Company to the fullest extent permitted by the Delaware General Corporation
law. The foregoing provision may reduce the likelihood of derivative litigation
against directors and may discourage or deter stockholders or management from
suing directors for breaches of their duty of care, even though such an action,
if successful, might otherwise benefit the Company and its stockholders. See
"Management - Indemnification of Directors and Officers."
-19-
<PAGE>
21. Speculative Nature of Warrants. The initial offering price of the Units
and the exercise price of the Warrants have been determined by negotiations
between the Company and the Underwriter and may not necessarily bear any
relationship to any established criteria of value. The market value of the
Units, Common Stock and Warrants following this offering is subject to a high
degree of uncertainty, and there can be no assurance that the market value of
the Units, Common Stock or Warrants following this offering will equal or exceed
the initial offering price of such securities. Purchasers of the Warrants
electing to exercise the Warrants will not have the opportunity to profit from
sales of the underlying shares unless the market price of the Common Stock
exceeds the exercise price (plus related transaction costs). There can be no
assurance that the market price of the Common Stock will ever exceed the
exercise price of the Warrants.
22. Possible Restrictions on Market Making Activities in the Company's
Securities. The Company believes that the Underwriter intends to make a market
in the Company's securities and may be responsible for a substantial portion of
the market making activities in such securities. Regulation M under the Exchange
Act may prohibit the Underwriter from engaging in any market-making activities
with regard to the Company's securities for the period from five business days
(or such other applicable period as Regulation M may provide) prior to any
solicitation by the Underwriter of the exercise of outstanding Warrants until
the termination (by waiver or otherwise) of any right that the Underwriter may
have to receive a fee for the exercise of Warrants following such solicitation;
and any period during which the Underwriter, or any affiliated parties,
participate in a distribution of any securities of the Company for the account
of the Underwriter or any such affiliate. As a result, the Underwriter may be
unable to provide a market for the Company's securities during certain periods,
including while the Warrants are exercisable. Any temporary cessation of such
market-making activities could have an adverse effect on the liquidity for the
Company's securities.
23. Location in Israel. The Company's indirect subsidiary is incorporated
under the laws of, and has its offices and a significant portion of its
operations (including all of its product development activities) in, the State
of Israel. The Company is, therefore, directly influenced by the political,
economic and security conditions affecting Israel. Any major hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its trading partners, or a significant downturn in the economic or financial
condition of Israel could have a material adverse effect on the Company's
business, financial condition, or results of operations. See "Conditions in
Israel."
24. Risks Relating to Service and Enforcement of Legal Process. The
directors and executive officers of the Company are not residents of the United
States. Substantially all of the assets of such persons and of the Company are
located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon such
persons or the Company or to enforce against them judgments of United States
courts predicated upon civil liability provisions of the United States federal
or state securities laws. Moreover, there is doubt as to the enforceability of
civil liabilities under the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
in original actions instituted in Israel. However, subject to certain
limitations, Israeli courts may enforce foreign final executory judgments,
including those of the United States, for liquidated amounts in civil matters
obtained after due trial before a court of competent jurisdiction (according to
the rules of private international law currently prevailing in Israel) that
recognizes and enforces similar Israeli judgments, provided that (i) adequate
service of process has been effected and
-20-
<PAGE>
the defendant has had a reasonable opportunity to defend; (ii) such judgments or
the enforcement thereof are not contrary to the law, public policy, security or
sovereignty of the State of Israel; (iii) such judgments were not obtained by
fraudulent means and do not conflict with any other valid judgment in the same
matter between the parties; and (iv) an action between the same parties in the
same matter is not pending in any Israeli court at the time the lawsuit is
instituted in the foreign court. The Company has appointed Corporation Service
Company, 1013 Centre Road, Wilmington, Delaware 19805-1297, as its agent in the
United States upon which service of process against it may be made for matters
relating to this offering. None of the Company's officers or directors has
consented to service of process in the United States or to the jurisdiction of
any United States court.
-21-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,460,000 Units
offered hereby are estimated to be $4,807,400 ($5,588,573 if the Underwriter's
over-allotment option is exercised in full). The Company expects to use the net
proceeds approximately as follows:
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Dollar Amount
- ----------------------- ------------- -------------
Market research and marketing activities(1) .. $1,500,000 31%
Research and development(2) .................. 1,150,000 24%
Establishment of manufacturing capabilities(3) 1,000,000 21%
Acquisition of intellectual property rights(4) 250,000 5%
Cost of Acquisition(5) ....................... 100,000 2%
Repayment of indebtedness(6) ................. 50,000 1%
Working capital and general
corporate purposes(7) ..................... 757,400 16%
---------- ----------
Total .................................... $4,807,400 100%
========== ==========
- ----------
(1) Represents estimated costs associated with commercial evaluation, including
a portion of salaries of scientists and engineers/technicians and salaries
of marketing and project evaluation employees, as well as the cost of
marketing surveys. Also includes salaries of personnel performing direct
marketing and other marketing activities.
(2) Includes a portion of salaries of scientists and engineers/technicians.
Also includes estimated costs associated with analysis, experimentation and
development of technologies and prototypes including: equipment,
instrumentation and materials; the cost of outside consultants; patent
surveys and filings.
(3) Represents estimated cost associated with acquiring or leasing, and
equipping of factory facilities for initial production of products
resulting from two projects.
(4) Represents estimated cost associated with the acquisition of licenses
and/or rights to centrifugal pump technology and carbon dioxide extraction
technology.
(5) Represents estimated costs associated with the acquisition of Solmecs.
(6) Represents amounts advanced by Batei Sefer Limlacha, a stockholder of the
Company, to Solmecs prior to the consummation of the Acquisition, of which
$50,000 was outstanding at September 30, 1997.
(7) Working capital will be used, among other things, to pay salaries of the
Company's executive officers (which is anticipated to be approximately
$300,000 per year for the first two years following the offering), rent,
trade payables, professional fees and other operating expenses. See
"Management", "Certain Transactions" and Pro Forma Financial Information.
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<PAGE>
If the Underwriter exercises its over-allotment option in full, the Company
will realize additional net proceeds of $781,173, which will be added to the
Company's working capital.
The Company anticipates, based on management's internal forecasts and
assumptions relating to its operations (including assumptions regarding the
timing and progress of the Company's technologies), that the net proceeds of
this offering will be sufficient to satisfy the Company's contemplated cash
requirements for at least 12 months following the consummation of this offering.
In the event that the Company's plans change, its assumptions change or prove
inaccurate, or if the proceeds of this offering prove to be insufficient to fund
operations, the Company could be required to seek additional financing. The
Company intends to engage in research and development of two projects in the
first year and four projects in the second year (which may include an additional
year's work on one or both of the first year's projects) and believes that a
number of such projects will enter the commercialization stage during such
two-year period. Completion of the research, development and commercialization
of the Company's technologies or any potential application of such technologies
will require significant additional effort, resources and time including funding
substantially greater than the proceeds of this offering and otherwise currently
available to the Company. Moreover, the proceeds received in this offering may
be insufficient to satisfy the scheduled projects, requiring the Company to seek
additional financing. The Company has no current arrangements with respect to,
or sources of, additional financing, and it is not anticipated that existing
shareholders will provide any portion of the Company's future financing
requirements. There can be no assurance that additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest bearing
investments.
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<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock and the adjusted net tangible book value per share after this
offering constitutes the dilution to investors in this offering. Net tangible
book value per share of Common Stock on any given date is determined by dividing
the net tangible book value of the Company (total tangible assets less total
liabilities) on that date, by the number of shares of Common Stock outstanding
on that date.
As of September 30, 1997, the net tangible book value of the Company was
$(42,408) or ($.06) per share of Common Stock. After giving effect to the
Acquisition, the R & D Write-Off, Loan Forgiveness and Bayou Share Return, the
pro forma net tangible book value of the Company as of September 30, 1997 would
have been $(348,673) or $(.24) per share. After giving effect to the sale of the
1,460,000 Units being offered hereby (less underwriting discounts and
commissions and estimated expenses of this offering), the adjusted net tangible
book value of the Company as of September 30, 1997 would have been $4,401,135 or
$1.51 per share, representing an immediate increase in net tangible book value
of $1.75 per share of Common Stock to existing stockholders and an immediate
dilution of $2.49 per share (62%) to new investors (assuming $.10 of the initial
public offering price is attributed to the Warrant included in the Unit). The
following table illustrates this dilution to new investors on a per share basis:
Public offering price ............................. $4.00
Net tangible book value before
Acquisition, Loan Forgiveness
and Bayou Share Return ........................ $(.06)
Decrease attributable to Acquisition,
Loan Forgiveness and Bayou Share Return ....... (.18)
-----
Pro forma net tangible book value before offering (.24)
Increase attributable to new investors .......... 1.75
-----
1.51
-----
Adjusted net tangible book value after offering ... $2.49
=====
Dilution to new investors
The following table sets forth, with respect to existing stockholders on a
pro forma basis, giving effect to the Acquisition and new investors in this
offering, on a pro forma basis, a comparison of the number of shares of Common
Stock issued by the Company, the percentage of ownership of such shares, the
total cash consideration paid, the percentage of total cash consideration paid
and the average price per share.
-24-
<PAGE>
<TABLE>
<CAPTION>
Total Cash Consideration
Shares Purchased Paid
--------------------------- -----------------------------------------
Average
Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders (pro forma).. 1,460,000 50.0% $ 14,600 .2% $ .01
New investors...................... 1,460,000 50.0% 5,840,000 99.8% $4.00
--------- ----- ---------- -----
Total........................ 2,920,000 100.0% $5,854,600 100.0%
========= ====== ========== ======
</TABLE>
The above tables assume no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, the new investors will have paid
$6,716,000 for 1,679,000 shares of Common Stock, representing approximately
99.8% of the total consideration for 53.5% of the total number of shares of
Common Stock outstanding.
-25-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, (i) on an actual basis, (ii) on a pro forma basis, giving
effect to (a) the acquisition by the Company of Solmecs in consideration of the
issuance to Bayou of 700,800 shares of Common Stock, accounted for as a
purchase, (b) the write-off of acquired research and development in process of
$3,106,265, (c) the forgiveness by Bayou of a loan to Solmecs, of which
$5,078,293 was outstanding as of September 30, 1997, (d) the return of Bayou's
shares held by Solmecs, and (iii) as adjusted to give effect to the sale of the
1,460,000 Units offered hereby and the anticipated application of the estimated
net proceeds therefrom:
September 30, 1997
------------------------------------------
Actual Pro Forma As Adjusted
------ --------- -----------
Short Term Debt $ -- $ 50,000 $ --
=========== =========== ===========
Long term debt $ 17,408 $ 217,408 $ 200,000
----------- ----------- -----------
Stockholders' equity
(deficiency):
Common stock, $.01 par
value, 10,000,000 authorized,
759,200 outstanding,
1,460,000
pro forma, 2,920,000 as
adjusted(1) 7,592 14,600 29,200
Additional paid-in-capital(2) -- 2,792,992 7,578,200
Accumulated deficit -- (3,106,265) (3,206,265)
----------- ----------- -----------
Total stockholders' equity 7,592 (298,673) 4,401,135
----------- ----------- -----------
(deficiency)
Total capitalization $ 25,000 $ (81,265) $ 4,601,135
=========== =========== ===========
(1) Does not include (i) 1,460,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 292,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's Unit
Purchase Option and the warrants included therein; and (iii) 200,000 shares
of Common Stock reserved for issuance upon exercise of options available
for future grant under the Plan. See "Management - 1997 Stock Option Plan,"
and "Underwriting."
(2) Includes $146,000 allocated to the Warrants.
-26-
<PAGE>
SELECTED FINANCIAL DATA
The balance sheet data as of June 30, 1997, has been derived from the
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The balance sheet data as of September 30, 1997,
is derived from the unaudited financial statements of the Company, which are
also included elsewhere herein. The unaudited financial information reflects all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair statement of the financial data for such period.
The Pro Forma Financial information should be read in conjunction with the
unaudited Pro Forma Financial Statements of the Company and Solmecs, the
Financial Statements of Solmecs for the year ended June 30, 1996 and 1997, that
have been audited by Luboshitz Kasierer & Co. (member firm of Andersen
Worldwide, SC), and the unaudited Financial Statements of Solmecs for the three
months ended September 30, 1996 and 1997. These financial statements, including
the notes thereto, appear elsewhere in this Prospectus. In management's opinion,
all material adjustments necessary to reflect the effects of the Acquisition
have been made in the Pro Forma Financial Statements. The unaudited Pro Forma
consolidated statements of operations are not necessarily indicative of what the
actual results of operations of the Company would have been assuming the
Acquisition had been completed as of July 1, 1995, July 1, 1996 and July 1,
1997, respectively, nor is it necessarily indicative of the results of
operations for future periods. The results of the Pro Forma operations for the
three months ended September 30, 1996 and 1997, are not necessarily indicative
of results to be expected for any future period. The following selected
financial data are qualified by the more detailed Financial Statements included
elsewhere in this Prospectus and should be read in conjunction with such
Financial Statements and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Statements of Operation Data: Pro Forma(1) Pro Forma(1)
Year Ended June 30, Three Months Ended September 30,
----------------------- --------------------------------
1996 1997 1996 1997
----------------------- --------------------------------
<S> <C> <C> <C> <C>
Revenues $ 75,057 $ 57,276 $ 27,253 $ 7,343
Research and Development Costs 347,318 276,259 68,159 67,178
Cost of Merchandise Purchased 17,420 48,638 23,503 2,613
Marketing, General & Administrative 443,614 383,219 74,556 92,545
Expenses
Operating Loss (733,295) (650,840) (138,965) (154,993)
Net Loss (638,629) (661,324) (140,701) (152,019)
Net Loss Per Share $ (.44) $ (.45) $ (.10) $ (.10)
<CAPTION>
Balance Sheet Data: June 30, 1997 September 30, 1997
------------- ------------------
<S> <C> <C>
Total Assets $25,000 $50,000
Working Capital 25,000 25,000
Current Liabilities -- 25,000
Long-Term Liabilities 17,408 17,408
Stockholders' Equity 7,592 7,592
</TABLE>
-27-
<PAGE>
(1) The unaudited Pro Forma financial statement of operations information
reflects the combined results of the Company and Solmecs as if the
Acquisition had been effective as of July 1, 1995, July 1, 1996 and July 1,
1997, respectively, without giving effect to the offering. See "Pro Forma
Financial Information."
-28-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was organized to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented primarily
by scientists who have recently immigrated to Israel from, and by scientists and
institutions in, Russia and other countries that formerly comprised the Soviet
Union. In furtherance of this goal, the Company will acquire Solmecs N.V., a
Netherlands Antilles company, the operations of which are located in Israel,
which owns certain technologies developed by such scientists in the past and
actively seeks to identify such technologies for exploitation. The technologies
of Solmecs and technologies identified by Solmecs for exploitation are in
various stages of development and include technologies that have begun to be
commercialized as well as technologies that the Company believes are ready for
commercialization in the near future. The Company itself was organized in May
1997 and, since its inception, the Company has been engaged principally in
organizational activities, including developing a business plan, and negotiating
an agreement relating to the Acquisition.
The Company expects to manufacture and market certain technologies which
have been identified by Solmecs and shown to be commercially viable, such as hot
water tank display control systems, photovoltaic cells and plasma chemically
treated extra smooth rubber gaskets. The Company further intends to offer its
engineering services to industry and research institutions in the fields of
LMMHD power technology and liquid metal engineering. To date, Solmecs has not
generated significant revenues and the Company does not expect to generate any
meaningful revenues for the foreseeable future and until such time, if ever, as
it successfully commercializes one or more of Solmecs' existing or future
technologies or sells proprietary rights relating to one or more of Solmecs'
existing or future technologies. Although the LMMHD power technology has been in
development since the late 1970's, it has not yet reached commercialization. In
order to achieve commercialization of such technology, the Company will be
required to build a commercial scale demonstration plant, which will require a
significant capital expenditure. The Company intends to commence building such a
plant within the next few years, provided that it will be able to obtain the
necessary funds for such project. Solmecs has incurred significant losses since
its inception, resulting in an accumulated deficit of $12,564,895 at September
30, 1997 and losses are continuing through the date of this Prospectus. The rate
of loss is expected to increase after the Acquisition as the Company's
activities increase and losses are expected to continue for the foreseeable
future and until such time, if ever, as the Company is able to achieve
sufficient levels of revenue from the commercial exploitation of its
technologies to support its operations. The Company's independent public
accountants have included an explanatory paragraph in their report on the
Company's financial statements stating that the fact that the Company is
dependent upon its ability to raise resources to finance its operations raises
substantial doubt about the Company's ability to continue as a going concern. In
addition, Solmecs' independent public accountants have included an explanatory
paragraph in their report on Solmecs' financial statements stating that certain
factors create a substantial doubt about Solmecs' ability to continue as a going
concern.
-29-
<PAGE>
The Company intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified for
exploitation. Initially the Company, through its scientific, engineering and
administrative personnel, will seek to identify and analyze a number of proposed
advanced technologies with potential commercial viability. The Company will then
assess the costs of further research and development (including the building and
testing of prototypes, if indicated), seek to obtain intellectual property
rights in viable technologies, develop a business plan detailing the
exploitation of such technologies from the research and development phase
through product commercialization, develop and, in some instances, implement
financing strategies to further such business plan, and suggest and, in some
cases, assemble a team of scientists and engineers most suitable for
implementation of such business plan. Upon completion of the business
development plan for each project, the Company may seek to manufacture and
market the project itself, enter into strategic alliances for such
commercialization, or sell or license the proprietary information and know-how
to third parties in consideration of technology transfer or license fees.
Completion of the research, development and commercialization of the
Company's technologies or any potential application of such technologies will
require significant additional effort, resources and time, including funding
substantially greater than the proceeds of this offering and otherwise currently
available to the Company. Such research and development efforts remain subject
to all of the risks associated with the development of new products based on
emerging and innovative technologies, including, without limitation,
unanticipated technical or other problems and the possible insufficiency of the
funds allocated to complete such development, which could result in delay of
research or development or substantial change or abandonment of research and
development activities.
Results of Operations of Solmecs
Three Months Ended September 30, 1997 Compared with Three Months Ended September
30, 1996
Total Revenues. Total revenues decreased by $19,910 or 73% to $7,343 for
the three months ended September 30, 1997, from $27,253 for the three months
ended September 30, 1996. The decrease is attributable to a decrease in sales of
photovoltaic cells due to the recession in the Israeli economy which caused a
decrease in government expenditures for alternative energy methods.
Research and Development Costs. Research and development costs were
substantially unchanged for the periods.
Cost of Merchandise Purchased. Cost of merchandise purchased decreased by
$20,890, or 89%, to $2,613 for the three months ended September 30, 1997, from
$23,503 for the three months ended September 30, 1996. This decrease was
primarily attributable to the aforesaid decrease in sales.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses increased by $17,989, or 40%, to $62,545 for the three
months ended September 30, 1997, from $44,556 for the three months ended
September 30, 1996. This increase was primarily attributable to an
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<PAGE>
increase in (i) marketing expenses related to the initial commercialization of
Solmecs' products and (ii) professional and consulting fees related to this
Offering.
Operating Loss. Operating loss increased by $16,028, or 15%, to $124,993
for the quarter ended September 30, 1997 from $108,965 for the three months
ended September 30, 1996. The increase in operating loss was primarily
attributable to a decrease in net revenues and an increase in marketing, general
and administrative expense as set forth above.
Financing Income (Expense), Net. Financing income was $2,974 for the three
months ended September 30, 1997, as compared to financing expenses of $1,736 for
the three months ended September 30, 1996, due to fluctuations in the exchange
rate between the U.S. Dollar and the New Israeli Shekel.
Net Loss. As a result of the foregoing, net loss increased by $11,318, or
10%, to $122,019 for the three months ended September 30, 1997, from $110,701
for the three months ended September 30, 1996.
Fiscal Year Ended June 30, 1997 Compared with Fiscal Year Ended June 30, 1996.
Total Revenues. Total revenues decreased by $17,781 or 24% to $57,276 for
the fiscal year ended June 30, 1997, from $75,057 for the fiscal year ended June
30, 1996. The decrease was attributable to no revenues generated from the
International Lead Zinc Research Organization, Inc. project in fiscal 1997 as
compared to $52,075 for fiscal 1996, which was partially offset by an increase
in sales of photovoltaic cells to $51,841 in 1997 from $22,982 in 1996.
Research and Development Costs. Research and development costs decreased by
$71,059 or 20%, to $276,259 for the fiscal year ended June 30, 1997, from
$347,318 for the fiscal year ended June 30, 1996. The decrease in research and
development costs was primarily attributable to a reduction in salaries and
related expenses and a reduction in consulting fees resulting from the internal
reorganization of the Company.
Cost of Merchandise Purchased. Cost of merchandise purchased increased by
$31,218, or 179%, to $48,638 for the fiscal year ended June 30, 1997, from
$17,420 for the fiscal year ended June 30, 1996. This increase was primarily
attributable to the increase in sales of photovoltaic cells.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses decreased by $60,395, or 19%, to $263,219 for the fiscal
year ended June 30, 1997, from $323,614 for the fiscal year ended June 30, 1996.
This decrease was primarily attributable to a decrease in salaries and
consulting fees resulting from increased efficiencies, the move of the Company's
offices from Jerusalem to Beer-Sheva and from termination of certain consulting
arrangements.
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<PAGE>
Operating Loss. Operating loss decreased by $82,455, or 13%, to $530,840
for the fiscal year ended June 30, 1997 from $613,295 for the fiscal year ended
June 30, 1996. The decrease in operating loss was primarily attributable to a
decrease in general and administrative expenses and research and development
costs.
Financing Income (Expenses), Net. Financing expenses were $10,484 for the
fiscal year ended June 30, 1997, as compared to financing income of $29,931 for
the fiscal year ended June 30, 1996 primarily due to interest received in
connection with the recovery of bad debt during the earlier period.
Net Loss. As a result of the foregoing and due to other income (principally
the recovery of bad debt from a related party in the amount of $60,000 during
the earlier period), net loss increased by $22,695, or 4%, to $541,324 for the
fiscal year ended June 30, 1997, from $518,629 for the fiscal year ended June
30, 1996.
Liquidity and Capital Resources
As of September 30, 1997, Solmecs had a working capital deficit of
$130,143, a stockholders' deficiency of $5,384,558 and an accumulated deficit of
$12,564,895. The aforesaid stockholders' deficiency was chiefly due to
indebtedness of Solmecs to its parent company, Bayou, in the amount of
$5,078,293, which indebtedness will be forgiven upon the consummation of the
Acquisition.
During the period from inception through September 30, 1997, Batei Sefer
Limlacha, a principal stockholder of the Company, loaned to the Company $17,408
for working capital purposes and agreed that such loan and any additional loans
which may be made by Batei Sefer Limlacha to the Company shall be due and
payable on the earlier of December 31, 1998 or the consummation of certain types
of transactions, including this offering, that such loans will be unsecured and
will not bear interest unless an event of default occurs.
During September 1997, Batei Sefer Limlacha loaned to Solmecs $50,000 for
working capital purposes and agreed with Solmecs that such loan and any
additional loans to be made by Batei Sefer Limlacha to Solmecs shall be due and
payable on earlier of June 30, 1998 or the consummation of certain types of
transactions, including the Acquisition which will occur simultaneously with the
consummation of this offering, and that such loans will be unsecured and will
bear interest at the rate of 8% per annum.
No assurance can be given that Batei Sefer Limlacha will make any
additional loans to the Company or Solmecs and it is not obligated to do so.
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<PAGE>
The Company's capital requirements will be significant. The Company is
dependent upon the proceeds of this offering to finance the operations of the
Company, including the costs of market research and marketing activities,
continued research and development efforts, establishing manufacturing
capabilities and the acquisition of intellectual property rights. The Company
anticipates, based on management's internal forecasts and assumptions relating
to its operations (including assumptions regarding the timing and progress of
the Company's technologies), that the net proceeds of this offering will be
sufficient to satisfy the Company's contemplated cash requirements for at least
12 months following the consummation of this offering. In the event that the
Company's plans change, its assumptions change or prove inaccurate, or if the
proceeds of this offering prove to be insufficient to fund operations, the
Company could be required to seek additional financing. The Company intends to
engage in research and development of two projects in the first year and four
projects in the second year (which may include an additional years work on all
or both of the projects from the first year) and believes that a number of such
projects will enter the commercialization stage during such two-year period.
Completion of the research, development and commercialization of the Company's
technologies or any potential application of such technologies will require
significant additional effort, resources and time including funding
substantially greater than the proceeds of this offering and otherwise currently
available to the Company. Moreover, the proceeds received in this offering may
be insufficient to satisfy the scheduled projects, requiring the Company to seek
additional financing. The Company has no current arrangements with respect to,
or sources of, additional financing, and it is not anticipated that existing
shareholders will provide any portion of the Company's future financing
requirements. There can be no assurance that additional financing will be
available to the Company when needed, on commercially reasonable terms, or at
all. See "Risk Factors."
New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings per Share." This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the dual presentation of both Basic
EPS an Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed based on the weighted average number of share
actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997 and earlier application is not permitted. The Company does not expect the
adoption of this statement to have a material effect on its financial position
or results of operations.
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BUSINESS
General
The Company was organized to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented primarily
by scientists who have recently immigrated to Israel from, and by scientists and
institutes in, Russia and other countries that formerly comprised the Soviet
Union. In furtherance of this goal, the Company will acquire Solmecs N.V., a
Netherlands Antilles company the operations of which are located in Israel,
which owns certain technologies developed by such scientists in the past and
actively seeks to identify such technologies for exploitation. The technologies
of Solmecs and technologies identified by Solmecs for exploitation are in
various stages of development and include technologies that have begun to be
commercialized as well as technologies that the Company believes are ready for
commercialization in the near future.
The Company intends to implement a four-step process with respect to the
development of proprietary technologies which it has identified for
exploitation. Initially the Company, through its scientific, engineering and
administrative personnel, will seek to identify and analyze a number of proposed
advanced technologies with potential commercial viability. The Company will then
assess the costs of further research and development (including the building and
testing of prototypes, if required) and seek to obtain intellectual property
rights in viable technologies. Upon the establishment of the commercial
viability of certain technologies, the Company will develop a business plan
detailing the exploitation of such technologies from the research and
development phase through product commercialization, develop and, in some
instances, implement financing strategies to further such business plan, and
suggest and, in some cases, assemble a team of scientists and engineers most
suitable for implementation of such business plan. Upon completion of the
business development plan for each project, the Company may seek to manufacture
(directly or through contractors) and market (directly or through distributors)
the project itself, enter into strategic alliances for such commercialization,
or sell or license the proprietary information and know-how to a third party in
consideration of technology transfer or license fees. To a lesser extent, the
Company may seek to develop technologies invented by scientists from other
countries.
Upon the consummation of this offering, the Company will complete the
Acquisition, pursuant to which Solmecs currently a wholly-owned subsidiary of
Bayou International, Ltd., a public company the Common Stock of which is traded
in the over-the-counter market, will merge into the Company. As a result of such
acquisition, the Company will acquire all of the assets of Solmecs, subject to
all of Solmecs' liabilities. Thereupon, the Company will change its name to
Solmecs Corp. The current management of Bayou has not participated in the
organization of the Company and is not expected to play any role in the
management of the Company following the completion of this offering. Solmecs was
organized in 1980 to engage in the research, development and commercialization
of high efficiency, low pollution products in the energy conversion and
conservation fields. Solmecs currently seeks to select, acquire and commercially
exploit proprietary technologies, primarily invented by scientists in the former
Soviet Union. From 1980 until the mid-1990's Solmecs was primarily engaged in
the development of Liquid Metal Magnetohydrodynamics ("LMMHD") energy conversion
technology, a process developed approximately
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20 years ago by Professor Herman Branover, a Soviet emigre who is the President
and a director of the Company.
The expertise and know-how in MHD phenomena accumulated by Solmecs in the
development of LMMHD power technology will be applied to the development of new
industrial processes. For example, Solmecs, in cooperation with a scientist in
Russia, has identified a potential use of MHD phenomena in the growth of
mono-crystals, which are among the critical components of the electronic chip
industry. The Company believes that the use of constant and alternate magnetic
fields for influencing the process of mono-crystal growth will result in larger,
higher quality (i.e. fewer dislocations) crystals. It is believed that this will
substantially increase the commercial value of such mono-crystals. The Company
intends to apply this method specifically to mono-crystals of gallium-arsenide
and cadmium-telluride, which compete with and may gradually replace silicon
chips in the computer and electronics industries.
The Company also intends to (i) manufacture and market solar/electrical
hot-water tank control/display systems developed and tested by Solmecs; (ii)
market Russian-manufactured photo-voltaic cells for use in the conversion of
solar energy; and (iii) market plasma-chemically treated extra smooth rubber
gaskets developed and currently produced by a company in the former Soviet Union
for the aviation industry. Solmecs is currently in the process of marketing such
photo-voltaic cells and the Company believes that the other marketing activities
could begin immediately after the Acquisition. Two recent surveys performed for
Solmecs demonstrate the commercial viability of the hot-water tank
control/display system in the French and Israeli markets, respectively. In
addition, Solmecs has identified approximately a dozen projects in the viability
testing stage in which the Company may invest, including: new types of
centrifugal pumps with provisions for substantial savings of energy; new methods
of prediction of dispersion of contaminants in the atmosphere; and extraction of
carbon-dioxide from combustion gases. In addition, Solmecs currently sells its
consulting and development services to industry and research institutions in the
fields of LMMHD technology and liquid metal engineering. Such services are
currently being provided by Solmecs to the Israeli Dead Sea Works Industry
(LMMHD technology for magnesium handling). The Company has recently been
approached by the Nuclear Center of United Europe ("CERN"), located in Geneva,
Switzerland to provide its expertise in molten lead energy conversion in the
development of a safe nuclear power plant which will generate power from the
burning of nuclear waste. The Company and CERN are currently in discussions
relating to such services and have not arrived at any understanding to date.
Background
The Company believes that the recent mass immigration to Israel of highly
trained and experienced scientists and engineers, when combined with Western
technology, infrastructure and commercial skill, will provide an opportunity for
the Company to exploit innovative technologies and products. Between 1989 and
1996, approximately 60,000 engineers and 11,000 scientists immigrated to Israel
from the former Soviet Union. These immigrants are highly skilled specialists
with unique expertise in a number of technological fields, particularly in
mechanical, electrical and chemical engineering, energy sources and
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energy conversion, metallurgy, material sciences and others. Many of them are
authors of numerousinventions and novel advanced technologies. Although the mass
immigration began more than seven years ago and is continuing, the Company
believes that the Israeli government has not developed a database which contains
an organized listing of the professional skills, experience and intellectual
property possessed by each of the immigrants. To the Company's knowledge, there
have only been a few private initiatives which sought to develop such a
database, including the Public Center for Immigrant Employment (the "Public
Center") a center established by certain principals of the Company and others
located in Beer-Sheva, Israel in 1991. A partial database developed by the
Public Center reflected that approximately 70% of the Soviet immigrant job
applicants seeking the Public Center services held undergraduate or graduate
science degrees and approximately 20% of such applicants held doctoral degrees.
Only 10% of the applicants did not graduate from a university. By contrast, of
the employment opportunities the Public Center had identified, 62% of such
opportunities were suited for non-academic applicants. The Company believes that
the disparity between the types of employment opportunities and applicants shows
that the current Israeli economy cannot effectively absorb the number of
scientists and engineers that have immigrated.
The Company believes that Israeli absorption authorities have not been able
to deal with professional analysis, initial development and market evaluations
of the patents or patentable ideas which have been brought to Israel by the
immigrants. However, the Company believes that the current immigration of
leading scientists and technologists has created new opportunities which should
not be overlooked. Linking Russian know-how with Western technology and Israeli
enterprise and creativity provides a special opportunity to introduce innovative
products and technologies into Western markets.
Moreover, these immigrants appear to have a significant number of ideas for
patentable inventions. Of the 1,500 immigrants which have sought the Public
Center's services, 140 have authored inventions, of which many have been
patented in the former Soviet Union. The Company believes that the foregoing
provides support for its plan of operations.
The Company believes that Russian scientists have developed advanced
inventions and techniques in certain areas of research, including metallurgy,
coating and thin film technology, semiconductors, environmental technologies
(such as water purification and desalination), and energy technologies
(including conversion and conservation), as well as use of renewable energies
(such as photo-voltaics, which involves the direct conversion of solar energy
into electricity).
The Company is aware of potential difficulties in exploiting these
technologies. These difficulties are the result of differences between Russian
and Western cultures, approaches, and working styles, communications problems
and the relatively limited capacity of Israeli industry. However, the Company
believes that these difficulties can be overcome. The Company intends to employ
Israel/Western specialists to analyze the scientific and commercial viability of
technologies proposed by immigrant scientists and engineers that are developed
or partially developed by the industries in the former Soviet Union at which
such scientists were employed, and perform the business development functions
set forth below. A contributing factor to the Company's business development
functions will be the significant
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experience that certain administrative and scientific/technical personnel have
in working with immigrant scientists from the former Soviet Union.
Strategy
The Company's strategy is to identify and exploit innovative technologies
which represent advances over existing products or technologies. The Company
plans to implement its strategy through a four-step process:
o Identify potential business opportunities. The Company's personnel,
including Professor Branover, consist of scientific and engineering
experts with numerous relationships with scientists who have recently
immigrated from the former Soviet Union, as well as with scientists,
universities, research institutes and industries in the former Soviet
Union. The Company intends to utilize such relationships in order to
form a database of proposals of advanced technologies and inventions
from which viable projects will be selected for acquisition and
development. The Company intends to hire financial experts with such
relationships after the consummation of this offering. The Company
will, where appropriate, seek to obtain intellectual property rights
to the technologies and inventions that it identifies for development.
o Assess project scientific and commercial viability. The Company,
through the use of specialized scientific and marketing experts, will
conduct tests on proposals compiled in the Company's database,
including market analysis and assessment of the cost and time required
for research, development and commercialization. The Company may also
construct prototypes in order to test technical feasibility.
o Create a business plan. Projects that demonstrate market and technical
feasibility will be developed into business and commercialization
plans ready for implementation. The plans created by the Company will
recommend scientific, financial and marketing personnel suited for
each project and will present a complete timeline, budget and
description of project implementation from the research and
development phase through end-user marketing. In addition, where
appropriate, the Company intends to apply for patents or copyrights
and will seek to obtain other proprietary protection for the
technologies.
o Commercialize technologies. Upon completion of the business plan, the
Company will achieve the manufacture and marketing of the technologies
in one of a number ways, including: the Company may develop,
manufacture and market the technology in house, as it intends to do
with certain applications of the LMMHD technology and other
technologies acquired in the Acquisition; the Company may choose to
enter into strategic alliances with companies with substantially
greater capital and expertise in the development, manufacture and
marketing of certain products or technologies; and the
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Company may sell or license the technologies and proprietary rights to
third parties in consideration of a technology transfer or license
fees.
Technologies Currently Developed by Solmecs
Upon the consummation of this offering, the Company will complete the
Acquisition, pursuant to which Solmecs will merge into the Company. Solmecs was
organized in 1980 to engage in the research, development and commercialization
of high efficiency, low pollution products in the energy conversion and
conservation fields. Solmecs currently seeks to select, acquire and commercially
exploit proprietary technologies, primarily invented by scientists in the former
Soviet Union. From 1980 until the mid- 1990's, Solmecs was primarily engaged in
the development of LMMHD energy conversion, a process developed by Professor
Branover. The LMMHD energy conversion technology which is currently being
utilized in a developmental stage power plant facility, generates electric power
(and, in most cases, steam) by utilizing a non-conventional process in which an
electro-conducting fluid (such as molten lead) is forced through a magnetic
field. The Company believes that power generation facilities utilizing LMMHD
energy conversion technology will have a lower installed capital cost and higher
efficiency than conventional steam turbo-generator plants, resulting in lower
electricity costs and reduced pollutive effects. Although the LMMHD power
technology has been in development since the late 1970's it has not yet reached
commercialization. In order to achieve commercialization of such technology, the
Company will be required to build a commercial scale demonstration plant, which
will involve a significant capital expenditure. The Company intends to commence
building such a plant within the next few years, provided that it will be able
to obtain the necessary funds for such project. The Company believes that the
further development and commercialization of LMMHD energy conversion technology
is consistent with its intent to develop advanced technologies featuring
competitive advantages over existing products.
The Company intends to concentrate initially on the further development
and/or commercialization of a number of technologies, including certain
technologies to be acquired by the Company in the Acquisition, certain
technologies that are applications of MHD phenomena, as well as certain other
technologies.
The Company's initial plans include development of the following
technologies:
o Monocrystals. Solmecs, in cooperation with a scientist in Russia, has
identified a potential use of MHD phenomena in the growth of
monocrystals of gallium-arsenide and cadmium- telluride. The method of
production of these monocrystals lead to monocrystals of large size
with fewer imperfections and thus greater yield of usable material
than standard methods. This process is still in the development stage
and it has not yet been the subject of a patent application. The
process is owned by the aforesaid scientist who currently resides in
Russia and certain executives of the Company have a close relationship
with him. The Company believes that it can enter into an agreement
with the scientist that would be advantageous to the Company, but no
assurances can be given in that regard.
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The Company believes that this process will not be ready for
industrial application for at least two years. The major potential
application of these monocrystals is as a replacement for silicon in
electronic chips used in all types of electronics, including
computers. The Company estimates that the current size of the market
for gallium-arsenide monocrystals is approximately 15 billion dollars
per year worldwide.
o Hot water tank control and display system. Solmecs has developed a
gauge and display to indicate the amount of hot water in a hot water
tank, which is especially useful for solar and electrical hot water
tanks. This new system provides the user with accurate information on
the amount of hot water left for use in the domestic hot water tank
and allows the user to remotely control the operation of the water
heating system, whether it uses electricity or solar power. The device
displays the necessary information such as the number of standard
showers available in the tank and the user is able to fix the desired
number of showers he wants to keep in the system at time intervals he
chooses. Thus, the device will help to avoid unnecessary waste of
energy and will allow a comfortable use of the water heating system.
The Company estimates that the hot water tank display and control
system will provide approximately 40% savings of electrical energy.
This technology is currently ready for manufacture. Solmecs is
currently in the process of selecting a partner for a joint venture.
Solmecs has agreed to pay the inventor of technology incorporated in
its hot water tank control and display systems certain royalties with
respect to sales of products incorporating such technology.
In a market survey performed on behalf of Solmecs by independent
consultants in France, manufacturers of hot water tanks (electrical
and solar) that are potential customers for the control and display
system responded favorably. In a market survey performed on behalf of
Solmecs by independent consultants in Israel, consumers that are
potential end-user customers responded favorably.
o Advanced Double-sided photo-voltaic cells. Solmecs has identified a
technology developed by Russian scientists working in the space and
military industries of the former Soviet Union that provides for
reliable solar panels that are more efficient than those currently
available in the market. These panels involve double-sided
photovoltaic cells, allowing more surface area to receive the
reflection of solar energy, including solar energy that is reflected
back from the ground, and result in approximately 30% more power. The
unit also involves less space and fewer panels than currently
available technology. The Company will be required to negotiate a
license to allow it to produce these photo-voltaic cells in Israel. No
assurance can be given that the Company will be able to enter into any
such arrangement.
o Rubber gaskets treatment. Solmecs is involved in the commercialization
of a method of surface treatment of rubber that results in smoother
rubber for use in gaskets for sophisticated machinery, especially in
aircraft. The rubber treatment process involves
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plasma-chemical modification methods. The method was developed and the
product is produced by a company in the former Soviet Union. The
Company and such company are currently engaged in discussions towards
an agreement pursuant to which the Company would create the production
capability for the product in Israel an would improve on the
technology. No assurances can be given that any understanding will be
reached on favorable terms or at all.
LMMHD Energy Conversion Technology
Solmecs is currently involved in further advancement and perfection of
LMMHD energy conversion technology. This technology is distinctive from
conventional energy producing steam turbo-generator technology in which steam,
produced in a boiler, propels a turbine which in turn forces the rotation of an
electrical generator. Although the LMMHD process also employs the use of steam,
in LMMHD power technology the steam is used to accelerate a stream of molten
metal across a magnetic field which leads to the generation of electricity. This
process does not require the use of moving or rotating mechanical machinery but
utilizes an assembly of hermetically sealed pipes in which the energy conversion
process occurs. The Company believes the process and technology to be reliable
and require only a marginal amount of maintenance, and anticipates commercially
developed systems to have a long life span.
According to the Company's calculations which were confirmed by a study
performed on behalf of Solmecs by an independent consultant, the developmental
cogeneration power plant facility, which utilizes LMMHD power technology, had
installed costs of $1,339 per KW as compared to an average of $1,850 per KW in
comparable conventional steam turbo generator facilities (a difference of 28%),
as well as higher electricity efficiency of approximately 17.4% as compared to
an average of 15.8% for comparable steam turbo generator facilities (a
difference of 9%) which results in lower installed costs as well as greater
efficiency.
Solmecs has constructed and completed several pilot plants utilizing the
LMMHD energy conversion technology and has developed an engineering design and a
universal computer code for the calculation, design and optimization for each
specific application of the LMMHD energy conversion system. The Company intends
to further engage in the improvement of the LMMHD system.
Although the LMMHD power technology has been in development since the late
1970's it has not yet reached commercialization. In order to achieve
commercialization of such technology, the Company will be required to build a
commercial scale demonstration plant, which will involve a significant capital
expenditure. The Company intends to commence building such a plant within the
next few years, provided that it will be able to obtain the necessary funds for
such project.
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Future Technologies and Products
The Company has identified various Solmecs and non-Solmecs technologies,
some of which involve LMMHD technology, for potential acquisition and
development in the future:
o Carbon dioxide extraction. Ever increasing amounts of fossil fuel
burned in electrical power stations and combustion engines result in a
permanent increase in the amounts of carbon dioxide accumulated in the
atmosphere. This process is aggravated by the systematic destruction
of the earth's biosphere, through, as an example, the reduction of the
rain forests which absorb carbon dioxide. High concentrations of
carbon dioxide make the atmosphere less "transparent" for heat
irradiated by the earth into outer space, leading to global warming
with all its adverse effects.
Solmecs established a professional relationship with a team of
scientists in Russia who are developing an efficient and economically
attractive method for extraction of carbon dioxide from combustion
gases. The Company believes that the construction of a semi-industrial
scale demonstration plant can commence within the next few months. A
portion of the proceeds of this offering has been allocated for
acquisition of rights associated with this technology.
o Novel centrifugal pumps. Centrifugal pumps currently widely used in
the chemical and other industries are inefficient in that they are
designed for a particular flow rate and can be adjusted to provide for
a lower flow only through closing valves. This wastes large amounts of
energy. Solmecs has identified a centrifugal pump developed by others
that solves this problem, allowing adjustment to needed flow rates.
The Company will seek to obtain certain intellectual property rights
in connection with the centrifugal pump development and a portion of
the proceeds of this offering has been allocated for that purpose.
o Forecasting of atmosphere contaminants dispersion. The Solmecs LMMHD
know-how can be used to determine which areas have greater potential
for atmosphere contamination. This technology has applications in the
power plant industry as well as other industries which burn large
quantities of fossil fuels.
o Boiler efficiency enhancement. It has been demonstrated by ex-Soviet
engineers that by treating the air used for combustion of fuels in
boilers with high voltage electric fields, the oxygen molecules
present in the air will be split into single atoms, making the
combustion much more complete, resulting in the generation of more
heat. In addition, fewer poisonous compounds are exhausted into the
atmosphere. The process has been tested with a number of industrial
boilers and shown to be effective; improving the efficiency of the
boilers by approximately 10 to 15%.
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o Fertilizer treatment. Manure is recognized as the best fertilizer and
is widely used in agriculture. However, manure contains numerous kinds
of infectious bacteria that present a serious threat to public health.
A method was invented and developed by Russian engineers in which the
manure is moved through a generator of high frequency electromagnetic
fields. This not only destroys the harmful bacteria, but also
accelerates the processes leading to maturation of the manure and its
conversion into a fertilizer. Medical and agricultural tests performed
on this process have indicated that the process is scientifically
viable. Solmecs is currently involved in the assessment of this
technology to determine commercial viability.
Consulting Services
The Company anticipates entering into agreements to provide consulting and
development services to industry and research institutions in the fields of
LMMHD technology and liquid metal engineering. For example, in response to a
purchase order from the Israeli Dead Sea Works Industry ("Dead Sea Works"),
Solmecs recently developed a pumping system based on a conductive MHD pump for
use in magnesium handling. The system is currently installed at Dead Sea Works
as a demonstration system and is operated and supported by Solmecs. The system
is currently in early stages of operation tests. In the event this system proves
to be effective, the Company expects to provide additional systems to Dead Sea
Works and to use the current system as a demonstration site for marketing the
system to other companies. The Company has recently been approached by CERN to
provide its expertise in molten lead energy conversion in connection with the
development by CERN of a safe nuclear power plant which will generate power from
the burning of nuclear waste. The Company and CERN are currently in discussions
relating to such services and have not arrived at any understanding to date.
Disposal of nuclear waste produced by nuclear power stations is regarded as one
of the most acute concerns of the energy industry. The method developed by CERN
employs a process by which nuclear waste is destroyed, thereby avoiding the
necessity of disposal, and electricity is generated. The CERN system entails a
flux of accelerated protons hitting a molten lead target and causing neutron
emission directed on rods made from highly radioactive nuclear waste.
Ultimately, the generated thermal energy is absorbed by the molten lead and
converted to electricity. Solmecs has suggested that the hot lead be directed
into an LMMHD electricity generating device of the type developed by Solmecs.
Intellectual Property
Solmecs currently owns six patents which cover most of the developed
countries in connection with its development of LMMHD technology. Five of the
patents are registered in the name of Solmecs and one patent is registered in
the name of Ben Gurion University which was assigned to Solmecs. Solmecs has
been granted patents for its MHD Applications (homogenous flow) in the United
States, Israel, Italy, Great Britain, Germany, France, Canada, Japan and
Australia and for its Solar MHD in the United States.
Pursuant to an agreement dated November 5, 1981, between Solmecs,
Ben-Gurion University and B.G. Negev Technology and Applications Ltd. ("BGU"),
Solmecs is conducting research and development
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projects on the campus of Ben-Gurion University in consideration for a fee for
the use of the facilities. Solmecs owns the patents connected with these
projects and agreed to pay royalties to BGU at the rate of 1.725% on sales of
products and at the rate of 11.5% on income from licensing fees. Solmecs also
agreed to assume the obligation of BGU to pay royalties to the Ministry of
National Infrastructure of the State of Israel on products developed from these
research and development projects for its participation in the research and
development costs of BGU. The royalties are to be paid at the rate of 1% on
sales of products and at the rate of 5% on income from licensing fees. As of
September 30, 1997, this liability amounted to approximately $315,000 (including
linkage to the Consumer Price Index and interest at 4% per annum). Subsequent to
the repayment of the liability, Solmecs is required to pay royalties to the
Ministry of National Infrastructure at a reduced rate of .3% on sales of
products and at the rate of 2% on income from licensing fees. To date, there
were no sales or income on which royalties were payable to BGU or the Ministry
of National Infrastructure.
In March 1991, Solmecs entered into an agreement with International Lead
Zinc Research Organization, Inc. ("ILZRO") pursuant to which ILZRO funded
certain research of Solmecs and Solmecs agreed to pay a fee to ILZRO with
respect to any lead used in future production by Solmecs, up to a maximum of
$1,864,000. As of the date of this Prospectus, Solmecs has not used any lead
with respect to which it is required to pay such fee.
From 1981 to 1991, Solmecs received from the Chief Scientist of the State
of Israel (the "OCS"), $2,274,420 in grants towards the cost of a research and
development project relating to LMMHD energy conversion technology. In
consideration of such grants, Solmecs is required to pay royalties at the rate
of 2% up to 150% of the participation received under the returnable grants of
sales and licensing of a commercialized product or technology derived from
technology acquired in the project funded by the OCS. No such royalties have
been paid to date.
Competition
The products that will be based on the Company's technologies will likely
be used in highly competitive industries. Numerous domestic and foreign
companies are seeking to research, develop and commercialize technologies
similar to those of the Company, many of which have greater name recognition and
financial, technical, marketing, personnel and research capabilities than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing technologies and applications that are more cost
effective, or have fewer limitations than, or have other advantages as compared
to, the Company's technologies. The markets for the technologies and products to
be developed or acquired by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or short
product lifecycles. Accordingly, the ability of the Company to compete will
depend on its ability to complete development and introduce to the marketplace,
directly or through strategic partners, in a timely manner its proposed products
and technologies, to continually enhance and improve such products and
technology, to adapt its proposed products to be compatible with specific
products manufactured by others, and to successfully develop and market new
products and technologies. There can be no assurance that the Company will be
able to compete successfully, that its
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competitors or future competitors will not develop technologies or products that
render the Company's products and technologies obsolete or less marketable or
that the Company will be able to successfully enhance its proposed products or
technologies or adapt them satisfactorily.
The Company believes that Solmecs is the only commercial company engaged in
the development of LMMHD generator systems. However, the Company believes that
the competition in the worldwide market for energy conversion systems is intense
and the Company may encounter substantial competition from other companies
engaged in the development of competing energy conversion systems which
companies may have grater name recognition and financial, technical, marketing,
personnel and research capabilities than the Company.
There can be no assurance that other companies are not dedicated to
identifying, obtaining and developing technologies of Russian scientists and
engineers currently residing in Israel. Any such competitors may have greater
financial, technical, marketing, personnel and other resources than the Company.
Employees
The Company currently has eight full-time employees and five part-time
employees, including four administrative and executive personnel, two full-time
and one part-time senior scientists, two full-time and one part-time engineers
and technicians and three part-time support personnel. The Company anticipates
hiring one senior scientist, one engineer/technician and one marketing
specialist in each of the two years following the consummation of this offering.
Facilities
The executive offices of Solmecs located at 7 Ben Zvi Road, Beer-Sheva,
Israel (near the Company's laboratories), are occupied pursuant to a lease which
expires on January 31, 1998 and which provides for rent of approximately $400
per month.
Solmecs also utilizes certain laboratory and office space at Ben Gurion
University at a cost of $1,100 per month. Solmecs has entered into a two-year
lease agreement for laboratory and office space near Beer-Sheva to replace the
space at Ben Gurion University and its current offices, for annual rent of
approximately $41,000. The Company intends to begin to utilize this space
shortly after the consummation of this offering.
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MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Emmanuel Althaus 50 Chairman of the Board of Directors
Professor Herman Branover 65 President, Chief Executive Officer
and Director
Dr. Shaul Lesin 43 Executive Vice President
Jacline Bavli 43 Chief Financial Officer
Mr. Althaus has served as Chairman of the Board of Directors of the Company
since May 1997. He was Vice President and Director of Bayou from March 1990
through November 1996. Since 1986, Mr. Althaus has been principally employed as
Executive Director of National Diversified Industries (Australia) Pty Ltd., a
company that provides administrative services to public companies. He serves on
the board of directors of Golden Triangle Resources N.L. (of which he is
Chairman and Managing Director) and Allegiance Mining N.L., each of which is a
company engaged in mineral exploration the stock of which is listed on the
Australian Stock Exchange.
Professor Branover has served as President, Chief Executive and a director
of the Company since May 1997 and as Scientific Director of Solmecs (Israel)
Ltd. since 1980. He served as Executive Vice President and Director of Bayou
from May 1989 until 1993. He has been principally employed as head of the Center
for MHD Studies of Ben Gurion University since 1981 and as the Lady Davis
Professor of Magnetohydrodynamics at Ben Gurion University since 1978. Professor
Branover received a Ph.D in Technical Sciences from Moscow Aviation Institute in
1962 and a Doctor of Sciences Degree in Physics and Mathematics from Leningrad
Polytechnical Institute in 1969. He was also, for a number of years, an Adjunct
Professor of applied sciences at New York University and served as a visiting
researcher at Argonne National Laboratory in Chicago. Professor Branover has
also served as a director of the Joint Israeli Russian Laboratory for Energy
Research since 1991. He currently serves as an Advisor to Israel's Prime
Minister on immigrant employment and on the use of Russian technologies in
Israel. Professor Branover founded two Israeli high-tech companies, Ontec, Inc.,
in 1991, located in Beer Sheva, and Satec, Inc., in 1987, located in Jerusalem,
both of which have developed commercially viable products for sale in several
foreign countries. Professor Branover is no longer affiliated with either of
those companies.
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Dr. Lesin has served as Executive Vice President of the Company since May
1997. Dr. Lesin has held various positions with Solmecs (Israel) Ltd. since
1980, most recently serving as Chief Executive Manager. Dr. Lesin also served as
the Deputy Director of the Joint Israeli Russian Laboratory for Energy Research
since 1991, and as a member of the Board of the Center for MHD Studies of Ben
Gurion University since 1986. He received his Ph.D in Mechanical Engineering
from Ben Gurion University in 1993.
Ms. Bavli has served as Chief Financial Officer of the Company since May
1997. Prior thereto since 1996, she served as Financial and Marketing Manager of
Solmecs (Israel) Ltd. From 1995 to 1996, Ms. Bavli engaged in the private
practice of accounting. From 1990 until 1995, Ms. Bavli held various positions
with Kibbutz Magen, Israel, most recently serving as its Deputy Treasurer.
The Company's directors are elected at the annual meeting of stockholders
to hold office until the annual meeting of stockholders for the ensuing year or
until their successors have been duly elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
The Underwriter has the right to designate one member to the Company's
board of directors for a period of three years following the Effective Date.
Pursuant to the Acquisition Agreement, the initial directors of the Company
immediately following this offering shall consist of five directors including
Professor Branover and Mr. Althaus as well as a designee of Batei Sefer
Limlacha, one of the Company's principal stockholders, and a designee of the
Underwriter as described immediately above. The fifth director shall be
appointed by the Company's board of directors upon the consummation of the
Acquisition. Neither the Underwriter nor Batei Sefer Limlacha has indicated a
designee to date.
Effective upon the consummation of this offering, the Company will be the
beneficiary of key man life insurance policies on the lives of Professor
Branover and Dr. Lesin in the amount of $1,000,000 each.
Executive Compensation
The following table sets forth the cost of compensation paid to Professor
Herman Branover, the Company's Chief Executive Officer, by Solmecs, in his
capacity as Scientific Director of Solmecs, for the fiscal years ended June 30,
1995, 1996 and 1997. No executive officer of the Company received aggregate
compensation and bonuses which exceeded $100,000 during such years.
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Cost of Compensation Summary Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards($)(1)
------------------- -------------------------
Securities
Restricted Underlying
Fiscal Other Annual Stock Options/
Name and Principal Position Year Salary ($) Bonus($) Compensation ($) Award SARs(#)
- --------------------------- ---- ---------- -------- ---------------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Professor Herman Branover,
Chief Executive Officer.......... 1995 $72,613 $ -- $ -- -- --
1996 40,835(2)
1997 62,361
</TABLE>
(1) The Company did not have any long-term incentive or option plans during the
fiscal years ended June 30, 1995, 1996 or 1997.
(2) During the fiscal year ended June 30, 1996, the Company paid an automobile
allowance to Professor Branover in the amount of $5,500.
Employment Agreements
The Company is currently negotiating employment agreements with Professor
Herman Branover, Dr. Shaul Lesin and Ms. Jacline Bavli, its President, Executive
Vice President and Chief Financial Officer, respectively. The Company
anticipates that salaries for the first year after the consummation of this
offering, pursuant to such agreements, will aggregate approximately $300,000.
Limitation of Liability and Indemnification Matters
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, fines, amounts paid in settlement and expenses (including
attorneys' fees) actually and reasonably incurred as the result of an action,
suit or proceeding in which they may be involved by reason of having been a
director or officer of the Company. In its Certificate of Incorporation, the
Company has included a provision that limits the personal liability of its
directors to the Company or its stockholders for monetary damages arising from a
breach of their fiduciary duties as directors. This provision limits a
director's liability except where such director (i) breaches his duty of loyalty
to the Company or its stockholders, (ii) fails to act in good faith or engages
in intentional misconduct or a knowing violation of laws, (iii) authorizes
payment of an unlawful dividend or stock purchase or redemption as provided in
Section 174 of the DGCL or (iv) obtains an improper personal benefit. This
provision does not prevent the Company or its stockholders from seeking
equitable remedies, such as injunctive relief or rescission. If equitable
remedies are found not to be available to stockholders in any particular case,
stockholders may not have any effective remedy against actions taken by
directors that constitute negligence or gross negligence.
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The Company's Certificate of Incorporation provides for the Company to
indemnify each director and officer of the Company to the fullest extent
permitted by the DGCL. The foregoing provision may reduce the likelihood of
derivative litigation against directors and may discourage or deter stockholders
or management from suing directors for breaches of their duty of care, even
though such an action, if successful, might otherwise benefit the Company and
its stockholders.
Liability Insurance
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to the
limits of the policy, against certain losses arising from claims made against
such directors and officers by reason of any acts or omissions covered under
such policy in their respective capacities as directors or officers, including
liabilities under the Securities Act.
1997 Stock Option Plan
In December 1997, the Board of Directors and stockholders of the Company
adopted the 1997 Stock Option Plan (the "Plan"), pursuant to which 200,000
shares of Common Stock are reserved for issuance upon exercise of options. The
Plan is designed to serve as an incentive for retaining qualified and competent
employees, directors and consultants.
The Company's Board of Directors, or a committee thereof, administers the
Plan and is authorized, in its discretion, to grant options thereunder to all
eligible employees of the Company, including officers and directors (whether or
not employees) of, and consultants to, the Company. The Plan provides for the
granting of both "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended) and non-qualified stock options.
Options can be granted under the Plan on such terms and at such prices as
determined by the Board of Directors, or a committee thereof, except that the
per share exercise price of options will not be less than the fair market value
of the Common Stock on the date of grant. In the case of an incentive stock
option granted to a stockholder who owns stock of the Company possessing more
than 10% of the total combined voting power of all classes of stock ("10%
stockholder"), the per share exercise price will not be less than 110% of such
fair market value. The aggregate fair market value (determined on the date of
grant) of the shares covered by incentive stock options granted under the Plan
that become exercisable by a grantee for the first time in any calendar year is
subject to a $100,000 limit.
Options granted under the Plan will be exercisable during the period or
periods specified in each option agreement. Options granted under the Plan are
not exercisable after the expiration of ten years from the date of grant (five
years in the case of incentive stock options granted to a 10% stockholder) and
are not transferable other than by will or by the laws of descent and
distribution.
As of the date of this Prospectus, the Company has not granted any options
under the Plan.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information (based on information obtained
from the persons named below) regarding the beneficial ownership of the Common
Stock of the Company as of the date of this Prospectus, giving effect to the
Acquisition and as adjusted to reflect the sale by the Company of the 1,460,000
Units offered hereby, by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
each of the Company's executive officers and directors and (iii) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Percentage of Outstanding Shares
--------------------------------
Amount and Nature of
Beneficial Prior to After
Name and Address of Beneficial Owner(1) Ownership(2) Offering Offering
- --------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Bayou International, Ltd. 700,800 48% 24%
Level 8
580 St. Kilda Road
Melbourne, Victoria, 3004 Australia
Batei Sefer Limlacha 438,000 30% 15%
766 Montgomery Street
Brooklyn, New York 11213
HB Research Corp. 204,400 14% 7%
Emmanuel Althaus 116,800 8% 4%
All executive officers and directors as a
group (four persons) 321,200 22% 11%
</TABLE>
(1) The address of HB Research Corp. and Mr. Althaus is c/o SCNV Acquisition
Corp., 7 Ben Zvi Road, Beer-Sheva, Israel 84893.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date of this Prospectus upon the exercise of options or
warrants. Each beneficial owner's percentage ownership is determined by
assuming that options that are held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of
this Prospectus have been exercised. Except as otherwise indicated, the
Company believes that each of the persons named has sole voting and
investment power with respect to the shares shown as beneficially owned by
him.
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CERTAIN TRANSACTIONS
In May 1997, the Company issued 204,400 shares of Common Stock, 116,800
shares of Common Stock and 438,000 shares of Common Stock to HB Research Corp.,
Emmanuel Althaus and Batei Sefer Limlacha, respectively, for nominal
consideration. Emmanuel Althaus, the Chairman of the Board of Directors of the
Company, was the Vice President and Director of Bayou from March 1990 through
November 1996.
Simultaneously with the consummation of this offering, the Company will
acquire all of the issued and outstanding capital stock of Solmecs. Bayou, the
current parent of Solmecs, will receive 700,800 shares of the Company's Common
Stock in connection with the Acquisition. In connection with the Acquisition,
Bayou will forgive indebtedness of Solmecs in the amount, as of September 30,
1997, of $5,078,293, and Solmecs will return for cancellation shares of Bayou
held by it. The Acquisition is subject to, among other things, the prior
approval of the shareholders of Bayou. The 700,800 shares to be issued to Bayou
will not be registered in this offering but will be subject to certain
registration rights and piggyback rights to be granted by the Company.
During the period from inception through September 30, 1997, Batei Sefer
Limlacha, a principal stockholder of the Company, loaned to the Company $17,408
for working capital purposes and agreed that such loan and any additional loans
which may be made by Batei Sefer Limlacha to the Company shall be due and
payable on the earlier of December 31, 1998 or the consummation of certain types
of transactions, including this offering, that such loans will be unsecured and
will not bear interest unless an event of default occurs.
During September 1997, Batei Sefer Limlacha loaned to Solmecs $50,000 for
working capital purposes and agreed with Solmecs that such loan and any
additional loans to be made by Batei Sefer Limlacha to Solmecs shall be due and
payable on the earlier of June 30, 1998 or the consummation of certain types of
transactions, including the Acquisition which will occur simultaneously with the
consummation of this offering, and that such loans will be unsecured and will
bear interest at the rate of 8% per annum.
Transactions between the Company and its officers, directors, employees and
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. Any such transactions will be subject to the
approval of a majority of the disinterested members of the Board of Directors.
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DESCRIPTION OF SECURITIES
General
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share. As of the date of this Prospectus, after giving effect to the
Acquisition, there are 1,460,000 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors then up for election. The holders of Common Stock are
entitled to receive ratably such dividends when, as and if declared by the Board
of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining which are available
for distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the Common
Stock. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby, when issued in exchange for
the consideration set forth in this Prospectus, will be, fully paid and
nonassessable.
The Company has agreed with the Underwriter that it will not issue any
shares of Common Stock for a period of 24 months from the Effective Date without
the written consent of the Underwriter.
Redeemable Warrants
Each Warrant offered hereby entitles the registered holder thereof (the
"Warrant Holders") to purchase one share of Common Stock at a price of $5.50,
subject to adjustment in certain circumstances, at any time between _________,
1999 and 5:00 p.m., Eastern Time, on ________, 2003. The securities comprising
the Units will become detachable and separately transferable on the date that is
three months after their issuance, unless earlier detached pursuant to an
agreement between the Company and the Underwriter.
The Warrants are redeemable by the Company, at any time after becoming
exercisable, upon notice of not less than 30 days, at a price of $.01 per
Warrant, provided that the average of the closing bid quotations of the Common
Stock on any ten trading days ending within five days prior to the day on
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which the Company gives notice has been at least $8.00 per share (subject to
adjustment). The Warrant Holders shall have the right to exercise their Warrants
until the close of business on the date fixed for redemption. The Warrants will
be issued in registered form under a warrant agreement by and among the Company,
American Stock Transfer & Trust Company, as warrant agent, and the Underwriter
(the "Warrant Agreement"). The exercise price and number of shares of Common
Stock or other securities issuable on exercise of the Warrants are subject to
adjustment in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Common
Stock at prices below the exercise price of the Warrants. Reference is made to
the Warrant Agreement (which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part) for a complete description of the
terms and conditions therein (the description herein contained being qualified
in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant certificate
during the exercise period at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a Warrant Holder exercises all Warrants then owned of record by him, the
Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
Preferred Stock
The Board of Directors has the authority, without further action by the
shareholders, to issue up to one million shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plans to issue any shares of Preferred Stock. The
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Company has agreed with the Underwriters that it will not issue any shares of
Preferred Stock for a period of 24 months from the Effective Date without the
written consent of the Underwriter.
Dividends
To date, the Company has not declared or paid any dividends on its Common
Stock. The payment by the Company of dividends, if any, is within the discretion
of the Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, as well as other relevant factors.
The Board of Directors does not intend to declare any dividends in the
foreseeable future, but instead intends to retain earnings, if any, for use in
the Company's business operations.
Delaware Anti-Takeover Law
Upon the consummation of this offering, the Company will be governed by the
provisions of Section 203 of the DGCL. In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
Transfer Agent and Warrant Agent
The transfer agent for the Common Stock and the warrant agent for the
Warrants is American Stock Transfer & Trust Company.
Reports to Stockholders
The Company intends to file a registration statement with the Securities
and Exchange Commission to register its Common Stock and Warrants under the
provisions of Section 12(g) of the Exchange Act prior to the date of this
Prospectus and has agreed with the Underwriter that it will use its best efforts
to continue to maintain such registration. Such registration will require the
Company to comply with periodic reporting, proxy solicitation and certain other
requirements of the Exchange Act.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 2,920,000
shares of Common Stock outstanding (assuming no exercise of the Underwriter's
over-allotment, the Warrants or outstanding options or warrants), of which the
1,460,000 shares of Common Stock included in the Units offered hereby will be
freely tradable without restriction or further registration under the Securities
Act. All of the remaining 1,460,000 shares of Common Stock outstanding are
deemed to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, in that such shares were acquired by the
stockholders of the Company in transactions not involving a public offering,
and, as such, may only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144, or
pursuant to another exemption under the Securities Act. Of such restricted
securities, 700,800 will become eligible for sale commencing 90 days from the
date of this offering and 759,200 shares will become eligible for sale
commencing May 19, 1998. Notwithstanding the foregoing, all of the existing
stockholders of the Company have agreed not to sell or otherwise dispose of any
such shares of Common Stock beneficially owned by them for a period of 24 months
from the date of this Prospectus without the Underwriter's prior written
consent.
In general, under Rule 144 a person (or persons who may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act),
is entitled to sell within any three-month period a number of restricted shares
beneficially owned for at least one year that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock, or (ii) an amount equal to
the average weekly trading volume in the shares of Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. However, a person who is not
deemed an affiliate and has beneficially owned such shares for at least two
years is entitled to sell such shares without regard to the volume or other
resale requirements.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that public sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices of the Common Stock and the Warrants prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for the
Common Stock and the Warrants and could impair the Company's ability in the
future to raise additional capital through the sale of its equity securities.
CONDITIONS IN ISRAEL
The Company's operations are directly affected by the economic and
political conditions in Israel. The information in this section is included in
order to advise prospective purchasers of the Units of certain conditions in
Israel that could affect the operations and financial results of the Company.
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Economic Conditions
In the 1990's the economy of Israel experienced significant expansion.
During calendar years 1992 through 1997, Israel's gross domestic product ("GDP")
increased by 6.2%, 6.7%, 3.4%, 6.5%, 6.8% and 2.1% (estimated), respectively.
The Israeli Government's monetary policy contributed to relative price and
exchange rate stability during most of these years despite fluctuating rates of
economic growth and a high rate of unemployment. The inflation rate for 1994,
1995, 1996 and the first nine months of 1997 was 14.5%, 8.1%, 10.6% and 6.4%,
respectively.
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980's, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. In response to these problems, the Israeli Government has
intervened in various sectors of the economy, employing, among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates. The Israeli
Government frequently has changed its policies in all these areas.
Political Environment
Since the establishment of the State of Israel in 1948, a state of
hostility has existed, varying in degree and intensity, between Israel and the
Arab countries. In addition, Israel and companies doing business with Israel
have been the subject of an economic boycott by the Arab countries since
Israel's establishment. Furthermore, following the Six-Day War in 1967, Israel
commenced administering the territories of the West Bank and the Gaza Strip and,
since December 1987, increased civil unrest has existed in these territories.
Although, as described below, Israel has entered into various agreements with
Arab countries and the Palestine Liberation Organization ("PLO") and various
declarations have been signed in connection with efforts to resolve some of the
aforementioned problems, no prediction can be made as to whether a full
resolution of these problems will be achieved or as to the nature of any such
resolution. To date, these problems have not had a material adverse impact on
the financial condition or operation of the Company, although there can be no
assurance that continuation of these problems will not have such an impact in
the future.
In 1979, a peace agreement between Israel and Egypt was signed under which
full political relations were established; however, economic relations have been
very limited. In September 1993, a breakthrough occurred in Israeli-Palestinian
relations. A joint Israeli-Palestinian Declaration of Principles was signed by
Israel and the PLO in Washington, D.C., outlining interim Palestinian
self-government arrangements. Since September 1993, Israel and the PLO have
signed several agreements for the implementation of the principles of the
September 1993 Declaration. In accordance with these agreements, Israel has
transferred the civil administration of the Gaza Strip, Jericho and certain
other areas of the West Bank to the Palestinian Self-Rule Authority and the
Israeli army has withdrawn from these areas. In January 1996, elections were
held in the West Bank and Gaza Strip for the election of representatives to the
Palestinian Authority. In October 1994, Israel and Jordan signed a peace treaty,
which provides,
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among other things, for the commencement of full diplomatic relations between
the two countries, including the exchange of ambassadors and consuls.
Although Israel has entered into various agreements with certain Arab
countries and the PLO, and various declarations have been signed in connection
with efforts to resolve some of the economic and political problems in the
Middle East, no prediction can be made as to whether a full resolution of these
problems will be achieved or as to the nature of any such resolution. To date,
Israel has not entered into a peace treaty with either Lebanon or Syria.
Army Service
Male adult permanent residents of Israel under the age of 50 are, unless
exempt, obligated to perform generally up to 30 days of military reserve duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances. Some of the employees of the
Company currently are obligated to perform annual reserve duty. While the
Company has operated effectively under these requirements in the past, no
assessment can be made of the full impact of such requirements on the Company in
the future, particularly if emergency circumstances occur.
Assistance from the United States
The State of Israel receives approximately $3 billion of annual grants for
economic and military assistance from the United States and has received
approximately $10 billion of United States Government loan guarantees, subject
to reduction in certain circumstances. The United States Government loan
guarantees were granted over a period of five years ($2 billion per annum)
commencing in 1993. The Israeli economy could suffer material adverse
consequences if such aid or guarantees are reduced significantly. There is no
assurance that foreign aid from the United States will continue at or near
amounts received in the past.
Trade Agreements
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Australia, Canada and
Japan. These preferences allow Israel to export the products covered by such
programs either duty-free or at reduced tariffs.
Israel and the European Economic Community (known now as the "European
Union") signed a Free Trade Agreement, which became effective on July 1, 1975.
Pursuant to such agreement and subject to rules of origin, Israel's industrial
exports to the European Union are exempt from custom duties and other non-tariff
barriers (e.g. import restrictions).
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In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area ("FTA") which is intended to eliminate all tariff
and certain nontariff barriers on most trade between the two countries. Under
the FTA agreement, all products now receive duty free status.
On January 1, 1993, an agreement between Israel and the European Free Trade
Association ("EFTA"), which includes Austria, Norway, Finland, Sweden,
Switzerland, Iceland and Liechtenstein, established a free-trade zone between
Israel and the EFTA nations. Manufactured goods and some agricultural goods and
processed foods are exempt from customs duties, while duties on other goods have
been reduced.
Israel is the only country which has free-trade area agreements with the
United States as well as with the European Union and the EFTA states.
The end of the Cold War has enabled Israel to establish commercial and
trade relations with a number of other nations, including Russia, China and the
nations of Eastern Europe, with which Israel had not previously had such
relations.
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CERTAIN TAX CONSIDERATIONS
U.S. Federal Income Tax Consequences
The following discussion is a summary of certain of the more significant
federal income tax consequences of the Acquisition and of an investment in the
Company based on the tax laws in effect as of the date hereof. This discussion
does not address the particular federal income tax consequences that may be
relevant to certain types of taxpayers subject to special treatment under the
federal income tax laws (such as life insurance companies, tax-exempt
organizations and taxpayers who are not U.S. domestic corporations or citizens
or residents of the United States), nor does it discuss any aspect of state,
local, foreign or other tax laws that may be applicable to particular taxpayers.
The tax consequences to investors may vary based on the individual circumstances
of each investor. There can be no assurance that the Internal Revenue Service
(the "Service") will not challenge any or all of the expected tax consequences
of the Acquisition and of an investment in the Company, or that such a
challenge, if asserted, would not be sustained.
The discussion and conclusions presented below may be affected by matters
not discussed herein. Each investor is strongly urged to consult with his own
tax advisor regarding the federal, state and local tax consequences of the
Acquisition and of an investment in the Company.
U.S. Tax Consequences to the Company
a. It is anticipated that the Acquisition will not result in any federal
income tax liability on the part of the Company. The Acquisition is planned to
qualify as a tax-free reorganization described in section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "U.S. Tax Code"). Accordingly,
neither the Company nor Solmecs will recognize gain or loss for U.S. federal
income tax purposes as a result of the Acquisition. The Company's basis, for
U.S. federal income tax purposes, for its assets (that is, stock of its
subsidiaries) will equal such basis in the hands of Solmecs immediately prior to
the Acquisition.
b. The Company may be subject to one or more of the special anti-deferral
regimes pertaining to the ownership of stock of foreign corporations as a
consequence of its ownership of the stock of its subsidiaries. Various
provisions contained in the U.S. Tax Code impose special tax burdens in certain
circumstances on the shareholders of non-United States corporations as described
above.
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Controlled Foreign Corporations. Each of the Subsidiaries will be a
controlled foreign corporation ("CFC") because more than 50% of the total
combined voting power, and, alternatively, because more than 50% of the value,
of the stock of each such Subsidiary is owned by a United States person (the
Company) which owns 10% or more of the total combined voting power of the stock
of such Subsidiary (a "10% Shareholder"). If a Subsidiary is a CFC, any U.S.
taxpayer that is a 10% Shareholder is required to include in their gross income
certain types of income earned by a CFC ("Subpart F income") regardless of
whether such amounts were actually distributed to them. Gain realized on the
disposition of shares of a current or former CFC by a U.S. taxpayer may be
recharacterized as a dividend. These rules could increase the U.S. federal
income tax liability of the Company at a time at which cash will not be
available to fund such liability.
Passive Foreign Investment Companies. Each of the Subsidiaries would be a
passive foreign investment company ("PFIC") if 75% or more of its gross income
(including the pro rata gross income of any company with respect to which such
Subsidiary is considered to own 25% or more of the shares by value) in a taxable
year is passive income. Alternatively, a Subsidiary will be considered to be a
PFIC if at least 50% of the assets (averaged over the year and generally
determined based upon their fair market values) of any company (including the
pro rata basis of the assets of any company with respect to which such
Subsidiary is considered to own 25% or more of the shares by value) in a taxable
year are held for the production of, or produce, passive income. If a Subsidiary
becomes a PFIC, the Company would, upon certain distributions by such Subsidiary
and upon disposition of such Subsidiary's shares at a gain, be liable to pay
U.S. federal income tax at the then prevailing income tax rates on ordinary
income plus interest on the tax, as if the distribution or gain (in the case of
a disposition) had been recognized ratably over the Company's holding period for
the shares of the relevant Subsidiary. The Company does not believe as of the
date hereof that either of the Subsidiaries was a PFIC for 1997 or will be a
PFIC and intends to cause the Subsidiaries to manage their businesses so as to
avoid PFIC status to the extent consistent with their other business goals.
However, there can be no assurance that neither of the Subsidiaries will become
a PFIC in the future.
Notwithstanding these rules, for taxable periods beginning after 1997, a
corporation that is a CFC will not be considered to be a PFIC with respect to
shareholders that are required to include in their gross income their shares of
the CFC's Subpart F income (as described above). Accordingly, the PFIC rules
will only affect the Company in the event that, in the future, it sells a large
portion of its stock of the Subsidiaries.
In the event that the Company concludes that either of the Subsidiaries
will be treated as a PFIC for any taxable year, and the exception described in
the preceding paragraph does not apply, the Company make elect to treat such
Subsidiary as a "qualified electing fund" for U.S. federal income tax purposes.
If the Company makes a "qualified electing fund" election for all taxable years
that it held the stock of such Subsidiary and such Subsidiary was a PFIC during
such time, distributions and gain from the Subsidiary will not be recognized
ratably over the Company's holding period or subject to an interest charge and
gain
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on the sale of the stock of such Subsidiary will be characterized as capital
gain. Instead, the Company would be required to include in income, for each
taxable year, a pro rata share of the undistributed ordinary earnings of the
qualified electing fund as ordinary income and a pro rata share of the
undistributed net capital gain of the qualified electing fund as long-term
capital gain.
U.S. Tax Consequences of Owning Common Stock
An investor who receives dividend distributions with respect to Common
Stock will generally be required to include the amounts of such distributions in
their income to the extent such distributions are made out of the Company's
current and accumulated earnings and profits. Distributions in excess of the
Company's current an accumulated earnings and profits will be treated as return
of capital to the extent of the investor's tax basis for his Common Stock.
Distributions in excess of the Company's earnings and profits and the investor's
tax basis for his Common Stock result in the investor's recognizing capital
gain.
An investor who is a U.S. taxpayer and who disposes of Common Stock will
recognize gain or loss equal to the difference between the amount realized on
the sale and the investor's tax basis for such Common Stock. Such gain or loss
generally will be capital in nature if the Common Stock constitutes a capital
asset in the hands of the investor and will, under the current rate structure,
be subject to tax at a reduced rate of no more than 28 percent of the Common
Stock is held for more than one year but no more than 18 months, and at a
reduced rate of no more than 20 percent if the Common Stock is held for more
than 18 months. In order to determine an investor's tax basis for his Common
Stock, the amount that the investor pay for his Unit is allocated between the
Common Stock and the Warrants that comprises such Unit based on their relative
fair market values.
U.S. Tax Consequences of Owning Warrants
An investor who is a U.S. taxpayer and exercises Warrants will not
recognize gain or loss upon such exercise. The tax basis for any shares of
Common Stock acquired though the exercise of the Warrants will equal the sum of
the investor's tax basis for his Warrants immediately before such exercise and
the amount paid pursuant to the Warrants to acquire the Common Stock. If a
Warrant lapses without exercise, the investor may deduct his tax basis for such
Warrant, usually as capital loss. His tax basis for his Warrant generally will
be the portion of his cost for his Unit that is allocated to the Warrants
pursuant to the preceding paragraph. For purposes of determining which rate of
tax on capital gains applies to gains from the sale of Common Stock acquired
through exercise of Warrants, the relevant holding period begins on the date of
such acquisition of stock without regard to how long the Warrant was held.
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The Company as Indirect Stockholder of the Israeli Subsidiary
Withholding Tax on Dividend Distributions
Nonresidents of Israel, including nonresident companies like the Company,
are subject to income tax on income derived from sources in Israel. On the
distribution of dividends other than bonus shares (stock dividends), income tax
is withheld at source at the rate of 25% or at the reduced rate of 15% for
dividends distributed from taxable income attributable to and accrued during the
benefits period of an Approved Enterprise. Pursuant to the Convention between
the Government of the State of Israel and the Government of the United States of
America with Respect to Taxes on Income (the "Treaty"), dividends distributed to
a United States corporation ("Recipient Corporation") by an Israeli corporation
("Distributing Corporation") are taxed at a reduced rate of 12.5% if: (i) the
income used to pay the dividends is derived during a period in which the
Distributing Corporation is not entitled to "Approved Enterprise" benefits; (ii)
the Recipient corporation has held at least 10% of the outstanding voting shares
of the Distributing Corporation during the part of the Distributing
Corporation's taxable year which precedes the distribution of the dividends and
during the Distributing Corporation's previous taxable year; and (iii) not more
than 25% of the Distributing Corporation's gross income during the previous
taxable year was derived from interest or dividends.
An entity, such as the Company, which qualifies as a resident of the United
States pursuant to the Treaty, is entitled to claim a credit for taxes paid in
Israel on the receipt of dividends against the United States income tax imposed
with respect to the receipt of such dividends. In addition, a United States
corporation which owns at least 10% of the voting stock of an Israeli
corporation from which it receives dividends in any taxable year is entitled to
claim a credit for a certain amount of taxes paid or accrued in Israel by the
Israeli corporation on profits out of which the dividends were paid. Credits
granted by the United States are subject to the limitations in United States
laws applicable to foreign credits.
Capital Gains Tax
Israeli law imposes a capital gains tax on the sale of securities and any
other capital assets. Israeli capital gains tax applies to non-residents of
Israel, like the Company, when the gain is derived from the sale of an asset
located in Israel or of any asset located outside of Israel which constitutes a
right, directly or indirectly, to an asset located in Israel (including shares
held by the Company in its Israeli subsidiary). Capital gains tax will apply to
any sale by the Company held by it in its Israeli subsidiary.
The law distinguishes between a "real gain" and an "inflationary amount".
Real gain is the excess of the total capital gain over the inflationary amount,
and the inflationary amount is computed on
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the basis of the increase in the Israeli CPI (or, at the election of a
nonresident of Israel, the Israeli currency devaluation in relation to the
foreign currency with which the capital asset was purchased) between the date of
purchase and the date of sale. The inflationary amount accumulated until
December 31, 1993 is taxed at a rate of 10% for residents of Israel but is
reduced, with respect to shares, to no tax for non-residents in the event that
such non-residents have elected the Israeli currency devaluation as an index,
while the real gain is taxed at the rate applicable to ordinary income. The
inflationary amount accumulated from and after December 31, 1993 is exempt from
capital gains tax.
Pursuant to the Treaty, the sale, exchange or disposition of shares of
Common Stock by a person who qualifies as a resident of the United States within
the meaning of the Treaty and who is entitled to claim the benefits afforded to
such resident by the Treaty ("Treaty United States Resident") will not be
subject to the Israeli capital gains tax unless such Treaty United States
Resident holds, directly or indirectly, shares representing 10% or more of the
voting power of the Israeli company during any part of the 12 month period
preceding psyche sale, exchange or disposition subject to certain conditions, as
is the case of the Company's holdings in Solmecs. A sale, exchange or
disposition of Common Stock by a Treaty United States Resident who holds,
directly or indirectly, shares representing 10% or more of the voting power of
the Israeli company at any time during such preceding 12 month period would be
subject to such Israeli tax, if applicable; however, under the Treaty, such
Treaty United States Resident would be permitted to claim a credit for such
taxes against the Untied States income tax imposed with respect to such sale,
exchange or disposition, subject to the limitations in United States laws
applicable to foreign tax credits.
Backup Withholding
Information reporting may apply in the future to certain dividends paid on
the Common Stock and to the proceeds of sale of such stock paid to U.S.
investors other than certain exempt recipients (such as corporations). A 31%
backup withholding tax may apply in the future to such payments if the U.S.
investor fails to provide an accurate taxpayer identification number or
certification of exempt status, or fails to report in full dividend and interest
income.
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<PAGE>
UNDERWRITING
Patterson Travis, Inc. (the "Underwriter") has agreed, subject to the terms
and conditions contained in the Underwriting Agreement, to purchase 1,460,000
Units from the Company. The Underwriter is committed to purchase and pay for all
of the Units offered hereby if any of such securities are purchased. The Units
are being offered by the Underwriter, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering prices set forth on the cover page of this
Prospectus. The Underwriter may allow to certain dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD") concessions, not
in excess of $ per Unit, of which not in excess of $ per Unit may be reallowed
to other dealers who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 45
days from the date of this Prospectus, to purchase up to 219,000 additional
Units at the public offering prices set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriter may
exercise this option in whole or, from time to time, in part, solely for the
purpose of covering over-allotments, if any, made in connection with the sale of
the Units offered hereby.
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 3% of the gross proceeds of this offering. The Company has also
agreed to pay all expenses in connection with qualifying the Units offered
hereby for sale under the laws of such states as the Underwriter may designate,
including expenses of counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees for
$146.00, an option (the "Underwriter's Unit Purchase Option") to purchase up to
146,000 Units at an exercise price of $4.92 per Unit (120% of the public
offering price per Unit). The Underwriter's Unit Purchase Option may not be
sold, transferred, assigned or hypothecated for one year from the date of this
Prospectus, except to the officers and partners of the Underwriter and members
of the selling group and are exercisable at any time and from time to time, in
whole or in part, during the four-year period commencing on the first
anniversary date of the date of this Prospectus (the "Exercise Term"). During
the Exercise Term, the holders of the Underwriter's Unit Purchase Option are
given, at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock. To the extent that the Underwriter's Unit Purchase
Option is exercised, dilution to the interests of the Company's stockholders
will occur. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
Underwriter's Unit Purchase Option can be expected to exercise them at a time
when
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<PAGE>
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the Underwriter's
Unit Purchase Option. Any profit realized by the Underwriter on the sale of the
Underwriter's Unit Purchase Option, the underlying shares of Common Stock or the
underlying warrants, or the shares of Common Stock issuable upon exercise of
such underlying warrants may be deemed additional underwriting compensation. The
Company has agreed, at the request of the holders of a majority of the
securities underlying the Underwriter's Unit Purchase Option, at the Company's
expense, to register the Underwriter's Unit Purchase Option, the shares of
Common Stock and warrants underlying the Underwriter's Unit Purchase Option, and
the shares of Common Stock issuable upon exercise of the underlying warrants
under the Securities Act on one occasion during the Exercise Term and to include
the Underwriter's Warrants and all such underlying securities in any appropriate
registration statement which is filed by the Company during the five years
following the date of this Prospectus.
The Underwriter shall have the right to designate one member to the
Company's board of directors for a period of three years following the effective
date. In the event that the Underwriter elects not to designate such a member to
the Company's board of directors, the Underwriter may designate a person to
attend all meetings of the board of directors.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this Prospectus),
to pay to the Underwriter a fee of 5% of the exercise price for each Warrant
exercised; provided, however, that the Underwriter will not be entitled to
receive such compensation in Warrant exercise transactions in which (i) the
market price of Common Stock at the time of exercise is lower than the exercise
price of the Warrants; (ii) the Warrants are held in any discretionary account;
(iii) disclosure of compensation arrangements is not made, in addition to the
disclosure provided in this Prospectus, in documents provided to holders of
Warrants at the time of exercise; (iv) the exercise of the Warrants is
unsolicited by the Underwriter; or (v) the solicitation of exercise of the
Warrants was in violation of Regulation M promulgated under the Exchange Act.
Regulation M, promulgated under the Exchange Act, may prohibit the
Underwriter from engaging in any market making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by the
Underwriter of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Underwriter may have to receive a fee for the exercise of
Warrants following such solicitation; and any period during which the
Underwriter or any affiliated parties participates in a distribution of
securities of the Company for the account of the Underwriter or any such
affiliate. As a result, the Underwriter may be unable to provide a market for
the Company's securities during certain periods while the Warrants are
exercisable.
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In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Units, Common Stock and Warrants. Specifically, the Underwriter may over-allot
in connection with the offering, creating a short position in the Units, Common
and/or Warrants for its own account. In addition, to cover over-allotments or to
stabilize the price of the Units, Common Stock and Warrants, the Underwriter may
bid for, and purchase, Units, shares of Common Stock and Warrants in the open
market. The Underwriter may also reclaim selling concessions allowed to a dealer
for distributing the Units in the offering, if the Underwriter repurchases
previously distributed Units in transactions to cover short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Units, Common Stock and Warrants above
independent market levels. The Underwriter is not required to engage in these
activities, and may end any of these activities at any time.
The Company's officers, directors and all of the Company's securityholders
have agreed not to sell or otherwise dispose of any securities of the Company
beneficially owned by them for a period of 24 months from the date of this
Prospectus, without the prior written consent of the Underwriter.
The Underwriter has advised the Company that it does not expect to make
sales of the securities offered hereby to discretionary accounts.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act.
Prior to this offering, there has been no public trading market for the
Units, Common Stock or Warrants. Consequently, the initial public offering price
of the Units, and the exercise price of the Warrants have been determined by
negotiations between the Company and the Underwriter. Among the factors
considered in determining these prices were the Company's financial condition
and prospects, market prices of similar securities of comparable publicly-traded
companies and the general condition of the securities market.
EXPERTS
The balance sheet of SCNV Acquisition Corp. as of June 30, 1997 and the
consolidated financial statements of Solmecs Corporation N.V. as of June 30,
1997 and for each of the two years in the period then ended, included in this
prospectus and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP and Luboshitz, Kasierer & Co., respectively, Members of
Andersen Worldwide SC, independent public accountants, as indicated in their
reports with respect thereto, and are included
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herein in reliance upon the authority of said firms as experts in giving said
reports. Reference is made to said reports which each include an explanatory
fourth paragraph with respect to the Companies' ability to continue as a going
concern.
LEGAL MATTERS
The legality of the securities offered by this Prospectus will be passed
upon for the Company by Tenzer Greenblatt LLP, New York, New York. Yigal Arnon &
Co., Tel Aviv, Israel has served as Israeli counsel to the Company. Bernstein &
Wasserman, LLP, New York, New York, has acted as counsel to the Underwriter in
connection with this offering.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. This Prospectus, filed as a part of such Registration
Statement, does not contain all of the information set forth in, or annexed as
exhibits to, the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulation of the Commission. For further
information with respect to the Company and this offering, reference is made to
the Registration Statement, including the exhibits filed therewith, which may be
inspected without charge at the Office of the Commission, 450 Fifth Street,
N.W., Washington D.C. 20549; and at the following regional offices: Midwest
Regional Office, Northwestern Atrium Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661-2511, and the Northeast Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Commission at its principal office upon
payment of prescribed fees. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and,
where the contract or other document has been filed as an exhibit to the
Registration Statement, each statement is qualified in all respects by reference
to the applicable document filed with the Commission. The Commission maintains
an Internet web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of that site is http://www.sec.gov.
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SCNV ACQUISITION CORP.
----------------------
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
SCNV Acquisition Corp.
<S> <C>
Report of Independent Public Accountants F-2
Balance Sheets as of June 30, 1997 (audited) and as of September 30,
1997 (unaudited) F-3
Notes to the Financial Statements F-4
Solmecs Corporation N.V.
Report of Independent Public Accountants F-7
Consolidated Balance Sheets as of June 30, 1997 (audited)
and as of September 30, 1997 (unaudited) F-8
Consolidated Statements of Operations for the years ended
June 30, 1996 and 1997 (audited) and for the three months
ended September 30, 1996 and 1997 (unaudited) F-9
Consolidated Statements of Changes in Shareholders' Deficiency for
the years ended June 30, 1996 and 1997 (audited) and for the three
months ended September 30, 1997 (unaudited) F-10
Consolidated Statements of Cash Flows for the years ended
June 30, 1996 and 1997 (audited) and for the three months
ended September 30, 1996 and 1997 (unaudited) F-11
Notes to the Consolidated Financial Statements F-12
Pro Forma Financial Information F-20
SCNV Acquisition Corp. Pro Forma Consolidated Balance Sheet
as of September 30, 1997 (unaudited) F-21
SCNV Acquisition Corp. Pro Forma Consolidated Statements of
Operations for the year ended June 30, 1997 and for the three months
ended September 30, 1997 (unaudited) F-22
Notes and Management's Assumptions to Pro Forma Consolidated
Financial Statements (unaudited) F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SCNV Acquisition Corp.:
We have audited the accompanying balance sheet of SCNV Acquisition Corp. (a
Delaware Corporation) as of June 30, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of SCNV Acquisition Corp. as of June
30, 1997, in conformity with generally accepted accounting principles.
The accompanying balance sheet has been prepared assuming that the Company
will continue as a going concern. As discussed in Note 5 to the balance sheet,
the Company is dependent upon the ability to raise resources to finance its
operations. This fact raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to this matter are
also discussed in Note 5. The balance sheet does not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
New York, New York
January 8, 1998
F-2
<PAGE>
SCNV ACQUISITION CORP.
BALANCE SHEETS
June 30, September 30,
1997 1997
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Deferred public offering costs $25,000 $50,000
------- -------
Total assets $25,000 $50,000
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ -- $25,000
LONG TERM LIABILITIES
Stockholder loan 17,408 17,408
------- -------
Total liabilities 17,408 42,408
------- -------
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value,
1,000,000 shares authorized;
none issued and outstanding -- --
Common stock $.01 par value,
10,000,000 shares authorized;
759,200 shares issued and
outstanding 7,592 7,592
------- -------
Total stockholders'
equity 7,592 7,592
------- -------
Total liabilities
and stockholders' equity $25,000 $50,000
======= =======
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - GENERAL
SCNV Acquisition Corp. (the "Company") was organized under the laws of
the State of Delaware on May 19, 1997, to acquire Solmecs Corporation
N.V. ("Solmecs") and to select, develop and commercially exploit
proprietary technologies, in various stages of development, invented
primarily by scientists who have recently immigrated to Israel from,
and by scientists and institutions in Russia, and other countries that
formerly comprised the Soviet Union.
The financial statements include the unaudited balance sheet as of
September 30, 1997. This unaudited information has been prepared by
the Company on the same basis as the audited balance sheet and in
management's opinion, reflects all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
financial information in accordance with generally accepted accounting
principles as of September 30, 1997.
Note 2 - PROPOSED INITIAL PUBLIC OFFERING AND ACQUISITION
On June 19, 1997 the Company entered into a letter of intent with an
underwriter to pursue an Initial Public Offering of its common stock
(the "IPO"). The offering contemplates the sale of 1,460,000 Units,
which is composed of 1,460,000 shares of common stock and 1,460,000
redeemable common stock purchase warrants ("Warrants"), exclusive of a
45 day option granted to the underwriter to purchase an additional 15%
of the securities offered in the IPO. Each Warrant entitles the holder
to purchase one share of common stock at a price of $5.50, subject to
adjustment in certain circumstances, at any time during the four-year
period commencing on the first anniversary date of the date of the
IPO.
In addition, the Company has agreed to sell to the underwriter and its
designees for an aggregate of $146, Warrants to purchase an additional
10% of the securities offered in the IPO at an exercise price of 120%
of the public offering price per unit. The Warrants are exercisable at
any time during the four-year period commencing on the first
anniversary date of the date of the IPO.
F-4
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
Simultaneously with the consummation of the IPO, the Company will
acquire all of the issued and outstanding capital stock of Solmecs, in
consideration for 700,800 shares of the Company's common stock issued
to Bayou International, Ltd. ("Bayou"), the parent of Solmecs. The
acquisition has been accounted for as a purchase. The excess of
purchase price over fair value of assets acquired of $3,106,265, will
be reflected as acquired research and development in process and fully
expensed at the date of the acquisition. Solmecs, the operations of
which are located in Israel, owns certain technologies developed by it
in the past. The technologies of Solmecs and certain offshoots of such
technologies are in various stages of development and include
technologies that have begun to be commercialized as well as
technologies that the Company believes will be ready for
commercialization in the near future.
Note 3 - STOCKHOLDER LOAN
The loan does not bear interest. The maturity is the earlier of
December 31, 1998 or the consummation of certain types of transactions
that will provide proceeds of at least $3 million to the Company.
Note 4 - STOCK CAPITAL
Preferred Stock
The Board of Directors has the authority, without further action by
the stockholders, to issue up to one million shares of preferred stock
in one or more series and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences,
and the number of shares constituting any series or the designation of
such series.
1997 Stock Option Plan
In December 1997 the Board of Directors and stockholders of the
Company adopted the 1997 Stock Option Plan (the "Plan"), pursuant to
which 200,000 shares of common stock are reserved for issuance upon
exercise of options. The Plan is designed to serve as an incentive for
retaining qualified and competent employees, directors and
consultants. Options granted under the Plan will be exercisable during
the period or periods specified in each option agreement. Options
granted under the Plan are not exercisable after the expiration of ten
years from the date of grant (five years in the case of incentive
stock options granted to a 10% stockholder) and are not transferable
other than by will or by the laws of descent and distribution.
As of the date of these financial statements, the Company has not
granted any options under the 1997 Plan.
F-5
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
Note 5 - GOING CONCERN
As described in Note 2, the Company will acquire Solmecs and operate
through it. As such, the Company is dependent upon the ability to
raise resources to finance its operation, including the costs of
continued research and development efforts, establishing manufacturing
capabilities, market research and acquisition of intellectual property
rights. Accordingly, the Company has signed a letter of intent with an
underwriter with respect to the IPO, which should provide the Company
with approximately $4.8 million. The Company believes that its cash
resources augmented by the IPO will be sufficient to fund the
Company's operation for at least 12 months following the consummation
of the IPO.
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of:
Solmecs Corporation N.V.
We have audited the accompanying consolidated balance sheets of Solmecs
Corporation N.V. (a Netherlands Corporation) as of June 30, 1997, and the
related consolidated statements of operations, changes in shareholder's
deficiency and cash flows for each of the two years in the period ended June 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our 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 financial position of the Company and
subsidiary as of June 30, 1997, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1997, in
conformity with accounting principles generally accepted in the United States.
As discussed further in Note 1, the Company has incurred substantial operating
losses, and at June 30, 1997, the Company has an accumulated deficit of
approximately $12.4 million and a shareholders' deficiency of approximately $5.3
million. The Company anticipates that it will continue to incur losses for some
time. These factors, among others, as described in Note 1, create a substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
/s/ Luboshitz, Kasierer & Co.
LUBOSHITZ, KASIERER & CO.
Member of Andersen Worldwide, SC
Beer-Sheva, Israel
August 29, 1997
F-7
<PAGE>
SOLMECS CORPORATION N.V.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 September 30
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,539 $ 43,985
Trade receivables 32,267 35,645
Other receivables and prepaid expenses (Note 3) 14,044 15,290
------------ ------------
Total current assets 85,850 94,920
------------ ------------
EQUIPMENT
Cost 164,292 164,292
Less - accumulated depreciation 126,459 128,732
------------ ------------
37,833 35,560
------------ ------------
Total assets $ 123,683 $ 130,480
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term borrowing (Note 4) $ -- $ 50,000
Sundry payables and accrued expenses (Note 5) 182,298 175,063
------------ ------------
Total current liabilities 182,298 225,063
------------ ------------
LONG-TERM LIABILITIES
Parent company (Note 6) 4,988,293 5,078,293
Long-term loan (Note 7) 200,000 200,000
Accrued severance pay (Note 8) 15,631 11,682
------------ ------------
Total long-term liabilities 5,203,924 5,289,975
------------ ------------
Total liabilities 5,386,222 5,515,038
------------ ------------
COMMITMENTS (Note 9)
SHAREHOLDERS' DEFICIENCY (Note 10)
Share capital
Preferred "A" shares of DFL 10 par value;
Authorized 1,200 shares; issued and
Outstanding 1,200 shares as of June 30,
1997 and September 30, 1997 6,154 6,154
Common "B" shares of DFL 10 par value;
authorized 23,800 shares; issued and
outstanding 7,286 shares as of June 30,
1997 and September 30, 1997 48,028 48,028
Share premium 7,626,155 7,626,155
Accumulated deficit (12,442,876) (12,564,895)
------------ ------------
Total shareholders' deficiency (4,762,539) (4,884,558)
Less - Cost of shares of parent company (Note 11) (500,000) (500,000)
------------ ------------
Total shareholders' deficiency (5,262,539) (5,384,558)
------------ ------------
Total liabilities and shareholders' deficiency $ 123,683 $ 130,480
============ ============
</TABLE>
The notes to the consolidated financial statements
form an integral part thereof.
F-8
<PAGE>
SOLMECS CORPORATION N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
For the year ended three months ended
June 30 September 30
------------------------ ------------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES (Note 12)
Sales $ 22,982 $ 51,841 $ 27,253 $ 3,327
Contract services 52,075 5,435 -- 4,016
--------- --------- --------- ---------
Total revenues 75,057 57,276 27,253 7,343
--------- --------- --------- ---------
COSTS AND EXPENSES
Research and development costs (Note 13) 347,318 276,259 68,159 67,178
Cost of merchandise purchased 17,420 48,638 23,503 2,613
Marketing expenses -- 42,906 1,147 7,964
General and administrative expenses (Note 14) 323,614 220,313 43,409 54,581
--------- --------- --------- ---------
Total costs and expenses 688,352 588,116 136,218 132,336
--------- --------- --------- ---------
Operating loss (613,295) (530,840) (108,965) (124,993)
FINANCING INCOME (EXPENSES),
NET 29,931 (10,484) (1,736) 2,974
--------- --------- --------- ---------
(583,364) (541,324) (110,701) (122,019)
OTHER INCOME, NET (1996 -
principally recovery of bad debt
from related party) 64,735 -- -- --
--------- --------- --------- ---------
Net loss $(518,629) $(541,324) $(110,701) $(122,019)
========= ========= ========= =========
Net loss per common
share $ (71.18) $ (74.30) $ (15.19) $ (16.75)
========= ========= ========= =========
Weighted average number of common
shares outstanding 7,286 7,286 7,286 7,286
========= ========= ========= =========
</TABLE>
The notes to the consolidated financial statements
form an integral part thereof.
F-9
<PAGE>
SOLMECS CORPORATION N.V.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Preferred Common Share Accumulated Shares of
shares shares premium deficit parent company Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1995 $ 6,154 $ 48,028 $ 7,626,155 $(11,382,923) $ (500,000) $ (4,202,586)
Net loss for the year ended
June 30, 1996 -- -- -- (518,629) -- (518,629)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of June 30, 1996 6,154 48,028 7,626,155 (11,901,552) (500,000) (4,721,215)
Net loss for the year ended
June 30, 1997 -- -- -- (541,324) -- (541,324)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of June 30, 1997 6,154 48,028 7,626,155 (12,442,876) (500,000) (5,262,539)
Net loss for the three months
ended September 30, 1997
(unaudited) -- -- -- (122,019) -- (122,019)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of September 30,
1997 (unaudited) $ 6,154 $ 48,028 $ 7,626,155 $(12,564,895) $ (500,000) $ (5,384,558)
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the consolidated financial statements
form an integral part thereof.
F-10
<PAGE>
SOLMECS CORPORATION N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
For the year ended three months ended
June 30 September 30
-------------------------- --------------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(518,629) $(541,324) $(110,701) $(122,019)
Adjustments to reconcile net loss to net cash used in
operating activities (see below) (86,238) 534 (22,369) (13,535)
--------- --------- --------- ---------
Net cash used in operating activities (604,867) (540,790) (133,070) (135,554)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in equipment (5,671) (3,853) (240) --
Short-term investment 35,000 -- -- --
Proceeds from sale of fixed assets 15,813 -- -- --
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities 45,142 (3,853) (240) --
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowing, net (151,640) -- -- 50,000
Increase in liability to parent company 721,077 526,946 165,000 90,000
--------- --------- --------- ---------
Net cash provided by financing activities 569,437 526,946 165,000 140,000
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,712 (17,697) 31,690 4,446
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 47,524 57,236 57,236 39,539
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 57,236 $ 39,539 $ 88,926 $ 43,985
========= ========= ========= =========
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Items not involving cash flows:
Depreciation $ 10,515 $ 9,364 $ 2,356 $ 2,273
Severance pay (8,524) (10,779) (551) (3,949)
Gain on sale of equipment (4,735) -- -- --
Changes in operating assets and liabilities:
Decrease (increase) in receivables
and prepaid expenses 19,738 (4,697) (1,162) (4,624)
Increase (decrease) in sundry payables and
Accrued expenses (103,232) 6,646 (23,012) (7,235)
--------- --------- --------- ---------
$ (86,238) $ 534 $ (22,369) $ (13,535)
========= ========= ========= =========
</TABLE>
The notes to the consolidated financial statements
form an integral part thereof.
F-11
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - GENERAL
A. The Company, a registered company in the Dutch Antilles, is a
wholly owned subsidiary of Bayou International Ltd., (the "parent
company") a publicly traded corporation in the United States.
The Company is engaged, through its subsidiary, Solmecs (Israel)
Ltd., in the research and development of energy conversion
systems, and sales of advanced photo-voltaic cells.
B. The financial statements of the Company have been prepared in
U.S. dollars, as the Company's revenues are determined
principally in U.S. dollars and its primary source of financing
is received in U.S. dollars. Thus, the functional currency of the
Company is the U.S. dollar.
Transactions and balances denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in
other currencies are remeasured into U.S. dollars in accordance
with principles identical to those set forth in Statement No. 52
of the Financial Accounting Standards Board of the United States.
Exchange gains and losses from the aforementioned remeasurement
are reflected in the statement of operations. The representative
rate of exchange at September 30, 1997 was U.S.$ 1.00 = 3.497 New
Israeli Shekel ("NIS") (1996 - NIS 3.220) and at June 30, 1997
was U.S.$1.00 = NIS 3.587 (1996 - NIS 3.203).
C. The Company has incurred substantial operating losses and at
September 30, 1997, has an accumulated deficit of approximately
$12,565,000. At September 30, 1997, the Company's working capital
deficiency and shareholders' deficiency amounted to approximately
$130,000 and $5,385,000, respectively. The Company is not
generating sufficient revenues from its operations to fund its
activities and anticipates that it will continue to incur losses
for some time. The Company is continuing its efforts in systems
development which will require substantial additional
expenditures.
F-12
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - GENERAL (Cont'd)
C. (Cont'd)
The parent company has historically provided the financing
necessary for the Company's operations and the Company's ability
to continue as a going concern is dependent on obtaining such
financing from the parent company or from other sources. There is
no assurance that the Company will be able to obtain such
financing in the future.
D. 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.
E. Unaudited Information
The financial statements include the unaudited balance sheet as
of September 30, 1997, and statements of operations and cash
flows for the three month periods ended September 1996 and 1997.
This unaudited information has been prepared by the Company on
the same basis as the audited consolidated financial statements
and in management's opinion, reflects all adjustments (consisting
only of normal recurring adjustments) necessary for a fair
presentation of the financial information in accordance with
generally accepted accounting principles for the periods
presented. Operating results for the three month period ended
September 30, 1997 is not necessarily indicative of the results
that may be expected for the year ending June 30, 1998.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in conformity with
generally accepted accounting principles in the United States. The
significant accounting policies followed in the preparation of the
financial statements, applied on a consistent basis, are:
F-13
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. Material intercompany
balances and transactions have been eliminated in consolidation.
B. CASH EQUIVALENTS
Cash equivalents include deposits, the maturity of which, as of
the date of deposit, does not exceed three months.
C. EQUIPMENT
Equipment is stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the
estimated useful lives of the assets, ranging from five to
fifteen years.
D. REVENUE RECOGNITION
Revenues from sales of merchandise are recognized upon shipment.
Revenues from contract services are recognized as the work is
performed, according to contract benchmarks.
At the end of each period presented, the balance of trade
receivables is comprised mainly of a few customers, and
accordingly no allowance for doubtful accounts is considered
necessary.
E. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as
incurred.
F. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based on the weighted
average number of ordinary shares outstanding during each period.
Earnings are adjusted for noncumulative dividends on preferred
shares only if such dividends have been declared.
F-14
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - OTHER RECEIVABLES AND PREPAID EXPENSES
June 30 September 30
1997 1997
------- -------
Advance payments to
suppliers $ 4,528 $ 6,700
Prepaid expenses 2,826 2,918
Value Added Tax refundable 1,990 3,485
Other 4,700 2,187
------- -------
$14,044 $15,290
======= =======
Note 4 - SHORT-TERM BORROWING
Short-term borrowing is an unsecured loan received from a private
institution. The loan is in U.S. dollars and bears interest at the
rate of 8% per annum. The maturity is the earlier of June 30, 1998, or
the consummation of a transaction or financing that will provide
proceeds of at least $3 million to the Company.
Note 5 - SUNDRY PAYABLES AND ACCRUED EXPENSES
June 30 September 30
1997 1997
-------- --------
Ben-Gurion University for
services rendered $ 86,801 $ 86,801
Payroll and related expenses 40,485 41,485
Accrued interest and other
expenses 20,194 13,380
Advance from customer 16,767 17,199
Other 18,051 16,198
-------- --------
$182,298 $175,063
======== ========
F-15
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - PARENT COMPANY
The loan from the parent company does not bear interest. Maturity
dates have not yet been determined, however the parent company has
notified the Company that it will not call the loan before October 1,
1998.
Note 7 - LONG-TERM LOAN
The long-term loan is interest free. The date of repayment has not yet
been determined.
Note 8 - SEVERANCE PAY
The subsidiary's obligation in Israel in respect of severance pay to
employees is covered by insurance policies. The amounts on deposit
with the insurance companies are not under the control or management
of the subsidiary, and therefore, such amounts and the related
liability are not reflected in the balance sheet.
The accrual in the balance sheet represents the unfunded portion of
the severance obligation.
Note 9 - COMMITMENTS
A. In accordance with an agreement dated November 5, 1981, between
the Company, Ben-Gurion University and B.G. Negev Technology and
Applications Ltd. (BGU), the subsidiary in Israel is conducting
research and development projects on the campus of Ben-Gurion
University in consideration for a fee for the use of the
facilities. The Company owns the patents connected with these
projects and agreed to pay royalties to BGU at the rate of 1.725%
on sales of products and at the rate of 11.5% on income from
licensing fees.
The Company also agreed to assume the obligation of BGU to pay
royalties to the Ministry of National Infrastructure on products
developed from these R&D projects for its participation in the
research and development costs of BGU. The royalties are to be
paid at the rate of 1% on sales of products and at the rate of 5%
on income from licensing fees. As of September 30, 1997, this
liability amounted to approximately $315,000 (including linkage
to the Consumer Price Index and interest at 4% per annum).
Subsequent to the repayment of the liability, the Company is to
pay royalties to the Ministry of National Infrastructure at a
reduced rate of 0.3% on sales of products and at the rate of 2%
on income from licensing fees.
F-16
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - COMMITMENTS (cont'd)
A. (cont'd)
Through September 30, 1997, there were no sales or income on
which royalties were payable to BGU and the Ministry of National
Infrastructure.
B. International Lead Zinc Research Organization (ILZRO)
In connection with a research contract with ILZRO, the subsidiary
agreed to pay ILZRO a fee for any lead used in future production
by the subsidiary. The total fee commitment is limited to
$1,864,000. Through September 30, 1997, the subsidiary has not
used any lead for which it is required to pay fees.
C. Chief Scientist of the Government of Israel
For the period from 1981 to 1991, the subsidiary received
participations from the Chief Scientist of $ 2,274,420 towards
the cost of a research and development project. In return, the
subsidiary is required to pay royalties at the rate of 2% of
sales of know-how or products derived from the project.
Through September 30, 1997, there were no sales on which
royalties were payable.
D. Subsequent to September 30, 1997, the subsidiary entered into a
lease agreement of premises for a period of two years ending
November 1999 for an annual rent of $41,000.
Note 10 - SHARE CAPITAL
The preferred "A" shares are entitled to a 5% non-cumulative dividend.
All other rights of the preferred shares are identical to those of the
common "B" shares.
F-17
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - INVESTMENT IN SHARES OF PARENT COMPANY
The Company owns 50,000 shares of its parent company, the investment
in which is stated at cost. The fair market value of the shares as of
September 30, 1997, is approximately $12,500.
Note 12 - REVENUES
For the
For the year ended three months ended
June 30 September 30
--------------- --------------
1996 1997 1996 1997
% % % %
----- ----- ----- -----
(Unaudited)
Revenues by geographic
areas are as follows:
United States 69 -- -- --
Israel 31 100 100 100
--- --- --- ---
100 100 100 100
=== === === ===
Sales to single customers
exceeding 10%:
Customer A 69 -- -- --
Customer B -- 60 81 --
Customer C -- 31 -- 100
Customer D 16 -- 9 --
Note 13 - RESEARCH AND DEVELOPMENT COSTS
For the
For the year ended three months ended
June 30 September 30
------------------- -------------------
1996 1997 1996 1997
-------- -------- -------- --------
(Unaudited)
Salaries and related expenses $275,939 $219,642 $ 59,637 $ 52,310
Materials 8,157 6,187 564 802
Subcontractors 10,337 18,285 -- 6,029
Consultants 26,049 9,074 2,548 --
Fee for use of facilities 13,200 13,711 3,300 3,300
Other 13,636 9,360 2,110 4,737
-------- -------- -------- --------
$347,318 $276,259 $ 68,159 $ 67,178
======== ======== ======== ========
F-18
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - GENERAL AND ADMINISTRATIVE EXPENSES
For the
For the year ended three months ended
June 30 September 30
------------------- -------------------
1996 1997 1996 1997
-------- -------- -------- --------
(Unaudited)
Salaries and related expenses $136,689 $ 88,133 $ 13,879 $ 21,960
Professional fees 38,054 43,820 11,389 14,463
Consulting fees 31,438 822 1,489 589
Communications 30,730 23,032 6,207 4,551
Foreign travel 43,484 9,143 1,238 3,958
Depreciation 10,515 9,364 2,356 2,273
Other 32,704 45,999 6,851 6,787
-------- -------- -------- --------
$323,614 $220,313 $ 43,409 $ 54,581
======== ======== ======== ========
Note 15 - TAXES ON INCOME
A. The Company has carryforward losses of approximately $2.4 million
as of June 30, 1997, which expire in the years 1998-2002. Due to
the uncertainty as to realization of these losses, a valuation
allowance for the entire amount of the tax benefit has been
recorded.
B. The subsidiary in Israel is subject to the Income Tax Law
(Inflationary Adjustments), 1985, which measures income on the
basis of changes in the Israeli Consumer Price Index. For tax
purposes, the subsidiary reports on a December 31 year-end.
The carryforward losses of the subsidiary for tax purposes as of
December 31, 1996 are approximately $250,000. In addition,
research and development expenses in the approximate amount of
$700,000 will be deductible for tax purposes upon recognition of
income derived from the R&D project. Due to the uncertainty as to
realization, a valuation allowance of approximately $342,000 has
been provided in respect of these deferred tax assets.
The subsidiary has received final income tax assessments through
December 31, 1995.
F-19
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Consolidated Financial Statements as of September 30,
1997 and for the year ended June 30, 1997 and the three months ended September
30, 1997 have been prepared to reflect the combined financial position and the
results of SCNV Acquisition Corp. (the "Company") and Solmecs Corporation N.V.
and its subsidiaries ("Solmecs"), as if the Combination, described in Note 1,
had been effective as of September 30, 1997, July 1, 1996 and July 1, 1997,
respectively. The acquisition of Solmecs has been accounted for as a purchase
and the excess of purchase price over fair value of assets acquired of
$3,106,265, will be reflected as acquired research and development in process
and fully expensed at the date of the acquisition. The pro forma financial
information is unaudited and not necessarily indicative of the consolidated
results which actually would have occurred if the Combination had been
consummated at the beginning of the periods presented, nor does it purport to
represent the future financial position and results of operations for future
periods.
F-20
<PAGE>
SCNV ACQUISITION CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SCNV Solmecs Pro Forma Pro Forma
Acquisition Corporation Adjustments SCNV
Corp. N.V. Acquisition Corp.
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 43,985 $ -- $ 43,985
Trade receivables -- 35,645 -- 35,645
Deferred public offering costs 50,000 -- -- 50,000
Other receivables and
prepaid expenses -- 15,290 -- 15,290
------------ ------------ ------------ ------------
Total current assets 50,000 94,920 -- 144,920
------------ ------------ ------------ ------------
EQUIPMENT
Cost -- 164,292 -- 164,292
Less - accumulated
depreciation -- 128,732 -- 128,732
------------ ------------ ------------ ------------
-- 35,560 -- 35,560
------------ ------------ ------------ ------------
Total assets $ 50,000 $ 130,480 $ -- $ 180,480
============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS'
DEFICIENCY
CURRENT LIABILITIES
Short-term borrowing
from stockholder $ -- $ 50,000 $ -- $ 50,000
Sundry payables -- 161,683 -- 161,683
Accrued expenses 25,000 13,380 -- 38,380
------------ ------------ ------------ ------------
Total current liabilities 25,000 225,063 -- 250,063
------------ ------------ ------------ ------------
LONG-TERM LIABILITIES
Stockholders' loans 17,408 5,078,293 (5,078,293) 2(c) 17,408
Long-term loan -- 200,000 -- 200,000
Accrued severance pay -- 11,682 -- 11,682
------------ ------------ ------------ ------------
Total long-term liabilities 17,408 5,289,975 (5,078,293) 229,090
------------ ------------ ------------ ------------
Total liabilities 42,408 5,515,038 (5,078,293) 479,153
------------ ------------ ------------ ------------
SHAREHOLDERS' DEFICIENCY
Share capital 7,592 54,182 (47,174) 2(a),2(e) 14,600
Share premium -- 7,626,155 (4,833,163) 2(a),2(e) 2,792,992
Accumulated deficit -- (12,564,895) 9,458,630 2(b)-2(e) (3,106,265)
------------ ------------ ------------ ------------
Total shareholders' deficiency 7,592 (4,884,558) 4,578,293 (298,673)
Less - Cost of shares of
parent company -- (500,000) 500,000 2(d) --
------------ ------------ ------------ ------------
Total shareholders' deficiency 7,592 (5,384,558) 5,078,293 (298,673)
------------ ------------ ------------ ------------
Total liabilities and
shareholders deficiency $ 50,000 $ 130,480 $ -- $ 180,480
============ ============ ============ ============
</TABLE>
The accompanying notes and management's assumptions to the pro forma
consolidated financial statements are an integral part of this statement.
F-21
<PAGE>
SCNV ACQUISITION CORP.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the year ended For the three months ended
June 30, 1997 September 30, 1997
------------------------------------------ -----------------------------------------
Pro Forma Pro Forma
Solmecs SCNV Solmecs SCNV
Corporation Pro Forma Acquisition Corporation Pro Forma Acquisition
N.V. Adjustments Corp. N.V. Adjustments Corp.
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales $51,841 $ -- $51,841 $3,327 $ -- $3,327
Contract services 5,435 -- 5,435 4,016 -- 4,016
--------- --------- --------- --------- --------- ---------
Total revenues 57,276 -- 57,276 7,343 -- 7,343
--------- --------- --------- --------- --------- ---------
COSTS AND EXPENSES
Research and development costs 276,259 -- 276,259 67,178 -- 67,178
Cost of merchandise purchased 48,638 -- 48,638 2,613 -- 2,613
Marketing expenses 42,906 -- 42,906 7,964 -- 7,964
General and administrative
expenses 220,313 120,000(f) 340,313 54,581 30,000(f) 84,581
--------- --------- --------- --------- --------- ---------
Total costs and expenses 588,116 120,000 708,116 132,336 30,000 162,336
--------- --------- --------- --------- --------- ---------
Operating loss (530,840) (120,000) (650,840) (124,993) (30,000) (154,993)
FINANCING INCOME
(EXPENSES), NET
(10,484) -- (10,484) 2,974 -- 2,974
--------- --------- --------- --------- --------- ---------
Net loss $(541,324) $(120,000) $(661,324) $(122,019) $(30,000) $(152,019)
========= ========= ========= ========= ========= =========
Pro Forma Net loss per share $(0.45) $(0.10)
------ ------
Weighted average number of
shares outstanding 1,460,000 1,460,000
========= =========
</TABLE>
The accompanying notes and management's assumptions to the pro forma
consolidated financial statements are an integral part of these statements.
F-22
<PAGE>
SCNV ACQUISITION CORP.
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1997 and for the year ended June 30, 1997 and for the three
months ended September 30, 1997
1. Basis of Presentation
SCNV Acquisition Corp. (the "Company) was organized under the laws of the
State of Delaware on May 19, 1997, to raise equity capital, acquire Solmecs
Corporation N.V. ("Solmecs") and select, develop and commercially exploit
proprietary technologies, in various stages of development, invented
primarily by scientists who have recently immigrated to Israel from, and by
scientists and institutions in Russia and other countries that formerly
comprised the Soviet Union. In furtherance of these goals, the Company
entered, on June 19, 1997, into a letter of intent with an underwriter to
pursue an Initial Public Offering of its common stock (the "IPO").
Simultaneously with the consummation of the IPO, the Company will acquire
all of the issued and outstanding capital stock of Solmecs in consideration
for 700,800 shares of the Company's common stock issued to Bayou
International, Ltd. ("Bayou"), the parent of Solmecs. The acquisition has
been accounted for as a purchase. The excess of purchase price over fair
value of assets acquired of $3,106,265, will be reflected as acquired
research and development in process and fully expensed at the date of the
acquisition.
The accompanying unaudited pro forma financial statements data reflects the
combined financial position and the results of the Company and Solmecs as
if the Combination had been effective as of September 30, 1997, July 1,
1996 and July 1, 1997, respectively, without giving effect to the IPO.
This pro forma financial statement should be read in conjunction with the
historical financial statements and notes thereto of the Company as of
September 30, 1997 (unaudited) and the financial statements of Solmecs as
of June 30, 1997 and as of September 30, 1997 (unaudited). In management's
opinion, all material adjustments necessary to reflect the effects of the
Combination have been made.
The unaudited pro forma consolidated statements of operations is not
necessarily indicative of what actual results of operations of the Company
would have been assuming the Combination had been completed as of July 1,
1996 and July 1, 1997, respectively, nor is it necessarily indicative of
the results of operations for future periods.
F-23
<PAGE>
2. Adjustments to Pro Forma Consolidated Financial Statements
The adjustments were made in order to reflect:
(a) The acquisition of Solmecs in consideration for 700,800 shares of the
Company's common stock issued to Bayou for a purchase price of
$2,800,000.
(b) One-time write-off of acquired research and development in process of
$3,106,265.
(c) The forgiveness by Bayou of a loan to Solmecs of $5,078,293.
(d) The return of Bayou's shares held by Solmecs, amounted to $500,000.
(e) Consolidation of the Company's financial statements with Solmecs
financial statements.
(f) The payment of approximately $120,000 (approximately $30,000 per
quarter) to officers in accordance with employment agreements.
F-24
<PAGE>
================================================================================
No dealer, sales person or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriter. 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 to sell or a solicitation of an offer to buy any securities by anyone 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 contained herein is correct as of
any time subsequent to the date hereof.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary..................................... 3
Risk Factors........................................... 12
Use of Proceeds........................................ 22
Dilution............................................... 24
Capitalization......................................... 26
Selected Financial Data................................ 27
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 29
Business............................................... 34
Management............................................. 45
Principal Stockholders................................. 49
Certain Transactions................................... 50
Description of Securities.............................. 51
Shares Eligible for Future Sale........................ 54
Conditions in Israel................................... 54
Certain Tax Considerations............................. 58
Underwriting........................................... 63
Experts................................................ 65
Legal Matters.......................................... 66
Additional Information................................. 66
Index to Financial Statements......................... F-1
----------
================================================================================
1,460,000 Units
SCNV ACQUISITION
CORP.
1,460,000 Shares of Common Stock
and
Class A Redeemable Warrants to
Purchase
1,460,000 Shares of Common Stock
----------
PROSPECTUS
----------
Patterson Travis, Inc.
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") contains
the provisions entitling the Registrant's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorney's fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Registrant. In its Certificate of Incorporation, the Registrant
has included a provision that limits, to the fullest extent now or hereafter
permitted by the DGCL, the personal liability of its directors to the Registrant
or its stockholders for monetary damages arising from a breach of their
fiduciary duties as directors. Under the DGCL as currently in effect, this
provision limits a director's liability except where such director (i) breaches
his duty of loyalty to the Registrant or its stockholders, (ii) fails to act in
good faith or engages in intentional misconduct or a knowing violation of law,
(iii) authorizes payment of an unlawful dividend or stock purchase or redemption
as provided in Section 174 of the DGCL, or (iv) obtains an improper personal
benefit. This provision does not prevent the Registrant or its stockholders from
seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against actions
taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also includes provisions to the effect
that (subject to certain exceptions) the Registrant shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as may from time to time be in effect. In addition, the By-Laws
require the Registrant to indemnify, to the full extent permitted by law, any
director, officer, employee or agent of the Registrant for acts which such
person reasonably believes are not in violation of the Registrant's corporate
purposes as set forth in the Certificate of Incorporation. At present, the DGCL
provides that, in order to be entitled to indemnification, an individual must
have acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the Registrant's best interests.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any charter provision, by-law, contract, arrangement,
statute or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. See Item 28.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's Non-Accountable
Expense Allowance) are as follows:
Securities and Exchange Commission registration fee................. $5,203.72
NASD filing fee..................................................... 2,263.99
Nasdaq listing fee.................................................. *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue sky fees and expenses (including legal fees)................... *
Transfer agent, warrant agent and registrar fees and expenses....... *
II-1
<PAGE>
Miscellaneous.................................................... *
--------
Total................................................. $400,420.00
==========
- ----------
* To be provided by amendment.
Item 27. Exhibits.
Exhibit
Number Description
------ -----------
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealer Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.3 Bylaws of the Registrant.
*4.1 Form of Registrant's Common Stock Certificate.
4.2 Form of Public Warrant Agreement among the Registrant and
American Stock Transfer & Trust Company, as Warrant Agent.
*4.3 Form of Registrant's Public Warrant Certificate.
*4.4 Form of Registrants Unit Certificate.
4.5 Form of Underwriter's Unit Purchase Option.
*5.1 Opinion of Tenzer Greenblatt LLP.
*10.1 Acquisition Agreement between SCNV Acquisition Corp., Solmecs
Corporation, N.V. and Bayou International Ltd.
23.1 Consent of Arthur Andersen LLP, Independent Certified Public
Accountants.
23.2 Consent of Luboshitz Kasierer & Co., Member of Andersen Worldwide
SC, Independent Public Accountants.
*23.3 Consent of Tenzer Greenblatt LLP (will be contained in such firm's
opinion filed as Exhibit 5.1).
24.1 A power of attorney relating to the signing of amendments hereto is
incorporated in the signature pages of this Registration Statement.
- ----------
* To be filed by amendment.
II-2
<PAGE>
Item 28. Undertakings.
The undersigned registrant hereby undertakes to:
(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 set forth in
the Registration Statement;
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Securities Act, treat each such
post-effective amendment as a new registration of the securities offered, and
the offering of such securities at that time to be initial bona fide offering;
and
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby under writing agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Securities and Exchange Commission declares it effective; and (3) that for
the purpose of determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
Registration Statement for the securities offered in the Registration Statement
therein, and treat the offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<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 for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of
New York, State of New York on January 8, 1998.
SCNV ACQUISITION CORP.
By: /s/ Herman Branover
----------------------------
Herman Branover
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Emmanuel Althaus and Herman Branover, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities (until revoked in writing) to sign any and all amendments
(including pre-effective amendments and post-effective amendments and amendments
thereto) to this Registration Statement on Form SB-2 of SCNV Acquisition Corp.
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each acting
alone or his substitute, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title(s) Date
/s/ Emmanuel Althaus Chairman of the Board January 8, 1998
- ----------------------------- of Directors
Emmanuel Althaus
/s/ Herman Branover President, Chief January 8, 1998
- ----------------------------- Executive Officer
Herman Branover and Director
/s/ Shaul Lesin Executive Vice January 8, 1998
- ----------------------------- President
Shaul Lesin
/s/ Jacline Bauli Chief Financial January 8, 1998
- ----------------------------- Officer
Jacline Bauli
II-4
EXHIBIT 1.1
1,460,000 Units
(Each Unit consisting of one share of Common Stock, par value $.01 per
share, and one Class A Redeemable Common Stock Purchase Warrant, each
exercisable to purchase one share of Common Stock)
SCNV ACQUISITION CORP.
UNDERWRITING AGREEMENT
New York, New York
________ ___, 1998
Patterson Travis, Inc.
One Battery Park Plaza
New York, NY 10004
SCNV Acquisition Corp., a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "Underwriter") an aggregate of 1,460,000 Units (each
Unit consisting of one share of Common Stock, par value $.01 per share ("Common
Stock"), and one Class A Redeemable Common Stock Purchase Warrant ("Warrants")
to purchase one share of Common Stock at $5.50 per share for a period of four
(4) years commencing__________ __, 1999, 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 219,000 additional Units.
Unless the context otherwise requires, the aggregate of 1,460,000 shares
of Common Stock and Warrants to be sold by the Company, together with all or any
part of the 219,000 Units which
1
<PAGE>
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), are herein collectively called the "Securities."
You have advised the Company that you desire to purchase the Units. The
Company confirms the agreements made by it with respect to the purchase of the
Units 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- _____ ) on Form SB-2
relating to the public offering of the Units, 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, unless the context otherwise
requires, the term "Company" shall mean SCNV Acquisition Corp., Solmecs,
N.V. ("Solmecs") and their respective subsidiaries; the term "Registration
Statement" means such registration statement, as
2
<PAGE>
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, 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 stabilization, the paragraph under the
heading "Underwriting" relating to concessions to certain dealers, 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
3
<PAGE>
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) Each of the Company, Solmecs, Solmecs (Israel) Ltd. and Heatex
Ltd. 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 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
its business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company as of the date of the Prospectus is as set forth in the Prospectus
under "Capitalization"; the shares of issued and outstanding capital stock
of the Company set forth thereunder 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; and the capital stock conforms to
all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Units and the 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 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
4
<PAGE>
limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and holders thereof
will be 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 Shares and the Warrants contained in the Underwriter's Options (as
defined in the Registration Statement) have been duly authorized and, when
duly issued and delivered, such Shares and 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 Underwriter's
Options, 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 Underwriter's Options may be unenforceable. The shares of Common Stock
included in the Underwriter's Options (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 Underwriter's Options 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
5
<PAGE>
+required in connection with such authorization, execution and delivery or
in connection with the authorization, issuance, and sale of the Units or
the Underwriter's Options, except such as may be required under the Act,
state securities laws or by the National Association of Securities Dealers,
Inc. (The "NASD").
(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 taken as a whole (a
"Material Adverse Effect"), neither the Company, Solmecs or the
Subsidiaries is in violation, breach, or default of or under, and
consummation of the transactions herein contemplated and the fulfillment of
the terms of this Agreement will not conflict with, or result in a breach
or violation of, any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge, or
encumbrance upon any of the property or assets of either of them pursuant
to the terms of, any material indenture, mortgage, deed of trust, loan
agreement, or other agreement or instrument to which either or them is a
party or by which either of them may be bound or to which any of their
properties or assets is subject, nor will such action result in any
violation of the provisions of the certificate of incorporation or the
by-laws of either of them, 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 either of
them.
(h) Subject to the qualifications stated in the Prospectus, each of
the Company, Solmecs and the Subsidiaries have good and marketable title to
all properties and assets described in the Prospectus as owned by them,
free and clear of all liens, charges, encumbrances or restrictions, except
such as are not materially significant or important in relation to their
business; all of the material leases and subleases under which either of
them are the lessor or sublessor of properties or assets or under which
either of them 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, none of them are 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 either of them as lessor,
sublessor, lessee,
6
<PAGE>
or sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of either of them 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
all of them own or lease all such properties described in the Prospectus as
are necessary to their operations as now conducted and, except as otherwise
stated in the Prospectus, as proposed to be conducted as set forth in the
Prospectus.
(i) _______________ , who have given their report on certain financial
statements filed with the Commission as a part of the Registration
Statement, are with respect to the Company, independent public accountants
within the meaning of the Act and the Rules and Regulations.
(j) The 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 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", "Capitalization" and
"Dilution" 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, neither the Company, Solmecs or the
Subsidiaries has 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 long-term debt by, either of them or any
issuance of options, warrants or other rights to purchase the capital stock
of either of them or any material adverse change or any development
involving, so far as the Company can now reasonably foresee a prospective
adverse change in the condition
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(financial or other), net worth, results of operations, business, key
personnel or properties of them which would have a 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, Solmecs or the Subsidiaries is a party
before or by any court or governmental agency or body, which might result
in a Material Adverse Effect on the Company, nor are there any actions,
suits or proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion or race; and no labor
disputes involving the employees of the Company, Solmecs and the
Subsidiaries exist or to the knowledge of the Company are threatened which
might be expected to have a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company, Solmecs and
the Subsidiaries has filed all necessary federal, state, and foreign income
and franchise tax returns required to be filed as of the date hereof
(taking into account all extensions of time to file) and has paid all taxes
shown as due thereon; and there is no tax deficiency which has been
asserted against the Company.
(n) Except as disclosed in the Prospectus, the Company, Solmecs and
the Subsidiaries have 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 had
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, Solmecs and the Subsidiaries are in
violation of, or cause the Company, Solmecs and the Subsidiaries to
violate, any law, rule, regulation, or order of Israel, 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, or of any agency or body of
8
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Israel, the violation of which would have a Material Adverse Effect.
(o) The Company has not, directly or indirectly, at any time (i) made
any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other
than payments or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the Foreign
Corrupt Practices Act of 1977, as amended.
(p) On the Closing 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 hereunder will
have been fully paid or provided for by the Company and all laws imposing
such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not entered into any agreement pursuant to which
any person is entitled either directly or indirectly to compensation from
the Company for services as a finder in connection with the proposed public
offering.
(s) Except as disclosed in the Prospectus, no officer, director, or
stockholder of the Company or its subsidiaries has any NASD affiliation.
(t) No other firm, corporation or person has any rights to underwrite
an offering of any of the Company's securities.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the
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shares of Common Stock to facilitate the sale or resale of the Units
hereby.
(v) The Company has no subsidiaries. On the Effective Date, Solmecs
will merge with and into the Company. Solmecs has no subsidiaries other
than Solmecs (Israel) Ltd. and Heatex Ltd., both Israeli companies (the
"Subsidiaries"). The Company does not own, directly or indirectly, any
share capital or other equity ownership or proprietary interests in any
other corporation, association, trust, partnership, joint venture or other
entity. Except as disclosed in the Prospectus, Solmecs owns all of the
shares of the Subsidiaries free and clear of all liens, security interests
and encumbrances.
(w) The Company is not, and upon receipt of the proceeds from the sale
of the Units will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(x) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the
offering and sale of the Units other than the Preliminary Prospectus,
Prospectus, the Registration Statement or the other materials permitted by
the Act, if any.
(y) There are no business relationships or related-party transactions
of the nature described in Item 404 of Regulation S-K involving the
Company, Solmecs and the Subsidiaries and any person directed in such Item
that are required to be disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and that have
not been so disclosed therein.
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 contained herein, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to buy from the Company at $3.69 per Unit, at the place and time hereinafter
specified, 1,460,000 Units (the "First Units").
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Delivery of the First 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) at 10:00 a.m., New York time, ___________ , 1998,
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 ___________ , 1998, such time and date of payment and delivery for the
First Units 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 contained
herein, the Company hereby grants an option to the Underwriter to purchase all
or any part of an aggregate of an additional 219,000 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
45 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 55 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
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hereunder available to the Underwriter for inspection at least two full business
days prior to the First Closing Date or the Option Closing Date, as the case may
be,(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 therefor 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 to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement is declared effective
by the Securities and Exchange Commission (the "SEC").
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 be declared effective. If required, the
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<PAGE>
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
contemplated hereby (but in no event more than nine months after the date
on which the Registration Statement shall have been declared effective) and
(B) 25 days after the date on which the Registration Statement shall have
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.
As soon as the Company is advised thereof, the Company will advise the
Underwriter, and provide the Underwriter with 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
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<PAGE>
consented and hereby consents to the use of such copies for the purposes
permitted by the Act. The Company authorizes the Underwriter and dealers to
use the Prospectus in connection with the sale of the Units 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 materially affects 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 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 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.
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<PAGE>
(b) The Company will furnish such information as may be required and
will 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 reasonably 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.
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, but not for a period of less than five (5) years.
(c) If the sale of the Units provided for herein is not consummated as
a result of the Company's actions or failure to take such actions as the
Underwriter reasonably believes are reasonably required to complete the
transaction, 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 expenses itemized in
Section 8, including the actual accountable out-of-pocket expenses of the
Underwriter (including the reasonable fees and expenses of counsel to the
Underwriter), which shall not exceed $100,000. If the sale of the Units
provided herein is not consummated and the reasons therefore are reasonably
related to a Material Adverse Effect on the Company, the Company shall pay
the Underwriter promptly its actual out-of-pocket expenses not to exceed
$100,000.
(d) The Company will use its best efforts (i) to cause a registration
statement under the Exchange Act 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) to obtain
and keep current a listing in the Standard & Poors Manual for a period of
five (5) years from the Effective Date. The Company shall use its best
efforts to obtain such lisitng on the Effective Date (by using the most
expeditious listing offered by Standard & Poors).
(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act, the
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<PAGE>
Company, at its expense, will furnish to its stockholders an annual report
(including financial statements audited by independent public accountants),
in reasonable detail and at its expense, will furnish to the Underwriter
during the period ending five (5) years from the date hereof, (i) as soon
as practicable after the end of each fiscal year, but no earlier than the
filing of such information with the Commission, a balance sheet of the
Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company
and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, but no earlier than the filing
of such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as
soon as they are publicly available, a copy of all reports (financial or
other) mailed to security holders; (iv) as soon as they are available, a
copy of all non-confidential reports and financial statements furnished to
or filed with the Commission or any securities exchange or automated
quotation system on which any class of securities of the Company is listed;
and (v) such other information as you may from time to time reasonably
request. In addition, the Company shall deliver to the Underwriter for a
three (3) year period following the effective date, copies of all transfer
sheets relating to the Company's securities.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will 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
16
<PAGE>
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 or promptly after 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 deliver to the Underwriter as soon as it is
practicable copies of all reports filed with the Commission under the
Exchange 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 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 Warrants and Underwriter's Options and warrants thereunder outstanding
from time to time.
(l) For a period of twenty-four (24) months from the Effective Date,
no officers or directors, nor any shareholder of the Company's securities
prior to the offering, as well as all holders of restricted securities of
the Company, will, directly or indirectly, offer, sell (including any short
sale), grant any option for the sale of, transfer or gift (except for
estate planning or charitable transfers or other privates sales, provided
the transferees agree to be bound by the same restrictions on transfer),
acquire any option to dispose of, or otherwise dispose
17
<PAGE>
of any shares of capital stock without the prior written consent of the
Underwriter, other than as set forth in the Registration Statement. In
order to enforce this covenant, the Company shall impose stop-transfer
instructions with respect to the shares owned by such persons prior to the
offering until the end of such period (subject to any exceptions to such
limitation on transferability set forth in the Registration Statement). In
addition, all such persons shall waive any of their registration rights
with respect to all such securities for such twenty-four (24) month period.
In addition, the Company agrees not to file any other registration
statement (excluding a registration statement on Form S-8 or successor form
so long as the shares of Common Stock offered thereby are also subject to
this paragraph 3(l)) to register any securities of the Company for such
twenty-four (24) month period, and will not grant any future registration
rights without the prior written consent of the Underwriter for the same
twenty-four (24) month periods. If necessary to comply with any applicable
Blue-sky Law, the shares held by such shareholders will be escrowed, as
required by such Blue-Sky Laws. In addition, the Company shall not issue
any shares of its capital stock (or securities convertible into capital
stock) for a twenty four (24) month period without Patterson's consent,
following the Effective Date other than (i) pursuant to the Warrants (ii)
options to purchase shares of Common Stock under employee stock option
plans in accordance with the succeeding sentence, so long as the vesting
provisions of such options do not result in greater than 200,000 shares of
Common Stock vesting in such 24-month period, and(iii) pursuant to
recapitalizations, acquisitions, mergers and other combinations (in which
case Patterson's consent shall not be unreasonably withheld). The Company
may grant options to purchase up to 200,000 shares of Common Stock under
employee stock option plans to the Company's employees, officers, directors
or other consultants or advisors during the twenty-four (24) month period
following the Effective Date without the prior written consent of the
Underwriter. The grant of additional options during such period will
require the Underwriter's prior written consent. With respect to such
options to purchase 200,000 shares, the Company may not grant options at
exercise prices which are less than the Market Price at the date of the
grant without the prior written consent of the Underwriter.
For purposes of this Agreement, Market Price shall mean (i) the
average closing bid price for any ten (10) consecutive trading days within
a period of thirty (30) consecutive trading days ending
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within five (5) days prior to the date of issuance of the Common Stock as
reported by the Nasdaq Stock Market or the NASD Electronic Bulletin Board,
or (ii) the last reported sale price, for ten (10) consecutive business
days ending within five (5) days of the date of issuance on the primary
exchange on which the Common Stock is traded, if the Common Stock is traded
on a national securities exchange.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act to obtain
the listing of the Units, Common Stock and Class A Warrants in the Nasdaq
Stock Market, and will use its best efforts to effect and maintain such
listing 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, 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, or the Warrants or to
facilitate the sale or resale of the Securities.
(o) On the First Closing Date and simultaneously with the delivery of
the Units, the Company shall execute and deliver to the Underwriter the
Underwriter's Options. The Underwriter's Options will be substantially in
the form filed as an Exhibit to the Registration Statement.
(p) Intentionally omitted.
(q) Upon the Closing Dates, the Company will have in force a key
person life insurance policy on the life of Herman Branover, in the amount
of $1,000,000.00 and will maintain such insurance during the three year
period commencing with the First Closing Date.
(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, if required
by the Act, to the Registration Statement to become effective in compliance
with the
19
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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 and the filing of
the Company's 10-Q quarterly report, provided that the Company shall not be
required to file a report of such accountants relating to such review with
the Commission.
(t) The Underwriter shall have the right to request the Company to use
its best efforts to nominate one (1) nominee of the Underwriter for
election to the Board of Directors for three (3) years following the
Effective Date, and in each case the Company will use its best efforts to
cause such nominee to be elected to the Board of Directors. Until such time
as the Underwriter exercises its right to require the Company to use its
best efforts to cause a nominee of the Underwriter to be elected to the
Board of Directors and until such time as such nominee begins to serve on
the Board of Directors, 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 from all Board of Directors meetings for
three (3) 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
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its representative attending Company Board meetings on the same basis for
other Board members. In addition, the Company shall compensate such
representative as it does all other outside directors of the Company.
(u) [Intentionally Omitted-FCA]
(v) The Company agrees to pay the Underwriter a Warrant Solicitation
fee of 5.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date if (a) the Market Price of
the Company's Common Stock on the date the Warrant is exercised in greater
than the exercise price of the Warrant, (b) the exercise of the Warrant is
solicited by the Underwriter and the Underwriter is designated in writing
by the holder of such Warrant as the soliciting broker, (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 Regulation M under the
Exchange Act, and (f) solicitation of the exercise is in compliance with
the NASD Notice to Members 81-38 (September 22, 1981).
(w) For a period of three years from the Effective Date, at the
request of the Underwriter, the Company shall provide promptly, at the
expense of the Company, copies of the Company's daily transfer sheets
furnished to it by its transfer agent and copies of the securities position
listings provided to it by the Depository Trust Company.
(x) Intentionally Omitted.
(y) On or prior to the date hereof, the Company shall have entered
into an employment agreement with Herman Branover on terms and conditions
satisfactory to the Underwriter.
4. Conditions of Underwriters' Obligation. The obligations of the
Underwriter to purchase and pay for the Units 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:
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(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, 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) (A) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Tenzer Greenblatt LLP,
counsel for the Company, in form and substance satisfactory to counsel for
the Underwriter, to the effect that:
(i) Solmecs has merged with and into the Company as disclosed in
the Prospectus. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with 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 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
of the prospectus is as set forth under "Capitalization" in the
Prospectus; all shares of the Company's outstanding capital stock have
been duly authorized, 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 capital stock of
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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
capital stock except as provided in the Prospectus; the Common Stock,
the Warrants, the Underwriter's Options, 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 Underwriter's Options, upon issuance in accordance with the terms
of such Warrants, the Warrant Agreement and Underwriter's Options will
have been duly authorized and, when issued and delivered in accordance
with their respective terms and applicable Delaware law, will be duly
and validly issued, fully paid, non-assessable, free of preemptive
rights and no personal liability will attach to the ownership thereof;
a sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and Underwriter's Options and
to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any registration rights
other than (i) those which have been waived or satisfied for or
relating to the registration of any shares of Common Stock, (ii) those
contained in the Underwriter's Options or (iii) as described in the
Prospectus.
(iii) this Agreement, the Underwriter's Options, 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 the Warrant Agreement and at the prices therein
provided for;
(v) except as otherwise disclosed in the Registration Statement,
such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company is a party which would materially
adversely affect the business, property, financial condition, or
operations of the Company; or which question the validity of the
Securities, this Agreement, the Warrant Agreement, or the
Underwriter's Options, or of any action
23
<PAGE>
taken or to be taken by the Company pursuant to this Agreement, the
Warrant Agreement, or the Underwriter's Options; to such 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
Underwriter's Options, 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 to the best
knowledge of counsel, 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 is a party or by
which they or any of their properties is bound or in violation of any
order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, or court, domestic or
foreign, the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, (a) no stop order
suspending the effectiveness of the Registration Statement is in
effect, and (b) no proceedings for that purpose have been instituted
or are pending before, or threatened by, the Commission; the
Registration Statement and the Prospectus 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 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
24
<PAGE>
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,
licenses, and other agreements to which the Company 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,
licenses 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, licenses or agreements to which the Company
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 and such counsel does not know of any
defaults under such contracts, licenses or agreements that are not
otherwise disclosed therein;
(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 by the Company, in connection with the
execution, delivery, and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein, or
the issuance of the Underwriter's Options or the Securities underlying
the Underwriter's Options, other than registrations or qualifications
of the Units under applicable state or foreign securities or Blue Sky
laws and registration under the Act and the NASD; and
(xi) the Units, Common Stock and Warrants have been duly
authorized for quotation on the Nasdaq SmallCap Market.
25
<PAGE>
(xii) Except as disclosed in the Registration Statement, to the
best knowledge of such counsel, the Company 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. To the best knowledge of such counsel, the business of the
Company is not in violation of, or will not cause the Company to
violate any law, rule, regulation, or order of the United States, any
state, county, or locality, or of any agency or body of the United
States, or of any state, county, or locality, the violation of which
would have a Material Adverse Effect and are in compliance with all
rules and regulations pertaining to the business of the Company.
(xiii) the statements in the Registration Statement under the
caption "Certain U.S. Income Tax Considerations Regarding Shares
Acquired by U.S. Taxpayers" have been reviewed by such counsel and
insofar as such statements summarize or describe statements of United
States tax law or legal conclusions thereunder, have been reviewed by
such counsel and constitute an accurate description of the legal
matters stated therein in all material respects;
(xiv) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature described in
Item 404 of Regulation S-K involving the Company, Solmecs or the
subsidiaries, and any person described in such Item that are required
to be disclosed in the Prospectus and which have not been so
disclosed; and
(xv) the Company is not in violation of or default under, nor
will the execution and delivery of this Agreement, the Underwriter's
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, result in a breach or
violation of any material order, rule, regulation, writ, injunction or
decree (known to such counsel with respect to orders, writs,
injunctions or decrees) of any United States or Delaware government,
governmental instrumentality or court except where such violations or
defaults would not have a Material Adverse Effect.
26
<PAGE>
(B) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of _____
__________________, counsel for the Company, in form satisfactory to
counsel for the Underwriter, to the effect that:
(i) the Subsidiaries have been duly incorporated and are validly
existing as corporations in good standing under the laws of the State
of Israel, with all requisite corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and Prospectus. The Subsidiaries are wholly-owned by the
Company, free and clear of any and all liens, security interests and
encumberances;
(ii) to such counsel's knowledge the outstanding shares of share
capital of the Subsidiaries have not been issued in violation of the
preemptive rights of any shareholder, nor are there any restrictions
upon the voting or transfer of any of the share capital except as
provided in the Prospectus;
(iii) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened Israeli
legal or governmental proceedings to which the Company is a party
which would materially adversely affect the business, property,
financial condition, or operations of the Company, Solmecs or the
Subsidiaries; or which question the validity of the Securities, this
Agreement, the Warrant Agreement, or the Underwriter's Purchase
Option, or of any action taken or to be taken by the Company pursuant
to this Agreement, the Warrant Agreement, or the Underwriter's
Purchase Option; and no such proceedings are known to such counsel to
be contemplated against the Company; to such counsel's knowledge there
are no such Israeli governmental proceedings or regulations required
to be described or referred to in the Registration Statement which are
not so described or referred to;
(iv) to the best knowledge of such counsel, neither the Company,
Solmecs or the Subsidiaries is in violation of or default under nor
will the execution and delivery of this Agreement, the Underwriter's
Purchase Option, 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
of Incorporation/By-laws
27
<PAGE>
or Memorandum of Association / Articles of Association of the Company
or Solmecs or the Subsidiaries, as the case may be, or to the best
knowledge of counsel, 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 any of them is a party or by
which they or any of their properties is bound or in violation of any
Israeli order, rule, regulation, writ, injunction, or decree of any
Israeli governmental instrumentality, or court, the result of which
would have a Material Adverse Effect;
(v) in the course of preparation of the Registration Statement
and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the contents of the
Registration Statement and Prospectus and (without taking any further
action to verify independently the statements made in the Registration
Statement and the Prospectus and, except as stated in the foregoing
opionion, without assuming responsibility for the accruacy,
completeness or fairness of such statements) 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);
(vi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other agreements to which the Company, Solmecs, or the Subsidiaries is
a party are, to such counsel's knowledge,
28
<PAGE>
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, Solmecs, or the
Subsidiaries 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 and such counsel does not know of any
material defaults under such contracts or agreements that are not
otherwise disclosed therein;
(vii) no authorization, approval, consent, or license of any
Israeli governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale, or
delivery of the Units by the Company, in connection with the
execution, delivery, and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein, or
the issuance of the Underwriter's Purchase Option or the Securities
underlying the Underwriter's Purchase Option, other than registrations
or qualifications of the Units under applicable state or foreign
securities or Blue Sky laws, registration under the Act and approval
by the NASD of the fairness of the underwriting arrangments (as to
which such counsel need express no opinion) and such permits and
approvals required under Israeli law which shall have been obtained on
or before the Closing;
(viii) except as disclosed in the Registration Statement, to the
best knowledge of such counsel, the Company, Solmecs and the
Subsidiaries have sufficient licenses, permits, and other governmental
authorizations currently necessary under Israeli law for the conduct
of its business or the ownership of its properties as described in the
Prospectus, such licenses, permits and other governmental
authorizations obtained are in full force and effect, and the Company
is in all material respects complying therewith except where the
failure to have any such licenses, permits or governmental
authorization would not have a Material Adverse Effect. To the best
knowledge of such counsel, and except as disclosed in the Registration
Statement, the business of the Company is not in violation of any
Israeli law, rule or regulation, the violation of which would have a
Material Adverse Effect and are
29
<PAGE>
in compliance in all material respects with all material rules and
regulations pertaining to the business of the Company;
(ix) to the best of such counsel's knowledge, except as disclosed
in the Prospectus, neither the filing of the Registration Statement
nor the offering or sale of the Units as contemplated by this
Agreement gives rise to any registration rights or other rights, other
than those which have been waived or satisfied for or relating to the
registration of any Ordinary Shares;
(x) the Company has obtained all consents, approvals,
authorizations, exemptions or other orders from, and has made all
registrations or filings with, any Israeli court, regulatory body,
administrative agency or other governmental body, official or agency
as is required by Israeli law for the execution, delivery and
performance of the Underwriting Agreement and the consummation of the
transactions contemplated thereby (including, but not limited to, the
issuance and sale of Units as contemplated by the Underwriting
Agreement); to the best of our knowledge, no proceedings to rescind or
modify such consents, approvals, authorizations, exemptions or orders
have been instituted or are pending or contemplated by any Israeli
authority;
[(xi) the statements in the Registration Statement under the
captions "Business - Government Regulation," "Management," and
"Description of Securities," "Israeli Taxation and Foreign Exchange
Regulations" and "Conditions in Israel" have been reviewed by such
counsel and insofar as they refer to descriptions of statements of
Israeli law, descriptions of Israeli statutes, rules or regulations or
legal conclusions, are correct in all material respects.]
Such opinions 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 opinions, such
counsel may rely upon certificates of any officer of the Company or
public officials as to matters of fact.
(C) At the First Closing Date, you shall have received the
opinion of ____________________ , special patent counsel, in form and
substance satisfactory to you, identifying any patent searches
conducted with respect to the patents and patent applications of
30
<PAGE>
the Company, Solmecs, and the Subsidiaries and providing that the
description in the Registration Statement with respect to the status
of such patents and patent applications is accurate, that the Company
(or Solmecs or the Subsidiaries, as the case may be) own the entire
right, title and interest in and to such patents and patent
applications as described in the Prospectus and have not received any
notice of conflict with the asserted rights of others in respect
thereof, that no third party has asserted any rights to any of such
patents and patent applications, no interference has been declared or
provoked with respect to any of such patents and patent applications,
there have been no interventorship challenges with respect to any of
such patents and patent applications, and that the statements in the
Prospectus under the captions " _________________________
,________________ and _______________ are true and correct.
(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 ____________________________ , 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 Date the effect of the
transactions contemplated hereby and the Company shall have performed in
all material respects as reasonably determined by the Underwriter all of
its obligations hereunder and satisfied in all material respects as
reasonably determined by the Underwriter all the conditions on its part to
be satisfied at or prior to such Closing Dates; (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
31
<PAGE>
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse
change, or to the Company's knowledge, any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term
or short-term debt, or general affairs of the Company, Solmecs or the
Subsidiaries 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, Solmecs or 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, Solmecs or the Subsidiaries
which would be required to be set forth in the Registration Statement, and
no proceedings shall be pending or threatened against the Company, Solmecs
or the Subsidiaries before or by any commission, board, or administrative
agency in the United States, Israel or elsewhere, wherein an unfavorable
decision, ruling, or finding would materially and adversely affect the
business, property, condition (financial or otherwise), results of
operations, or general affairs of the Company and (v) the Underwriter shall
have received, at the First Closing Date, a certificate signed by each of
the President and the principal operating officer of the Company, dated as
of the First Closing Date, evidencing compliance with the provisions of
this subsection (e).
(f) Intentionally Omitted.
(g) 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
will be subject (as of the date hereof and of the Option Closing Date) to
the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be
32
<PAGE>
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 you the signed opinions of Tenzer Greenblatt LLP,
________________________ and _____________ , respectively, dated as of
the Option Closing Date, in form and substance reasonably satisfactory
to Bernstein & Wasserman, LLP, counsel to the Underwriter, which
opinions shall be substantially the same in scope and substance as the
opinions furnished to you at the initial Closing Date pursuant to
Sections 4(b) hereof, except that such opinions, where appropriate,
shall cover the Option Units.
(iii) At the Option Closing Date there shall have been delivered
to you a certificate of the President and the principal operating
officer of the Company, 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 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 you a letter in form and substance satisfactory to you from
_____________ 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.
(v) 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
33
<PAGE>
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 or the Warrants 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 canceled 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. The obligation of the
Company to sell and deliver the Units 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.
(c) On the Effective Date, Solmecs shall merge with and into the
Company.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and
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<PAGE>
prior to the Option Closing Date, then only the obligation of the Company to
sell and deliver the 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)
relate to and 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 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 is made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the
35
<PAGE>
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 to any person if the misstatement or omission was corrected in the
Prospectus but a copy of the Prospectus was not delivered to such person by the
Underwriter in accordance with this Agreement 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 Section 15 of the Act or
Section 20(a) of the Exchange 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 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
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<PAGE>
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 unless the omission so to notify prejudices the indemnifying party.
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, there is a conflict of interest between
the indemnifying party and the indemnified party
37
<PAGE>
in the conduct of the defense (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 with interest
thereon.
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) such proportional amount 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 plus all other
compensation paid to the Underwriter 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
and controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference
38
<PAGE>
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. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then the Underwriter and
each person who controls the Underwriter shall be entitled to contribution from
the Company, its officers, directors, and controlling persons, 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 by 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,
39
<PAGE>
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 contemplated hereby; all expenses, including reasonable fees and
disbursements of counsel to the Underwriter, in connection with the
qualification of the Units under the state securities or Blue Sky laws which the
Underwriter shall designate (which legal fees (not including filing fees or
expenses) shall be $35,000); the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
if applicable, 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; the fees of the transfer agent
and warrant agent, reasonable and traditional advertising costs, meetings and
presentation costs; and costs of bound volumes (3 sets for the Underwriter) and
prospectus memorabilia (12 sets for the Underwriter). The Company shall pay any
and all taxes (including any transfer, franchise, capital stock, or other tax
imposed by any jurisdiction) on sales of the Units 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
$179,580. 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 of any covenant,
representation, or warranty contained herein or because any other condition to
the Underwriter's obligations hereunder required to be fulfilled by the Company
is not fulfilled) the Company shall not be liable for any expenses of the
Underwriter, including the Underwriter's legal fees (but shall be required to
pay Blue Sky counsel fees and expenses). In the event the transactions
contemplated hereby are not consummated by reason of the Company's actions or
failure to take such actions as the Underwriter reasonably believes are
40
<PAGE>
reasonably required to complete the transaction contemplated herein, the Company
shall be liable, in addition to the expenses itemized in Section 8(a) above, for
the actual accountable out-of-pocket expenses of the Underwriter (including
reasonable legal fees and expenses of counsel to the Underwriter) which shall
not exceed $100,000 (less any amount previously paid or payable pursuant to the
next sentence). In the event the transactions contemplated hereby are not
consummated due to a Material Adverse Effect or to adverse market conditions,
the Company shall be liable for the actual out-of-pocket expenses of the
Underwriter, including reasonable legal fees, not to exceed in the aggregate
$100,000.
(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. Intentionally Omitted.
10. Termination.
(a) 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 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
agreed to be purchased hereunder by reason of (i) the Company having sustained a
material loss, whether or not insured, by reason of fire, earthquake, flood,
accident, or other calamity, or from any labor dispute or court or government
action, order, or decree, (ii) trading in securities on Nasdaq having been
suspended or
41
<PAGE>
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 business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which would materially adversely affect the Company; (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 or if Solmecs is not merged with and into the Company ; (viii)
the adoption of a federal law, rule or regulation which, in the reasonable
belief of the Underwriter, would have a material adverse impact on the business
or financial condition of the Company, (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 change
having occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus, in the earnings, business prospects, or
general condition of the Company, financial or otherwise, whether or not arising
in the ordinary course of business.
(b) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by the Underwriter, by telephone or telegram,
confirmed by letter.
11. Underwriter's Options. At or before the First Closing Date, the Company
will sell the Underwriter or its designees for a consideration of $.001 per
option and upon the terms and conditions set forth in the form of the
Underwriter's Options annexed as an exhibit to the Registration Statement,
Underwriter's Options to purchase 146,000 Units. In the event of conflict in the
terms of this Agreement and the Underwriter's Options with respect to language
relating to the Underwriter's Options, the language of the Underwriter's Options
shall control.
42
<PAGE>
12. Covenants of the Underwriter. You covenant and agree with the Company
as follows:
(a) Compliance with Laws. In connection with the offer and sale of
Units, you shall comply with any applicable requirements of the Act, the
Exchange Act, the NASD and the applicable state securities or "Blue Sky"
laws, and the rules and regulations thereunder.
(b) Accuracy of Information. No information supplied by you for use in
the Registration Statement, Preliminary Prospectus, Prospectus or Blue Sky
Application will contain any untrue statements of a material fact or omit
to state any material fact necessary to make such information not
misleading.
(c) No Additional Information. You will not give any information or
make any representation in connection with the offering of the Units other
than that contained in the Prospectus.
(d) Sale of Units. You shall solicit, directly or through Selected
Dealers, purchasers of the Units only in the jurisdictions in which you
have been advised by the Company that such solicitation can be made, and in
which you or the soliciting Selected Dealer, as the case may be, are
qualified to so act.
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
regardless of any investigation made by or on behalf of the Underwriter, the
Company, or any of its officers or directors or any controlling person and will
survive delivery of and payment of the Units 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 Patterson Travis, Inc., One Battery Park Place, 2nd
Fl., New York, NY 10004, with a copy sent to Bernstein & Wasserman, LLP, 950
Third Avenue, New York, NY 10022, Attention: Stuart Neuhauser, Esq., or if sent
to the Company, will be mailed, delivered, or telecopied and confirmed to it at
7 Benzvi Road, Beer-Sheva, Israel, Attention:
43
<PAGE>
Herman Branover with a copy sent to Tenzer Greenblatt, LLP, 405 Lexington
Avenue, New York, NY 10174, Attention: Emanuel J. Adler, 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, 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.
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 and the Company.
44
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
Very truly yours,
SCNV ACQUISITION CORP.
By: ____________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
PATTERSON TRAVIS, INC.
By: __________________________
Name:
Title:
45
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.
SCNV ACQUISITION CORP.
1,460,000 UNITS
CONSISTING OF
1,460,000 SHARES OF COMMON STOCK
AND
1,460,000 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_____________________, 1998
Dear Sirs:
1. Patterson Travis, Inc., named as the underwriter in the enclosed
Preliminary Prospectus (the "Underwriter"), proposes to offer on a firm
commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement,1,460,000 units (including any additional units offered
pursuant to an over-allotment option, the "Firm Units") of SCNV Acquisition
Corp. (the "Company") each consisting of one (1) share of common stock par value
$.01 per share (the "Common Stock") and one (1) Class A Redeemable Common Stock
Purchase Warrant (the "Warrant"), to purchase one share of Common Stock. The
Firm Units 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 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 are to be offered to the public at a price of
$4.10 per Unit. Selected
<PAGE>
Dealers will be allowed a concession of ___% 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 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 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 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, 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 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, 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 purchased by you remaining unsold, and
we shall have the right to repurchase such Units upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of the
Units 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 which you purchase hereunder shall be made by you on
such date as we may determine by certified or bank cashier's check payable in
New York Clearinghouse funds to Patterson Travis, Inc. Certificates for the
securities shall be delivered as soon as practicable at the offices of Patterson
Travis, Inc., One Battery Park Plaza, New York, NY 10004. Unless specifically
authorized by us, payment by you may not be deferred until delivery of
certificates to you.
6. A registration statement covering the offering has been filed with the
Commission in respect to the Units. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or by
the Underwriter to give any information or to make any representations other
than those contained in the Prospectus in
2
<PAGE>
connection with the sale of the Units. Nothing contained herein shall render the
Selected Dealers a member of the underwriting group or partners with the
Underwriter 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 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 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; such contractual commitment can only be made in
accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("Association") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories, or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Rules 2730, 2740, 2420 and 2750 of the NASD Conduct Rules of the
Association and the interpretations of said Section promulgated by the Board of
Governors of such Association including the interpretation with respect to
"Free-Riding and Withholding"; (b) Section 10(b) of the 1934 Act and Rules 10b-6
and 10b-10 of the general rules and regulations promulgated under said Act; (c)
Securities Act Release #3907; (d) Securities Act Release #4150; and (e)
Securities Act Release #4968 requiring the distribution of a Preliminary
Prospectus to all persons reasonably expected to be purchasers of Shares from
you at least 48 hours prior to the time you expect to mail confirmations. You,
if a member of the Association, by signing this Agreement, acknowledge that you
are familiar with the cited law, rules, and releases, and agree that you will
not directly and/or indirectly violate any provisions of applicable law in
connection with your participation in the distribution of the Units.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase 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
3
<PAGE>
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
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
so purchased, and you agree to pay such amount to us on demand.
13. You agree that (i) you shall not recommend to a customer the purchase
of Firm Units 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 in a discretionary account without the prior specific written
approval of the customer.
14. All communications from you should be directed to us at the office of
the Underwriter, Patterson Travis, Inc., One Battery Park Plaza, New York, NY
10004. All communications from us to you shall be directed to the address to
which this letter is mailed.
Very truly yours,
PATTERSON TRAVIS, INC.
________________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1998
[Name of Dealer]
________________________
Name:
Title:
1
<PAGE>
To: Patterson Travis, Inc.
One Battery Park Plaza
New York, NY 10004
We hereby subscribe for _____________ Units of SCNV Acquisition Corp. each
Unit consisting of one (1) share of common stock, par value $.01 per share (the
"Common Stock") and one (1) Class A Redeemable Common Stock Purchase Warrant
(the "Class A Warrants"), to purchase one share of Common 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. We further state that in purchasing said Units we have
relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended, who
hereby agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein. We
hereby agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules, and if we are a foreign dealer and not a member of the NASD, we also
agree to comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though we were a member of the NASD, with the
provisions of Rules 2730 and 2750 of the NASD Conduct Rules.
[Name of Dealer]
____________________________
By:
____________________________
Address
____________________________
____________________________
Dated _____________________, 1998
2
CERTIFICATE OF INCORPORATION
OF
SCNV ACQUISITION CORP.
FIRST: The name of the Corporation is:
SCNV ACQUISITION CORP.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805-1297. The name of its registered agent at such address is Corporation
Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the laws of the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is eleven million (11,000,000) shares, of which
ten million (10,000,000) shares shall be Common Stock, par value $.01 per share,
and one million (1,000,000) shares shall be Preferred Stock, par value $.01 per
share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is hereby expressly authorized to
provide, by resolution or resolutions duly adopted by it prior to issuance, for
the creation of each such series and to fix the designation and the powers,
preferences, rights, qualifications, limitations and restrictions relating to
the shares of each such series. The authority of the
<PAGE>
Board of Directors with respect to each series of Preferred Stock shall include,
but not be limited to, determining the following:
(a) the designation of such series, the number of shares to constitute
such series and the stated value if different from the par value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, and the preference or
relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of Preferred Stock;
(d) whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of
such redemption;
(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the
assets, of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or
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sinking fund shall be applied to the purchase or redemption of the shares
of such series for retirement or other corporate purposes and the terms and
provisions relating to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities and, if so, the price or prices or
the rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of Preferred Stock;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of
Preferred Stock or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions, thereof.
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The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof shall be cumulative.
FIFTH: The name and address of the sole incorporator is as follows:
Name Address
---- -------
Ralph D. Mosley, Jr. 405 Lexington Avenue
New York, New York l0l74
SIXTH: Unless required by law or determined by the chairman of the meeting
to be advisable, the vote by stockholders on any matter, including the election
of directors, need not be by written ballot.
SEVENTH: The Corporation reserves the right to increase or decrease its
authorized capital stock, or any class or series thereof, and to reclassify the
same, and to amend, alter, change or repeal any provision contained in the
Certificate of Incorporation under which the Corporation is organized or in any
amendment thereto, in the manner now or hereafter prescribed by law, and all
rights conferred upon stockholders in said Certificate of Incorporation or any
amendment thereto are granted subject to the aforementioned reservation.
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EIGHTH: The Board of Directors shall have the power at any time, and from
time to time, to adopt, amend and repeal any and all By-laws of the Corporation.
NINTH: 1. Indemnification
The Corporation shall, and does hereby, indemnify to the fullest extent
permitted or authorized by the Delaware General Corporation Law or judicial or
administrative decisions, as the same exists or may hereafter be amended or
interpreted differently in the future (but, in the case of any such amendment or
interpretation, only to the extent that such amendment or interpretation permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), each person (including the current and future heirs, beneficiaries,
personal representatives and estate of such person) who was or is a party, or is
threatened to be made a party, or was or is a witness, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") and whether the basis of such
Proceeding is an allegation of an action in an official capacity of such person
related to the Corporation or any other capacity while such person is serving as
an officer, director, employee or agent of the Corporation, against any
liability (which for purposes of this Article shall include any judgment,
settlement, penalty or fine) or cost, charge or expense (including attorneys'
fees) asserted against him or incurred by him by reason of the fact that such
indemnified person (1) is or was a director, officer or employee of the
Corporation or (2) is or was an agent of the
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Corporation as to whom the Corporation, by action of its Board of Directors, has
agreed to grant such indemnity or (3) is or was serving, at the request of the
Corporation, as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise (including serving as a
fiduciary of any employee benefit plan) or (4) is or was serving as an agent of
such other corporation, partnership, joint venture, trust or other enterprise
described in clause (3) hereof as to whom the Corporation, by action of its
Board of Directors, has agreed to grant such indemnity. Each director, officer,
employee or agent of the Corporation to whom indemnification rights under this
Section 1 of this Article have been granted shall be referred to as an
"Indemnified Person."
Notwithstanding the foregoing, except as specified in Section 3 of this
Article, the Corporation shall not be required to indemnify an Indemnified
Person in connection with a Proceeding (or any part thereof) initiated by such
Indemnified Person unless such authorization for such Proceeding (or any part
thereof) was not denied by the Board of Directors of the Corporation prior to
sixty (60) days after receipt of notice thereof from such Indemnified Person
stating his intent to initiate such Proceeding and only upon such terms and
conditions as the Board of Directors may deem appropriate.
2. Advance of Costs, Charges and Expenses
Costs, charges and expenses (including attorneys' fees) incurred by an
officer, director, employee or agent who is an Indemnified Person in defending a
Proceeding shall be paid by the
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Corporation to the fullest extent permitted or authorized by the Delaware
General Corporation Law or judicial or administrative decisions, as the same
exists or may hereafter be amended or interpreted differently in the future
(but, in the case of any such future amendment or interpretation, only to the
extent that such amendment or interpretation permits the Corporation to provide
broader rights to advance costs, charges and expenses than permitted prior
thereto), in advance of the final disposition of such Proceeding, upon receipt
of an undertaking by or on behalf of the Indemnified Person to repay all amounts
so advanced in the event that it shall ultimately be determined by final
judicial decision that such person is not entitled to be indemnified by the
Corporation as authorized in this Article and upon such other terms and
conditions, in the case of an agent as to whom the Corporation has agreed to
grant such indemnity, as the Board of Directors may deem appropriate. The
Corporation may, upon approval of the Indemnified Person, authorize the
Corporation's counsel to represent such person in any Proceeding, whether or not
the Corporation is a party to such Proceeding. Such authorization may be made by
the Board of Directors by majority vote, including directors who are parties to
such Proceeding.
3. Procedure for Indemnification
Any indemnification or advance under this Article shall be made promptly
and in any event within sixty (60) days upon the written request of the
Indemnified Person (except in the case of a claim for an advancement of costs,
charges or expenses, in
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which case the applicable period shall be twenty (20) days). The right to
indemnification or advances as granted by this Article shall be enforceable by
the Indemnified Person in any court of competent jurisdiction if the Corporation
denies such request under this Article, in whole or in part, or if no
disposition thereof is made within sixty (60) days or twenty (20) days, as may
be applicable. Such Indemnified Person's costs and expenses incurred in
connection with successfully establishing his right to indemnification or
advancement of costs, charges or expenses, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action that the claimant has not met the standard of conduct, if any,
required by the Delaware General Corporation Law or judicial or administrative
decisions, as the same exists or may hereafter be amended or interpreted
differently in the future (but, in the case of any such future amendment or
interpretation, only to the extent that such amendment or interpretation does
not impose a more stringent standard of conduct than permitted prior thereto),
but the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors or any committee
thereof, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant or advancement for the claimant is proper in the circumstances
because he has met the applicable standard of conduct, if any, nor the fact that
there has been an actual determination by the Corporation (including its Board
of
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Directors or any committee thereof, its independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
4. Non-Exclusivity; Survival of Indemnification
The indemnification and advancement provided by this Article shall not be
deemed exclusive of any other rights to which those Indemnified Persons may be
entitled under any agreement, vote of stockholders or disinterested directors or
recommendation of counsel or otherwise, both as to actions in such person's
official capacity and as to actions in any other capacity while holding such
office or position, and shall continue as to an Indemnified Person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, beneficiaries, personal representatives and the estate of
such person. All rights to indemnification and advancement under this Article
shall be deemed to be a contract between the Corporation and each Indemnified
Person who serves or served in such capacity at any time while this Article is
in effect. Any repeal or modification of this Article or any repeal or
modification of relevant provisions of the Delaware General Corporation Law or
any other applicable laws shall not in any way diminish any rights to
indemnification of such Indemnified Person, or the obligations of the
Corporation arising hereunder, for claims relating to matters occurring prior to
such repeal or modification.
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5. Insurance
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including serving as a fiduciary of an employee benefit plan)
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or the applicable provisions of the Delaware General
Corporation Law.
6. Savings Clause
If this Article or any portion hereof shall be invalidated on any ground by
any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify and advance costs to each Indemnified Person as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any Proceeding, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and as permitted by the
Delaware General Corporation Law.
TENTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for any monetary damages for breaches of
fiduciary duty as a director,
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provided that this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the General Corporation Law of the State of Delaware; or (iv) for
any transaction from which the director derived an improper personal benefit. No
repeal or amendment of this Article shall adversely affect any rights of any
person pursuant to this Article TENTH which existed at the time of such repeal
or amendment with respect to acts or omissions occurring prior to such repeal or
amendment.
The undersigned incorporator hereby affirms that the statements made herein
are true under penalties of perjury, and is hereby executing this Certificate of
Incorporation this 19th day of May, l997.
/s/ Ralph D. Mosley, Jr. (L.S.)
-------------------------------
Ralph D. Mosley, Jr.
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SCNV ACQUISITION CORP.
BY-LAWS
ARTICLE I
OFFICES
1. The location of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
and the name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
2. The Corporation shall in addition to its registered office in the State
of Delaware establish and maintain an office or offices at such place or places
as the Board of Directors may from time to time find necessary or desirable.
ARTICLE II
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed thereon the name
of the Corporation and may be in such form as the Board of Directors may
determine. Such seal may be used by causing it or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
ARTICLE III
MEETINGS OF STOCKHOLDERS
1. All meetings of the stockholders shall be held at the registered office
of the Corporation in the State of Delaware or at such other place as shall be
determined from time to time by the Board of Directors.
2. The annual meeting of stockholders shall be held on
<PAGE>
such day and at such time as may be determined from time to time by resolution
of the Board of Directors, when they shall elect by plurality vote, a Board of
Directors to hold office until the annual meeting of stockholders held next
after their election and their successors are respectively elected and qualified
or until their earlier resignation or removal. Any other proper business may be
transacted at the annual meeting.
3. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business, except as otherwise expressly provided by statute, by the Certificate
of Incorporation or by these By-laws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting (except as otherwise provided by statute). At such adjourned meeting
at which the requisite amount of voting stock shall be represented any business
may be transacted which might have been transacted at the meeting as originally
notified.
4. At all meetings of the stockholders each stockholder having the right to
vote shall be entitled to vote in person, or by proxy appointed by an instrument
in writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless such instrument provides for a longer
period.
5. At each meeting of the stockholders each stockholder
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shall have one vote for each share of capital stock having voting power,
registered in his name on the books of the Corporation at the record date fixed
in accordance with these By-law, or otherwise determined, with respect to such
meeting. Except as otherwise expressly provided by statute, by the Certificate
of Incorporation or by these By-laws, all matters coming before any meeting of
the stockholders shall be decided by the vote of a majority of the number of
shares of stock present in person or represented by proxy at such meeting and
entitled to vote thereat, a quorum being present.
6. Notice of each meeting of the stockholders shall be mailed to each
stockholder entitled to vote thereat not less than 10 nor more than 60 days
before the date of the meeting. Such notice shall state the place, date and hour
of the meeting and, in the case of a special meeting, the purposes for which the
meeting is called.
7. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the President or by the
Board of Directors, and shall be called by the Secretary at the request in
writing of stockholders owning a majority of the amount of the entire capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request by stockholders shall state the purpose or purposes of the proposed
meeting.
8. Business transacted at each special meeting shall be confined to the
purpose or purposes stated in the notice of such meeting.
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9. The order of business at each meeting of stockholders shall be
determined by the presiding officer.
ARTICLE IV
DIRECTORS
1. The business and affairs of the Corporation shall be managed under the
direction of a Board of Directors, which may exercise all such powers and
authority for and on behalf of the Corporation as shall be permitted by law, the
Certificate of Incorporation or these By-laws. Each of the directors shall hold
office until the next annual meeting of stockholders and until his successor has
been elected and qualified or until his earlier resignation or removal.
2. The Board of Directors may hold their meetings within or outside of the
State of Delaware, at such place or places as it may from time to time
determine.
3. The number of directors comprising the Board of Directors shall be such
number as may be from time to time fixed by resolution of the Board of
Directors. In case of any increase, the Board shall have power to elect each
additional director to hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal. Any decrease in the number of directors shall take effect at the time
of such action by the Board only to the extent that vacancies then exist; to the
extent that such decrease exceeds the number of such vacancies, the decrease
shall not become effective, except as further vacancies may thereafter occur,
until the time of and in connection with the election of directors at the next
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succeeding annual meeting of the stockholders.
4. If the office of any director becomes vacant, by reason of death,
resignation, disqualification or otherwise, a majority of the directors then in
office, although less than a quorum, may fill the vacancy by electing a
successor who shall hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal.
5. Any director may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board, or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
ARTICLE V
COMMITTEES OF DIRECTORS
1. The Board may designate an Executive Committee and one or more other
committees, each such committee to consist of one or more directors of the
Corporation. The Executive Committee shall have and may exercise all the powers
and authority of the Board in the management of the business and affairs of the
Corporation (except as otherwise expressly limited by statute), including the
power and authority to declare dividends and to authorize the issuance of stock,
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall have such of the powers and authority
of the Board as may be provided from time to time in resolutions adopted
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by the Board or as provided in these By-Laws.
2. The requirements with respect to the manner in which the Executive
Committee and each such other committee shall hold meetings and take actions
shall be set forth in the resolutions of the Board of Directors designating the
Executive Committee or such other committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The directors shall receive such compensation for their services as may be
authorized by resolution of the Board of Directors, which compensation may
include an annual fee and a fixed sum for expense of attendance at regular or
special meetings of the Board or any committee thereof. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE VII
MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held without notice at
such time and place, either within or without the State of Delaware, as may be
determined from time to time by resolution of the Board.
2. Special meetings of the Board of Directors shall be held whenever called
by the President of the Corporation or the Board of Directors on at least 24
hours' notice to each director. Except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these By-laws, the purpose
or purposes of any such special meeting need not be stated in such
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notice, although the time and place of the meeting shall be stated.
3. At all meetings of the Board of Directors, the presence in person of a
majority of the members of the Board of Directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and, except
as otherwise provided by statute, by the Certificate of Incorporation or by
these Bylaws, if a quorum shall be present the act of a majority of the
directors present shall be the act of the Board.
4. Any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting if all
the members of the Board or such committee, as the case may be, consent thereto
in writing and the writing or writings are filed with the minutes of proceedings
of the Board of committee. Any director may participate in a meeting of the
Board, or any committee designated by the Board, by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this sentence shall constitute presence in person at such meeting.
ARTICLE VIII
OFFICERS
1. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a Chairman of the Board, a President, an Executive Vice
President, one or more Vice Presidents, a Secretary and a Chief Financial
Officer. The Board may also choose such other officers as it shall deem
necessary. Any number of offices may be held by the same person.
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2. The salaries of all officers of the Corporation shall be fixed by the
Board of Directors, or in such manner as the Board may prescribe.
3. The officers of the Corporation shall hold office until their successors
are elected and qualified, or until their earlier resignation or removal. Any
officer may be at any time removed from office by the Board of Directors, with
or without cause. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.
4. Any officer may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
ARTICLE IX
CHAIRMAN OF THE BOARD
The Chairman shall act as chairman of all meetings of the Board of
Directors and at all special and annual meetings of stockholders, and shall have
control over the agenda of such meetings, all in accordance with the provisions
of these By-Laws and the Certificate of Incorporation. The Chairman shall
perform such other duties as may from time to time be assigned to him by the
Board.
ARTICLE X
PRESIDENT
The President shall be the chief executive officer of the Corporation.
Subject to the supervision and direction of the Board
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of Directors, he shall have general supervision and direction of the business
and affairs of the Corporation. He shall have supervision and direction of all
of the other officers of the Corporation and shall have the powers and duties
usually and customarily associated with the office of the President. In the
absence or nonelection of the Chairman of the Board he shall preside at meetings
of the stockholders and of the Board of Directors.
ARTICLE XI
EXECUTIVE VICE PRESIDENT
The Executive Vice President shall be the general manager and chief
operating officer of the Corporation. Subject to the supervision and director of
the Board of Directors, he shall be responsible for managing the day to day
affairs of the Corporation.
ARTICLE XII
VICE PRESIDENTS
The Vice Presidents, if there shall be any, shall have such powers and
duties as may be delegated to them by the President.
ARTICLE XIII
SECRETARY AND ASSISTANT SECRETARY
1. The Secretary shall attend all meetings of the Board of Directors and of
the stockholders, and shall record the minutes of all proceedings in a book to
be kept for that purpose. He shall perform like duties for the committees of the
Board when required.
2. The Secretary shall give, or cause to be given, notice of meetings of
the stockholders, of the Board of Directors
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and of the committees of the Board. He shall keep in safe custody the seal of
the Corporation, and when authorized by the President, the General Manager or a
Vice President, shall affix the same to any instrument requiring it, and when so
affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. He shall have such other powers and duties as may be
delegated to him by the President.
3. The Assistant Secretary, if there shall be one, shall, in case of the
absence of the Secretary, perform the duties and exercise the powers of the
Secretary, and shall have such other powers and duties as may be delegated to
them by the President.
ARTICLE XIV
CHIEF FINANCIAL OFFICER
1. The Chief Financial Officer shall have the custody of the corporate
funds and securities, and shall deposit or cause to be deposited under his
direction all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors or pursuant to authority granted by it. He shall render to the
President and the Board whenever they may require it an account of all his
transactions as Chief Financial Officer and of the financial condition of the
Corporation. He shall have such other powers and duties as may be delegated to
him by the President.
ARTICLE XV
TREASURER AND ASSISTANT TREASURER
1. The Treasurer, if there shall be one, shall such powers and duties as
may be delegated to him by the President.
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2. The Assistant Treasurer, if there shall be one, shall, in case of the
absence of the Treasurer, perform the duties and exercise the powers of the
Treasurer, and shall have such other powers and duties as may be delegated to
them by the President.
ARTICLE XVI
CERTIFICATES OF STOCK
The certificates of stock of the Corporation shall be numbered and shall be
entered in the books of the Corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the President or
General Manager or Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary.
ARTICLE XVII
CHECKS
All checks, drafts and other orders for the payment of money and all
promissory notes and other evidences of indebtedness of the Corporation shall be
signed by such officer or officers or such other person as may be designated by
the Board of Directors or pursuant to authority granted by it.
ARTICLE XVIII
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from time to time
by resolution duly adopted by the Board of Directors.
ARTICLE XIX
NOTICES AND WAIVERS
1. Whenever by statute, by the Certificate of In-
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corporation or by these By-laws it is provided that notice shall be given to any
director or stockholder, such provision shall not be construed to require
personal notice, but such notice may be given in writing, by mail, by depositing
the same in the United States mail, postage prepaid, directed to such
stockholder or director at his address as it appears on the records of the
Corporation, and such notice shall be deemed to be given at the time when the
same shall be thus deposited. Notice of regular or special meetings of the Board
of Directors may also be given to any director by telephone or by telex,
telegraph or cable, and in the latter event the notice shall be deemed to be
given at the time such notice, addressed to such director at the address
hereinabove provided, is transmitted by telex (with confirmed answerback), or
delivered to and accepted by an authorized telegraph or cable office.
2. Whenever by statute, by the Certificate of Incorporation or by these
By-laws a notice is required to be given, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of any stockholder or director
at any meeting thereof shall constitute a waiver of notice of such meeting by
such stockholder or director, as the case may be, except as otherwise provided
by statute.
ARTICLE XX
INDEMNIFICATION
All persons who the Corporation is empowered to indemnify pursuant to the
provisions of Section 145 of the General Corporation Law of the State of
Delaware (or any similar provision
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or provisions of applicable law at the time in effect) shall be indemnified by
the Corporation to the full extent permitted thereby. The foregoing right of
indemnification shall not be deemed to be exclusive of any other such rights to
which those seeking indemnification from the Corporation may be entitled,
including, but not limited to, any rights of indemnification to which they may
be entitled pursuant to any agreement, insurance policy, other by-law or charter
provision, vote of stockholders or directors, or otherwise. No repeal or
amendment of this Article XVIII shall adversely affect any rights of any person
pursuant to this Article XVIII which existed at the time of such repeal or
amendment with respect to acts or omissions occurring prior to such repeal or
amendment.
ARTICLE XXI
ALTERATION OF BY-LAWS
The By-laws of the Corporation may be altered, amended or repealed, and new
By-laws may be adopted, by the stockholders or by the Board of Directors.
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WARRANT AGREEMENT
THIS WARRANT AGREEMENT is entered into as of this______ day of ___________,
1998, by and between SCNV Acquisition Corp., 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 1,679,000 units
("Units"), each unit consisting of one (1) share of the Company's Common Stock,
$.01 par value ("Common Stock") per share, and one (1) Class A Redeemable Common
Stock Purchase Warrant ("Class A Warrant") pursuant to an underwriting agreement
(the "Underwriting Agreement") dated ________________, 1998 between the Company
and Patterson Travis, Inc. ("Patterson"), and the issuance to Patterson or its
designees of Underwriter's Options to purchase 146,000 additional Units (the
"Underwriter's Options"), the Company may issue up to 1,825,000 Class A
Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the
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Company of which at the date hereof consists __________ of authorized
shares, $.01 par value per share, 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 (i) 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 consisting of 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 ____________
__________________________.
(c) "Effective Date" shall mean ____________, 1998.
(d) "Exercise Date" shall mean, as to any Warrant, the first business
day 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 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.
(e) "Initial Warrant Exercise Date" shall mean ______________, 1999
(one (1) year from the Effective Date).
(f) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with
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the terms hereof, which price shall be $5.50 per share for the Class A
Warrant, 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, to reduce the Purchase Price upon notice to all warrantholders.
(g) "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 $0.01 per Warrant.
(h) "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.
(i) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as
such.
(j) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
____________________, 2003 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 Registered Holders 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
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Company signed by its President or Chairman 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 1,825,000 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 Underwriter's Options; and (vi) those issued
at the option of the Company, in such form as may be approved by 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 Underwriter's Options, Patterson may
purchase up to 146,000 Units, which include up to 146,000 Class A Warrants.
3. Form and Execution of Warrant Certificates.
(a) The Certificates for the Class A Warrant ("Class A Warrant
Certificate") shall be substantially in the form 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,
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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 Class A Warrants may be
listed, or to conform to usage or to the requirements of Section 2(b). The
Class A 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 Class A Warrant Certificates) and
issued in registered form. Class A Warrant Certificates shall be numbered
serially with the letters RW.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, 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. (a) Each Class A 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
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securities deliverable upon such exercise shall be treated for all purposes as
the Registered 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 in a non-interest bearing
account at Chase Manhattan Bank or such other bank as the Warrant Agent may
designate, the proceeds received from the exercise of a Warrant and shall notify
the Company in writing of the exercise of the Warrants. Promptly thereafter, and
in any event within five 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.
(b) If, subsequent to , 1999 in respect of __________ the exercise of
any Warrant, (i) the market price of the Company's Common Stock is greater
than the then Purchase Price of the Warrants, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD") and such member was designated in writing by the
holder of such Warrant as having solicited such Warrant, (iii) the Warrant
was not held in a discretionary account, (iv) disclosure of compensation
arrangements was made both at the time of the original offering and at the
time of exercise and (v) the solicitation of the exercise of the Warrant
was not in violation of Rule 10b-6 (as such rule or any successor rule may
be in effect as of such time of exercise) promulgated under the Securities
Exchange Act of 1934, as amended, then the Warrant Agent, simultaneously
with the distribution of proceeds to the Company received upon exercise of
the Warrant(s) so exercised, shall, on behalf of the Company, pay to
Patterson from the proceeds received upon exercise of the Warrant(s), a fee
of 5% of
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<PAGE>
the Purchase Price (of which 1% may be reallowed to the dealer who
solicited the exercise, which may also be Patterson). Within five days
after exercise, the Warrant Agent shall send Patterson a copy of the
reverse side of each Warrant exercised. Patterson shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to
compliance with this Section. In addition, Patterson and the Company may at
any time during business hours, examine the records of the Warrant Agent,
including its ledger of original Warrant Certificates returned to the
Warrant Agent upon exercise of Warrants. The provisions of this paragraph
may not be modified, amended or deleted without the prior written consent
of Patterson.
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, when payment is received therefor, 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 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, provided, however,
that the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent of service of
process in any
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jurisdiction. 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 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
8
<PAGE>
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 on the Registered Holder 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 detachable from the Common Stock and transferable separately
therefrom three (3) months from the Effective Date (as defined in the
Company's Registration Statement on Form SB-2 No. 333-___________), unless
earlier released pursuant to an agreement between the Company and
Patterson.
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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 $0.01 per Warrant, provided that the Market Price
(defined below)of the Common Stock receivable upon exercise of the Class A
Warrants 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 ten
(10) 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 days
thereafter, of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or the NASD Electronic
Bulletin Board or (ii) the average of the last reported sale price, for ten
(10) consecutive business days, ending within five (5) days of the date of
the notice of redemption, which notice shall be mailed no later than five
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
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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 (the
"Redemption Date"), 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 Redemption Date, (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 Warrants 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. 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.
(eastern standard 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 prior to the Redemption Date, 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
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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)
(calculated as of the date prior to 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 Change of 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 number of shares of
Common Stock outstanding immediately after the Change of 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
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(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) After the date hereof, 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
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conveyance to another corporation of all or substantially all of the assets
of the Company (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 such terms 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
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certificate signed by the Chairman or 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 Patterson 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 and who is prejudiced thereby.
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.
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(iii) After the date hereof, 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, either 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, either 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 (y) 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 the exercise of such rights, warrants, or options) is
less than the Market Price of the Common Stock on the date of the
issuance or sale (calculated as of the date prior to the date of
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.
16
<PAGE>
(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 determined as of
the date of issuance) is less than the Market Price of the Common
Stock on the date of the sale of such Convertible Securities
(calculated as of the date prior to the date of sale), 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 (calculated as of the date prior to
the date of sale), 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
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 (calculated as of
the date prior to the date of sale) 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
17
<PAGE>
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 (other than pursuant to the Stock
Option Plan or the Warrants) 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 comprising the
Underwriter's Options; 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
18
<PAGE>
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 a private placement 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 (a) shareholders of any corporation which merges into
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 or (b) to any corporation or person from
which the Company acquires assets but only if no adjustment is
required pursuant to any other provision of this Section 9; or
(vii) upon the issuance or sale of (i) options for the purchase
of Common Stock granted to employees, officers, directors, advisors or
consultants under the Stock Option Plan at Market Price (as defined in
Section 8 above) so long as no more than 200,000 shares of Common
Stock vest under such options in the two-year period following the
Effective Date or (ii) Common
19
<PAGE>
Stock issued upon the exercise of options granted under such Stock
Option Plan.
(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 consisting of 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.
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 shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon
any exercise of any Warrant, the Company shall pay to the Holder
20
<PAGE>
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 or the NASD
Electronic Bulletin Board, 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. or the NASD Electronic Bulletin Board 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.
21
<PAGE>
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 sole 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, canceled
by it and retired. The Warrant Agent shall also cause to be cancelled Warrant
Certificates following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, split, 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
22
<PAGE>
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
Chairman of the Board, 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 believed by it to be genuine.
23
<PAGE>
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 hold 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 30 days'
prior written notice to the Company. At least 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 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 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.
24
<PAGE>
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 Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
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 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, are set forth in the Company's charter, or are
made in compliance with applicable law. In addition, the Company and Patterson
may by supplemental agreement extend the Warrant Expiration Date or reduce the
Exercise Price without the consent of the Registered Holders.
25
<PAGE>
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, SCNV Acquisition Corp., 7 Ben Zvi Road, Beer-Sheva, Israel
84893, Attention: President, with a copy sent to Tenzer Greenblatt LLP, The
Chrysler Building, 405 Lexington Avenue, New York, NY 10174 Attention: Emanuel
J. Adler, Esq.; 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.
26
<PAGE>
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.
SCNV ACQUISITON CORP.
______________________________
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
______________________________
Name:
Title:
27
<PAGE>
EXHIBIT A
[Form of Face of Warrant Certificate]
No. W Warrants
VOID AFTER _________________ __ , 2003
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
SCNV ACQUISITION CORP.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Class A Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, par value $.01 per share ("Common Stock"), of SCNV ACQUISITION CORP., a
Delaware corporation (the "Company"), at any time between the Initial Warrant
Exercise Date 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 $5.50 (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to SCNV ACQUISITION CORP.
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 _______________,
1998, by and between the Company and the Warrant Agent.
<PAGE>
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean ________________, 1999.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
______________, 2003, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
2
<PAGE>
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 be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.01 per Warrant at any time after _________________, 1999 provided the
Market Price (as defined in the Warrant Agreement) for the securities issuable
upon exercise of such Warrant shall exceed $8.00 per share. Notice of redemption
shall be given not later than the thirtieth day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive the $.01 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without reference to principles of
conflicts of law.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
SCNV ACQUISITON CORP.
By:_____________________
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its: Authorized Officer
4
<PAGE>
[Form of Reverse of Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
____________________________________________
(please insert social security or other identifying number)
and be delivered to
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
____________________________________________
1
<PAGE>
____________________________________________
____________________________________________
(Address)
____________________________________________
(Date)
____________________________________________
(Taxpayer Identification Number)
If this Warrant has been solicited by a member of the National Association of
Securities Dealers, Inc., the name of such firm is:__________:
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)
2
<PAGE>
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
____________________________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
3
Option to Purchase
146,000 Units
SCNV ACQUISITION CORP.
UNIT PURCHASE OPTION
Dated: ______________, 1998
THIS CERTIFIES that Patterson Travis, Inc., One Battery Park Plaza, New
York, NY 10005 (hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from SCNV Acquisition Corp., a Delaware corporation (hereinafter
referred to as the "Company"), at the prices and during the periods as
hereinafter specified, 146,000 Units ("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, $.01 par value ("Common
Stock") and one (1) Class A Redeemable Common Stock Purchase Warrant to purchase
one (1) share of Common Stock at an exercise price of $5.50 per share ("Class A
Warrants" or "Warrants"). The Class A Warrants are exercisable until _____, ___,
2003.
The Units have been registered under a Registration Statement on Form SB-2
(File No. 333-_______) declared effective by the Securities and Exchange
Commission on ______ __, 1998 (the "Registration Statement"). This Option (the
"Option") to purchase 146,000 Units (the "Option Units") was originally issued
pursuant to an underwriting agreement between the Company and Patterson Travis,
Inc., as underwriter (the "Underwriter"), in connection with a public offering
of 1,460,000 Units (the "Public Units") through the Underwriter, in
consideration of $.001 per Option Unit.
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
<PAGE>
dated as of ________ ___, 1998 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 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 percentage 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 ______________ ___, 1999 and ____________ ___, 2003,
inclusive, the Holder shall have the option to purchase Units hereunder at
a price of $4.92 per Unit (subject to adjustment pursuant to paragraph 8
hereof) (the "Exercise Price").
(b) After ________ ___, 2003 (five (5) years from the Effective Date),
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 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 earliest date that both this Option is surrendered and
payment is made in accordance with the foregoing provisions of this paragraph 2,
and other provisions are complied with and the person or persons
2
<PAGE>
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. For a period of one (1) year from the Effective Date, this Option shall
not be transferred, sold, assigned, or hypothecated, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder during such period. After such one
(1) year period any such assignment must be accompanied by an immediate exercise
of such assigned portion of this Option. 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.
3
<PAGE>
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, by written notice at least 30 days
prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act covering any securities of the Company, for its own
account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of seven
(7) years from the effective date of the Registration Statement, upon the
request of the Holder, include in any such post-effective amendment or
registration statement, such information as may be required to permit a public
offering of, 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 reasonable efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder designates
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or 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
4
<PAGE>
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, 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 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 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 provided it owns at least 50% of the Option) 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 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
Units as a unit, or separately as to the Common Stock and/or Warrants included
in the Units and/or
5
<PAGE>
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 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 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 Regulation M 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; (iv) for the period of the financial statements called for in such
filing, the Company has only unaudited financial statements, unless the
underwriter agrees that such filing need not include audited financial
statements or (v) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the Company's request to waive such lock-up. In the event of such postponement,
the Company shall be required to file the registration statement pursuant to
this Section 6(b), within 60 days of the consummation of the event requiring
such postponement.
6
<PAGE>
The Company will use its best efforts to maintain such registration
statement or post-effective amendment current under the Act for a period of 120
days (and for up to an additional three months if requested by the Holder) from
the effective date thereof. The Company shall supply prospectuses, and such
other documents as the Holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, use its best
efforts to register and qualify any of the Registrable Securities for sale in
such states as such holder designates, provided that the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or
execute a general consent to service of process in any jurisdiction in any
action and furnish indemnification in the manner provided in paragraph 7 hereof.
The demand registration rights granted hereunder will expire no later than five
(5) years from the effective date of this offering.
(c) The term "50% holder" as used in this paragraph 6 shall mean the holder
of more than 50% of the Common Stock and the Warrants underlying the Option, as
if exercised, (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated by
determining the number of shares of Common Stock held by such owner or owners as
well as the number of shares then issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to any shares of Common Stock or Warrants issued or issuable upon the exercise
of any Options, is filed under the Act, or is 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
7
<PAGE>
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or which arise out of or are based upon the omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any legal or other
expenses reasonably incurred by the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement thereto, 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; 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 such securities to any person if the misstatement or omission
was corrected in the final prospectus related thereto but such final prospectus
was not delivered by the Distributing Holder to such person at or prior to sale
of such securities.
(b) Each 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) and each other Distributing
Holder, if any, 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
8
<PAGE>
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 unless it is prejudiced thereby relieve
it from any liability which it may have to any indemnified party otherwise than
under this Paragraph 7.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(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
9
<PAGE>
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
10
<PAGE>
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 per share (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 Securities purchasable upon exercise of this Option shall
simultaneously be adjusted by multiplying the number of Option Securities
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
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<PAGE>
(b) or (c)above, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for 20
consecutive business days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sale
takes place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, or if
not listed or admitted to trading on such exchange, the average of the
highest reported bid and lowest reported asked prices as reported by
NASDAQ, or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by
the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents
($0.10) in such price; provided, however, that any adjustments which by
reason of this Subsection (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be
made hereunder. All calculations under this Section 8 shall be made to the
nearest cent or to the nearest one-tenth 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 10 days after any request for
such an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Option 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
12
<PAGE>
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 (f), inclusive
above.
9. No adjustment pursuant to Section 8 hereof to the Exercise Price of the
Option will be made, however,
(i) upon the sale or exercise of any Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the
Option; or
(ii) upon the sale of any shares of Common Stock included in the Units
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 (as defined in the Warrant Agreement) 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 Exercise 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
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<PAGE>
Convertible Securities in a private placement 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 (a) shareholders of any corporation which merges into 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 or (b) to any corporation or person from which the Company
acquires assets but only if no adjustment is required pursuant to any other
provision of this Section 9; or
(vii) upon the issuance or sale of (i) up to 200,000 options for the
purchase of Common Stock to employees, officers, directors, advisors or
consultants under the Company's Stock Option Plan at Market Price (as
defined in the Registration Statement) or (ii) Common Stock issued upon the
exercise of options granted under such Stock Option Plan.
10. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, SCNV Acquisition Corp. has caused this Option- to be
signed by its duly authorized officers under its corporate seal, and this Option
to be dated as of the date first above written.
SCNV ACQUISITION CORP.
By:____________________________________
Name:
Title:
(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 SCNV Acquisition Corp., each Unit consisting of one share of $.01
Par Value Common Stock and one Class A Redeemable Common Stock Purchase Warrant,
and herewith makes payment of $______________ therefor, and requests that the
Warrants and certificates for shares of Common Stock be issued in the name(s)
of, and delivered to ________________________ whose address(es) is
(are)_________________________________________.
__________________________
Dated:
2
<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 SCNV Acquisition Corp. with full power of substitution in the premises.
Dated:
______________________________
Name:
Address:
______________________________
______________________________
______________________________
In the presence of:
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement of SCNV Acquisition Corp., filed in form SB-2.
/s/ Arthur Andersen LLP
New York, New York
January 8, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement of SCNV Acquisition Corp., filed on Form SB-2.
/s/ Luboshitz Kasierer & Co.
New York, New York
January 8, 1998
