<TABLE>
<S> <C> <C>
As filed with the Securities and Exchange Commission on June 2, 1998
Registration No. 333-43955
SECURITIES AND EXCHANGE COMMISSION
- -------------------------------------------------------------------------------------------------------------
Washington, DC 20549
----------
Amendment No. 2
To
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
SCNV ACQUISITION CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 3629 13-3952659
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification No.)
Omer Industrial Park
P.O.B. 3026
Omer, Israel 84965
(972) 7-690-0950
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
----------
PROFESSOR HERMAN BRANOVER
President
SCNV Acquisition Corp.
Omer Industrial Park
P.O.B. 3026
Omer, Israel 84965
(972) 7-690-0950
(Name, address and telephone number of agent for service)
----------
Copies of all communications to:
EMANUEL J. ADLER, ESQ. DAVID SCHAPIRO, ESQ. STUART NEUHAUSER, ESQ.
Tenzer Greenblatt LLP Yigal Arnon & Co. Berlack, Israels & Liberman LLP
The Chrysler Building 3 Daniel Frisch Street 120 West 45th Street
405 Lexington Avenue Tel Aviv, Israel 33777 New York, New York 10036
New York, New York 10174-0208 Telephone: 972-3-692-6856 Telephone: (212) 704-0100
Telephone: (212) 885-5000 Facsimile: 972-3-696-4770 Facsimile: (212) 704-0196
Facsimile: (212) 885-5001
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:|_|
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================
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
- -------------------------------------------------------------------------------------------------------------
<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) 1,197,200 Units $5.75 $6,883,900 $2,030.75
- ------------------------------------------------------------------------------------------------------------
Common Stock
included in the Units 1,197,200 Shares -- -- --
- ------------------------------------------------------------------------------------------------------------
Warrants to purchase
Common Stock
included in the Units 1,197,200 Warrants -- -- --
- ------------------------------------------------------------------------------------------------------------
Common Stock
issuable upon exercise
of the Warrants
included in the
Units(3) 1,197,200 Shares $7.50 $8,979,000 $2,648.81
- ------------------------------------------------------------------------------------------------------------
Underwriter's Unit
Purchase Option(4) 104,104 Warrants $.001 $ 104 (5)
- ------------------------------------------------------------------------------------------------------------
Units issuable upon
exercise of the
Underwriters Unit
Purchase Option 104,104 Units $6.90 $ 718,318 $ 211.90
- ------------------------------------------------------------------------------------------------------------
Common Stock
included in the Units
issuable upon exercise
of Underwriter's Unit
Purchase Option(3) 104,104 Shares -- -- --
- ------------------------------------------------------------------------------------------------------------
Warrants to purchase
Common Stock
included in the Units
issuable upon exercise
of the Underwriter's
Unit Purchase Option 104,104 Warrants -- -- --
- ------------------------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of the
Warrants included in
the Units issuable
upon exercise of the
Underwriter's Unit
Purchase Option(3) 104,104 Shares $7.50 $ 780,780 $230.33
- ------------------------------------------------------------------------------------------------------------
Total Registration Fee ........................................................... $5,121.79
- ------------------------------------------------------------------------------------------------------------
Previously Paid ........................................................... $5,203.72
- ------------------------------------------------------------------------------------------------------------
Total Due with
Amendment No. 2 ........................................................... --
============================================================================================================
</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
$5.75.
(2) Assumes the Underwriter's over-allotment option to purchase up to 156,156
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.
- --------------------------------------------------------------------------------
<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 June 2, 1998
SUBJECT TO COMPLETION
1,041,044 Units
SCNV ACQUISITION CORP.
1,041,044 Shares of Common Stock and
Class A Redeemable Warrants to Purchase
1,041,044 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 $7.50,
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 $10.00 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. For a discussion of the factors considered in determining the offering
price of the Units and the exercise price of the Warrants, see "Underwriting."
It is anticipated that the Units, and, once separately transferable, the Common
Stock and Warrants, will be quoted on the OTC Electronic Bulletin Board under
the symbols "SOLMU," "SOLM" and "SOLMW," respectively. The OTC Electronic
Bulletin Board System is an unorganized, inter-dealer, over-the-counter market
which provides significantly less liquidity than a national securities exchange
or The Nasdaq Stock Market, and quotes for securities included on the OTC
Electronic Bulletin Board are not listed in the financial sections of newspapers
as are those for securities listed on a national securities exchange or The
Nasdaq Stock Market. See "Risk Factors - No Assurance of Public Trading Market;
Arbitrary Offering Price; Possible Volatility of Market Price of Units, Common
Stock and Warrants."
------------------------------------
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 13
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.
<TABLE>
<CAPTION>
================================================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit .......................... $5.75 $.575 $5.175
- ------------------------------------------------------------------------------------------------
Total (3) $5,986,003 $598,600 $5,387,403
================================================================================================
</TABLE>
(1) 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 104,104 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."
(2) 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 $680,000, payable by the
Company.
(3) 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
156,156 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."
----------
SPECIAL STANDARDS FOR SECURITIES SOLD IN CALIFORNIA
Each California Investor must have an annual gross income of at least
$65,000 and a net worth exclusive of home, furnishings and automobiles of at
least $250,000 or, in the alternative, a net worth exclusive of home,
furnishings and automobiles of at least $500,000. In addition, an investor's
total purchase may not exceed 10% of such investor's net worth. The exemption
for secondary trading available under California Corporation Code 25104(H) will
be withheld.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, all pro forma
share and per share data and information in this Prospectus give retroactive
effect to (i) a .7130438-for-1 reverse split of Common Stock effected prior to
the date of this Prospectus, and (ii) the acquisition, upon the consummation of
this offering (the "Acquisition"), by the Company of all of the issued and
outstanding capital stock of Solmecs Corporation N.V. (which, together with its
wholly-owned subsidiary Solmecs (Israel) Ltd., shall, unless the context
otherwise requires, be referred to herein as "Solmecs") in consideration of
499,701 shares of the Company's Common Stock. All as adjusted share and per
share data and information in this Prospectus assumes no exercise of the
Underwriter's over-allotment option to purchase up to 156,156 additional Units.
Information contained herein regarding Solmecs has been provided by Solmecs and
has also been derived from the periodic reports filed with the Commission by
Solmecs' parent corporation, Bayou International, Ltd. ("Bayou").
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in these forward-looking statements. Factors that might cause
these possible differences include, but are not limited to, those discussed in
the "Risk Factors" section of this Prospectus.
All references to "dollars" or "$" 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 March 31, 1998, which was 3.597 NIS to $1.00 or 1 NIS to
$.283.
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
-3-
<PAGE>
technologies from the research and development phase through product
commercialization, develop and, 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. See "Business-Strategy."
The Company's strategy is to identify and exploit innovative technologies
which represent advances over existing products or technologies. 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. 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 to
Israel who is the President and a director of the Company. See
"Business-Technologies Currently Developed by Solmecs."
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
non-Solmecs technologies or sells proprietary rights relating to one or more of
such technologies. See "Risk Factors-Losses By Solmecs Since Inception; Limited
Revenues; Explanatory Paragraph in the Report of Solmecs' Independent Auditors."
Although the Company believes that certain products that it will acquire by
virtue of the Acquisition or has identified, such as the hot-water tank
control/display system and the extra smooth rubber gaskets, are at or 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. 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.
See "Risk Factors."
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
-4-
<PAGE>
Solmecs N.V., a registered 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 Omer Industrial
Park, P.O. Box 3026, Omer, Israel, 84965, and its telephone number is (972)
7-690- 0950.
The Offering
Securities offered........................ 1,041,044 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)................... 2,082,088 shares
Warrants
Number to be outstanding
after the offering(2)................. 1,041,044 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 $7.50, 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
$10.00 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."
-5-
<PAGE>
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, repayment of
indebtedness, costs relating to the
acquisition of Solmecs and the
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 OTC Electronic
Bulletin Board symbols(3)................ Units -- SOLMU
Common Stock -- SOLM
Warrants -- SOLMW
- ----------
(1) Does not include (i) 1,041,044 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 208,208 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.
(3) See "Risk Factors - No Assurance of Public Market; Arbitrary Offering Price;
Possible Volatility of Market Price of Units, Common Stock and Warrants."
----------
-6-
<PAGE>
SUMMARY FINANCIAL DATA
The balance sheet data as of June 30, 1997, has been derived from the
Financial Statements included elsewhere herein, which have been audited by
Arthur Andersen LLP, independent public accountants. The balance sheet data as
of March 31, 1998, 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 Arthur Andersen), and the unaudited Financial Statements of Solmecs for
the nine months ended March 31, 1997 and 1998. 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 nine months ended March 31, 1997 and 1998, 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, Nine Months Ended March 31,
-------------------------- ---------------------------
1996 1997 1997 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues $ 75,057 $ 57,276 $ 42,911 $ 38,876
Research and development costs 347,318 276,259 219,595 187,143
Cost of services performed -- -- -- 26,056
by subcontractors
Cost of merchandise purchased 17,420 48,638 37,337 5,257
Marketing, General and
Administrative Expenses 493,614 383,219 267,771 353,823
Operating loss (783,295) (650,840) (481,792) (533,403)
Net loss (688,629) (661,324) (486,935) (535,697)
Net loss per share $ (.66) $ (.64) $ (.47) $ (.51)
Weighted average number 1,041,044 1,041,044 1,041,044 1,041,044
of shares outstanding
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Balance Sheet Data: June 30, 1997 March 31, 1998
------------- -------------------------------------------
Actual Actual Pro forma(1) As adjusted(2)
------------- -------------------------------------------
<S> <C> <C> <C> <C>
Total assets $ 25,000 $ 266,200 $ 450,520 $4,410,061
Working capital (deficit) 25,000 7,592 (505,705) 4,101,698
Current liabilities -- 258,608 839,047 191,185
Long-term liabilities 17,408 -- 229,220 229,220
Stockholders' equity (deficiency) 7,592 7,592 (617,747) 3,989,656
</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 March 31, 1998, 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 499,701 shares of Common Stock accounted for as a
purchase; (ii) the write-off of acquired research and development in
process of $3,498,619 (the "R&D Write-Off"); (iii) the forgiveness (the
"Loan Forgiveness") by Bayou of a loan to Solmecs, of which $5,082,897 was
outstanding as of March 31, 1998; (iv) the return of Bayou's shares held by
Solmecs (the "Bayou Share Return"); and (v) the payment of $170,000 and
$120,000 for fiscal years 1996 and 1997, respectively, and $90,000 for the
nine months ended March 31, 1998, to officers in connection with employment
agreements. See Pro Forma Financial Information.
(2) Gives effect to the sale of 1,041,044 Units offered hereby and the
anticipated application of the estimated net proceeds therefrom, including
the repayment of indebtedness in the amount of $429,254 and payment of
costs of the Acquisition in the amount of $100,000.
-8-
<PAGE>
THE COMPANY
SCNV Acquistion 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, 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.
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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 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 to Israel 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
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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
initially to mono-crystals of silicon and subsequently to mono-crystals of
gallium-arsenide and cadmium-telluride, which the Company believes may serve as
alternatives to silicon chips (chips based on mono-crystals of silicon) 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 marketing activities with
respect to the solar/electric hot-water tank control/display system and the
plasma-chemically treated extra smooth rubber gaskets, both of which are at or
near the commercialization stage, 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, the Company has identified approximately a dozen
projects in the viability testing stage, including those involving Solmecs
technologies and those not involving such technologies, in which the Company may
seek to invest. These projects include 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
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proprietary rights relating to one or more of such technologies or non-Solmecs
technologies. Although the Company believes that certain products that it will
acquire by virtue of the Acquisition or has identified, such as the hot-water
tank control/display system and the extra smooth rubber gaskets, are at or 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 499,701 shares of the
Company's Common Stock in connection with the Acquisition. Such shares will be
issued to Bayou in a private placement and have not been registered in this
offering.
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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. Research and Development Company; Report of Company's Independent
Auditors Raises Substantial Doubt About the Company's Ability to Continue as a
Going Concern. The Company intends to engage in the research and development of
several potential products identified or to be identified, and upon consummation
of the Acquisition, the further development and commercialization of products
and technologies owned by Solmecs. 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 Company's ability to continue as a
going concern. See "Business" and Financial Statements.
2. Recent Organization. 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 other technologies or sells proprietary rights relating to one
or more of Solmecs's existing or future technologies or other 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. See "Business".
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3. Losses by Solmecs Since Inception; Limited Revenues; Report of Solmecs'
Independent Auditors Raises Substantial Doubt About Solmecs' Ability to Continue
as a Going Concern. Solmecs has incurred significant losses since its inception,
resulting in an accumulated deficit of $13,898,573 at March 31, 1998, 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.
As of March 31, 1998, Solmecs had a stockholders' deficit of $5,708,236 and a
working capital deficit of $513,297. 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.
4. Significant Capital Requirements. 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.
5. Dependence Upon Proceeds to Fund Research and Development Activities;
Need for Significant Additional Financing. Based on the results of preliminary
assessment activity to be performed on several potential projects identified or
to be identified by the Company, the Company intends to engage in research and
development of two such 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. See "Business
Technologies Currently Developed by Solmecs" and "-- Future Technologies and
Products." 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."
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6. 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 marketing surveys performed on behalf of
Solmecs with respect to the hot water tank display/control system and limited
sales of photovoltaic cells and rubber gasket treatments have indicated that
these technologies are 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 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."
7. New Technologies; Uncertainty of Market Acceptance of 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."
8. 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
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adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
9. Risks Associated with the Acquisition; Limited Recourse Against Solmecs'
Stockholder; Possible Liability to Bayou Stockholders. Pursuant to the
Acquisition Agreement, Bayou, the current sole stockholder of Solmecs and a
publicly-traded company, will receive 499,701 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 $5.75 per share, of the shares of Common Stock to be issued to
Bayou in this offering. Bayou, as the sole stockholder of Solmecs, has limited
the representations and warranties that it is making to its actual knowledge,
which is defined in the Acquisition Agreement as the actual knowledge of the
officers and directors of Bayou without independent investigation. Moreover,
Bayou's liability for such representations and warranties and its
indemnification of the Company is limited to the value (determined at the time
that indemnification is sought) of the 499,701 shares of Common Stock of the
Company 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. In addition, nearly all of such
representations and warranties will survive for only 18 months after the
consummation of the Acquisition. The sale of the shares of Solmecs by Bayou to
the Company constitutes a sale by Bayou of substantially all of its assets,
requiring a vote of the stockholders of Bayou. Inasmuch as a majority of the
outstanding shares of Bayou are held by a few holders, such holders will be able
to consent to such action without a stockholders meeting. If the minority
stockholders in Bayou were not satisfied with the consideration paid to Bayou
for substantially all of its assets, such stockholders could seek to assert a
claim against the Company as successor to substantially all of the business of
Bayou. There can be no assurance that the acquisition will not result in
liability to the Company.
10. 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 and/or the sale or licensing of such technology.
The Company anticipates that it will file additional patent
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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.
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."
11. 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
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competitors may have greater financial, technical, marketing, personnel and
other resources than the Company. See "Business - Competition."
12. 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 a key man
life insurance policy with respect to Professor Branover. 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."
13. 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 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.
Although during 1997 the rate of devaluation of the NIS against the dollar
exceeded the rate of inflation in Israel, for the several years preceding 1997
the rate of inflation in Israel exceeded the rate of devaluation of the NIS
against the dollar. 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.
14. 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."
15. Lack of Independent Directors, Board Committees. The Company's Board of
Directors consists of two people, one of whom is the President and Chief
Executive Officer as well as the principal of a major stockholder of the Company
and one of whom is the Chairman of the Board and a director of Solmecs and a
major stockholder of the Company. The Board does not currently contain any
independent directors and there are no audit or compensation committees
currently in place. Upon the consummation
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<PAGE>
of the Offering and Acquisition, each of the Underwriter and a major stockholder
shall have the right to designate one member to the Company's board of
directors, and it is anticipated that the board of directors will elect a fifth
member of the board. There is no assurance, however, that any of such designees
shall be independent of the Company or its affiliates or associates.
Accordingly, the board of directors may be in a position to control the actions
and decisions of the Company without the benefit of input from independent
directors. See "Management."
16. Broad Discretion in Application of Proceeds; Benefit to Related
Parties. Approximately $457,400 (10%) 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). See "Use of Proceeds," "Certain
Transactions" and Pro Forma Financial Information.
17. Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $3.83 per share (or 67%) between the adjusted net
tangible book value per share after the offering and the initial public offering
price of $5.75 (assuming none of the initial public offering price is attributed
to the Warrant included in the Unit). See "Dilution."
18. 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."
19. Shares Eligible for Future Sale. Upon consummation of this offering,
the Company will have 2,082,088 shares of Common Stock outstanding (assuming no
exercise of the Warrants or outstanding options or warrants), of which the
1,041,044 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 1,041,044 shares of Common Stock
outstanding are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act. All of such restricted securities may
become eligible for sale pursuant to Rule 144 commencing 90 days from the date
of this offering. 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. 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 and the Acquisition Agreement provides
certain registration rights to Bayou with respect to the shares it will receive
in the Acquisition. 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."
20. 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
-19-
<PAGE>
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 is anticipated that the Units, and once separately transferable, the
Common Stock and Warrants, will be approved for quotation on The OTC Electronic
Bulletin Board, there can be no assurance that a regular trading market for the
securities will develop after this Offering or that, if developed, it will be
sustained. The OTC Electronic Bulletin Board is an unorganized, inter-dealer,
over-the-counter market which provides significantly less liquidity than a
national securities exchange or The Nasdaq Stock Market, and quotes for
securities included in the OTC Electronic Bulletin Board are not listed in the
financial sections of newspapers as they are for securities listed on a national
securities exchange and The Nasdaq Stock Market. Therefore, prices for
securities traded solely on the OTC Electronic Bulletin Board may be difficult
to obtain and purchasers of the Units may be unable to resell the securities
offered hereby at or near their original offering price or at any price.
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."
21. Risks Relating to Low-Priced Stocks; Possible Adverse Effects of "Penny
Stock" Rules on Liquidity for the Company's Securities. The Securities and
Exchange Commission (the "Commission") has adopted regulations which generally
define "penny stock" to be any equity security that is not traded on a national
securities exchange or Nasdaq and that has a market price of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. If the securities offered hereby are included in the OTC Electronic
Bulletin Board and are trading at less than $5.00 per security at any time
following the effective date of this offering, trading in such securities will
be subject to the requirements of such "penny stock" regulations which require,
among other things, the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and which impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions or individual investors with
assets in excess of $1,000,000 or an individual annual income exceeding $200,000
or together with the investor's spouse, a joint income of $300,000). 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 broker-dealer must also disclose
the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. The additional burdens imposed
upon broker-dealers by such requirements may
-20-
<PAGE>
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.
22. 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 $10.00 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. "
23. 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."
24. 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."
25. 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
-21-
<PAGE>
be no assurance that the market price of the Common Stock will ever exceed the
exercise price of the Warrants.
26. 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.
27. Risks Relating to Conducting Business Operations 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."
28. 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 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.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,041,044 Units
offered hereby are estimated to be $4,707,403 ($5,488,573 if the Underwriter's
over-allotment option is exercised in full). The Company expects to use the net
proceeds approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Dollar Amount
- ----------------------- ------------- -------------
<S> <C> <C>
Market research and marketing activities(1) ....... $1,450,000 31%
Research and development(2) ....................... 1,020,000 22%
Establishment of manufacturing capabilities(3) .... 1,000,000 21%
Acquisition of intellectual property rights(4) .... 250,000 5%
Repayment of indebtedness(5) ...................... 430,000 9%
Cost of Acquisition(6) ............................ 100,000 2%
Working capital and general
corporate purposes(7) .......................... 457,403 10%
---------- ----------
Total ......................................... $4,707,403 100%
========== ==========
</TABLE>
- ----------
(1) Represents estimated costs associated with commercial evaluation, including
a portion of salaries of scientists and engineers/technicians allocated to
market research 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
allocated to scientific research. 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 amounts advanced by Batei Sefer Limlacha, a stockholder of the
Company, to Solmecs prior to the consummation of the Acquisition, and short
term bank borrowing aggregating $429,254, outstanding at March 31, 1998.
(6) Represents estimated costs associated with the acquisition of Solmecs.
(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), rent, trade payables, professional fees and other
operating expenses. See "Management," "Certain Transactions" and Pro Forma
Financial Information.
-23-
<PAGE>
If the Underwriter exercises its over-allotment option in full, the Company
will realize additional net proceeds of $781,170, 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. Based on
the results of preliminary assessment activity to be performed on several
potential projects identified or to be identified by the Company, the Company
intends to engage in research and development of two such 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
stockholders 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 or money market funds.
-24-
<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 March 31, 1998, the net tangible book value of the Company was
$(258,608) or $(.48) 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 March 31, 1998 would have
been $(883,947) or $(.85) per share. After giving effect to the sale of the
1,041,044 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 March 31, 1998 would have been $3,989,656 or
$1.92 per share, representing an immediate increase in net tangible book value
of $2.77 per share of Common Stock to existing stockholders and an immediate
dilution of $3.83 per share (67%) to new investors (assuming none 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 ...................................... $5.75
Net tangible book value before
Acquisition, Loan Forgiveness
and Bayou Share Return ................................. $(.48)
Decrease attributable to Acquisition,
Loan Forgiveness and Bayou Share Return ................ (.37)
Pro forma net tangible book value before offering ........ (.85)
-----
Increase attributable to new investors ................... 2.77
-----
Adjusted net tangible book value after offering ............ 1.92
-----
Dilution to new investors .................................. $3.83
=====
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, 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.
-25-
<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) ................. 1,041,044 50.0% $ 12,589 .2% $ .01
New investors ..................................... 1,041,044 50.0% 5,986,003 99.8% $5.75
--------- ----- ---------- -----
Total ....................................... 2,082,088 100.0% $5,998,592 100.0%
========= ===== ========== =====
</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
$6,883,900 for 1,197,200 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.
-26-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, (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 499,701 shares of Common Stock, accounted for as a
purchase, (b) the write-off of acquired research and development in process of
$3,498,619, (c) the forgiveness by Bayou of a loan to Solmecs, of which
$5,082,897 was outstanding as of March 31, 1998, and (d) the return of Bayou's
shares held by Solmecs, and (iii) as adjusted to give effect to the sale of the
1,041,044 Units offered hereby and the anticipated application of the estimated
net proceeds therefrom.
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------
Actual Pro Forma (1) As Adjusted (2)
----------- --------- -----------
<S> <C> <C> <C>
Short Term Debt $ 110,108 $ 539,362 $ --
=========== =========== ===========
Long term debt -- $ 200,000 $ 200,000
----------- -----------
Stockholders' equity (deficiency):
Common stock, $.01 par value, 10,000,000
authorized, 541,343 outstanding, 1,041,044
pro forma(1), 2,082,088 as adjusted(2) 5,413 10,410 20,820
Additional paid-in-capital 2,179 2,870,462 7,567,455
Accumulated deficit -- (3,498,619) (3,598,619)
Total stockholders' equity (deficiency) 7,592 (617,747) 3,989,656
----------- ----------- -----------
Total capitalization
$ 7,592 ($ 417,747) $ 4,189,656
=========== =========== ===========
</TABLE>
- ----------
(1) Does not include (i) 1,041,044 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 208,208 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) Gives effect to the sale of the 1,041,044 Units offered hereby and the
application of the estimated net proceeds therefrom, including the
repayment of indebtedness in the amount of $429,254 and the payment of
costs of the Acquisition in the amount of $100,000.
-27-
<PAGE>
SELECTED FINANCIAL DATA
The balance sheet data as of June 30, 1997, has been derived from the
Financial Statements included elsewhere herein which have been audited by Arthur
Andersen LLP, independent public accountants. The balance sheet data as of March
31, 1998, 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 Arthur
Andersen), and the unaudited Financial Statements of Solmecs for the nine months
ended March 31, 1997 and 1998. 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
nine months ended March 31, 1997 and 1998 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, Nine Months Ended March 31,
-------------------------- ---------------------------
1996 1997 1997 1998
========================== ===========================
<S> <C> <C> <C> <C>
Revenues $ 75,057 $ 57,276 $ 42,911 $ 38,876
Research and Development Costs 347,318 276,259 219,595 187,143
Cost of services performed by -- -- -- 26,056
subcontractors
Cost of Merchandise Purchased 17,420 48,638 37,337 5,257
Marketing, General & Administrative 493,614 383,219 267,771 353,823
Expenses
Operating Loss (783,295) (650,840) (481,792) (533,403)
Net Loss (688,629) (661,324) (486,935) (535,697)
Net Loss Per Share $ (.66) $ (.64) $ (.47) $ (.51)
Weighted average number of shares 1,041,044 1,041,044 1,041,044 1,041,044
outstanding
</TABLE>
Balance Sheet Data: June 30, 1997 March 31, 1998
------------- --------------
Total Assets $25,000 $266,200
Working Capital 25,000 7,592
Current Liabilities -- 258,608
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<PAGE>
Long-Term Liabilities 17,408 --
Stockholders' Equity 7,592 7,592
(1) The unaudited Pro Forma financial statement of operations information
reflects the combined financial position and results of the Company and
Solmecs as if the Acquisition had been effective as of March 31, 1998, 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 499,701 shares of Common Stock
accounted for as a purchase; (ii) the R&D Write-Off of acquired research
and development in process of $3,498,619; (iii) the Loan Forgiveness by
Bayou of a loan to Solmecs, of which $5,082,897 was outstanding as of March
31, 1998; (iv) the Bayou Share Return; and (v) the payment of $170,000, and
$120,000 for fiscal years 1996 and 1997, respectively, and $90,000 for the
nine months ended March 31, 1998, to officers in connection with employment
agreements. See Pro Forma Financial Information.
-29-
<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 $13,898,573 at March 31,
1998 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.
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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
Nine Months Ended March 31, 1998 Compared with Nine Months Ended March 31, 1997
Total Revenues. Total revenues decreased by $4,035 or 9% to $38,876 for the
nine months ended March 31, 1998, from $42,911 for the nine months ended March
31, 1997. The decrease is mainly attributable to a decrease in sales of
photovoltaic cells and panels due to the slow-down in growth of the Israeli
economy which caused a decrease in investments in the area of alternative energy
methods. The decrease in sales of photovoltaic cells and panels was partly
offset by income generated from the "Dead Sea Works" project.
Research and Development Costs. Research and development costs decreased by
$32,452 or 15% to $187,143 for the nine months ended March 31, 1998, from
$219,595 for the nine months ended March 31, 1997. The decrease is attributable
to the decrease in salaries and related expenses resulting from a shift of
personnel from research and development positions to general, administrative and
marketing positions as well as an increase in research and development performed
by third party subcontractors, the expense of which is included under cost of
contract services performed by subcontractors.
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Cost of Merchandise Purchased. Cost of merchandise purchased decreased by
$32,080, or 86%, to $5,257 for the nine months ended March 31, 1998, from
$37,337 for the nine months ended March 31, 1997. This decrease was primarily
attributable to the aforesaid decrease in sales.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses increased by $86,052 or 48%, to $263,823 for the nine
months ended March 31, 1998, from $177,771 for the nine months ended March 31,
1997. This increase was primarily attributable to an increase in (i) marketing
expenses related to the initial commercialization of Solmecs' products, (ii)
foreign travel related to new products, (iii) fees associated with the leasing
of new facilities in Omer Industrial Park, and (iv) an increase in salaries and
related expenses resulting from a shift of personnel from research and
development positions to general, administrative and marketing positions.
Operating Loss. Operating loss increased by $51,611, or 13%, to $443,403
for the nine months ended March 31, 1998 from $391,792 for the nine months ended
March 31, 1997. The increase in operating loss was primarily attributable to an
increase in marketing, general and administrative expense as set forth above.
Financing Expenses, Net. Financing expenses of $301,239 for the nine months
ended March 31, 1998 and $282,143 for the nine months ended March 31, 1997
primarily related to the charge for imputed interest, at a rate of 8% per annum,
in connection with the loan from its parent company. The difference of $19,096
is attributed to an increase in interest resulting from an increase in principal
of the loan from the parent company.
Net Loss. As a result of the foregoing, net loss increased by $71,762, or
11%, to $745,697 for the nine months ended March 31, 1998, from $673,935 for the
nine months ended March 31, 1997.
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.
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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.
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 Expenses, Net. Financing expenses of $390,484 for the fiscal year
ended June 30, 1997 and $300,069 for the fiscal year ended June 30, 1996
primarily related to the charge for imputed interest in connection with the loan
from its parent company. The difference of $90,415 is primarily attributable to
(i) an increase in interest resulting from an increase in principal of the loan
from the parent company, and (ii) a decrease in 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 $72,695, or 8.6%, to $921,324 for the
fiscal year ended June 30, 1997, from $848,629 for the fiscal year ended June
30, 1996.
Liquidity and Capital Resources
As of March 31, 1998, Solmecs had a working capital deficit of $513,297, a
stockholders' deficiency of $5,708,236 and an accumulated deficit of
$13,898,573. The aforesaid stockholders' deficiency was chiefly due to
indebtedness of Solmecs to its parent company, Bayou, in the amount of
$5,082,897, which indebtedness will be forgiven prior to the consummation of the
Acquisition.
During the period from inception through March 31, 1998, Batei Sefer
Limlacha, a principal stockholder of the Company, loaned to the Company $110,108
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 the period from September 1997 through March 1998, Batei Sefer
Limlacha loaned to Solmecs $337,900 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.
Subsequent to March 31, 1998, Solmecs (Israel) Ltd. obtained a line of
credit facility of approximately $270,000 from an Israeli bank allowing for
overdraft for working capital purposes. The line of credit facility is secured
by a fixed charge on Solmecs (Israel) Ltd.'s uncalled share capital and goodwill
and a floating charge on all of its present and future acquired property and
rights. As of May 25, 1998, Solmecs (Israel) Ltd. had drawn approximately
$115,000 under the line of credit facility. Solmecs (Israel) Ltd. may, but is
not required to repay such amount from the proceeds of this offering.
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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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. Based on the results of
preliminary assessment activity to be performed on several potential projects
identified or to be identified by the Company, the Company intends to engage in
research and development of two such 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 adoption of this statement
did not 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 all of the stock of 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 be acquired
by 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
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process developed approximately 20 years ago by Professor Herman Branover, a
Soviet emigre to Israel 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 initially to mono-crystals of silicon and
subsequently to mono-crystals of gallium-arsenide and cadmium-telluride, which
will compete with and may gradually replace silicon chips (chips based on
mono-crystals of silicon) 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 marketing activities with
respect to the solar/electric hot-water tank control/display system and the
plasma-chemically treated extra smooth rubber gaskets, both of which are at or
near the commercialization stage, 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, the Company has identified approximately a dozen
projects in the viability testing stage, including those involving Solmecs
technologies and those not involving such technologies, in which the Company may
invest. These projects include 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
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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 energy conversion, metallurgy, material sciences and others. Many of them
are authors of numerous inventions 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
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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 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 all of the stock of Solmecs will be acquired by
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. The Company believes that this
process will not be ready for industrial application for at
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least two years. The major potential application of these monocrystals
is as a possible alternative to 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.
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.
Solmecs has manufactured two prototypes of the control/display system
through a subcontracting arrangement with an Israeli firm and has
entered into discussions with two European based hot water tank
manufacturers for possible insertion of the control/display system
into next generation boiler and hot water tank systems.
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.
The Company has entered into an arrangement with a Russian
manufacturer pursuant to which the Company acts as the exclusive
distributor of such manufacturer's photovoltaic
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cells in Israel. This arrangement is scheduled to continue through the
end of 1998 at which time the parties will renegotiate the terms of
the 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 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.
At present, the Company ships products directly to the Russian company
for surface treatment.
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.
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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.
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. Solmecs has performed a preliminary feasibility study for a
Norwegian company that has expressed interest in a possible joint
venture to further develop this technology. 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.
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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%.
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.
o Reduction of Carbon Dioxide Emissions. A process has been developed by
Russian scientists to reduce the levels of carbon dioxide emitted from
the combustion of natural gas, such as methane, in power stations.
Known as "pyrolysis," the process involves a natural gas thermal
decomposition whereby carbon is extracted from methane prior to the
combustion process. The oxygen component of the methane is released
and the resulting natural gas fuel is pure hydrogen which can be used
for electrical or mechanical power production without hazardous
pollution of the environment. The extracted carbon is captured in
solid form (crystals and powder) which is efficiently stored and may
be utilized in production processes such as rubber production and
metallurgy. The Company may allocate a portion of the proceeds of this
offering for construction of a demonstration plant on an intermediate
semi-industrial scale.
o Vortex Microconditioner Air Cooler. Conventional air
cooling/refrigerating devices involve a refrigeration cycle with freon
vapor compression which can be costly as well as ecologically unsound.
The Company has established a relationship with a group of Russian
researchers who have improved, to a near operative level, an air
cooling technology in which a turbulent fluid is rotated around an
axis at a high rate of speed through the use of compressed air,
simulating the vortex of a tornado. The flow is spontaneously
thermally separated into two air streams, one hot and one cold. The
principle allows for the development of a smaller, lightweight device
with no moving parts and which is environmentally friendly (no freon),
for application in industrial and high- technology settings. The
Company may allocate a portion of the proceeds of this offering to
acquire the technology and to further the development of a
commercially viable product.
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o Luminescent Flat Multicolored Light Emitting Polymers. The Company has
identified a Russian company that is in the late stages of development
of a new technology of multicolored light emitting polymers (LEP)
which could replace conventional liquid crystal displays (LCD)
currently utilized in most computers, phones and other consumer
electronic equipment. The LEP technology could enable the development
of a new generation of display systems with greater flexibility for
size and location which would be extremely thin, have high visibility
without backlighting and permit attractive images from all viewing
angles without color filtration.
There can be no assurance that the Company will be able to obtain the
necessary rights to exploit the foregoing technologies.
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.
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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 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 March 31, 1998, this liability
amounted to approximately $318,000 (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 Office of the Chief Scientist
of the Ministry of Industry and Commerce of the Government of Israel (the
"OCS"), $2,274,420 in grants towards the cost of a research and development
project relating to LMMHD energy conversion technology. Under the terms of
Israeli Government participation, a royalty of 2% to 3% of the net sales of, or
licensing revenues from, products developed from a project funded by the OCS
must be paid, beginning with commencement of sales of products developed with
grant funds and ending when 100% to 150% of the grant is repaid. The terms of
Israeli Government participation also require that the manufacturing of products
developed with Government grants be performed in Israel, unless a special
approval has been granted. Such approval, if given, is generally made subject to
an increase in the maximum amount of royalties that must be repaid. Separate
Israeli Government consent is required to transfer to third parties technologies
developed through projects in which the Government participates. Such
restrictions do not apply to exports from Israel of products developed with such
technologies. Solmecs has not yet commenced marketing of products developed
through funds granted by the OCS. Accordingly, no royalties have been paid to
date.
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 and/or the sale or licensing of
such technology.
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
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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 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
Solmecs 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.
Solmecs believes that it has satisfactory labor relations with its employees and
has never experienced work stoppage.
Certain provisions of the collective bargaining agreements between the
Histadrut (General Federaton of Labor in Israel) and the Coordination Bureau of
Economic Organizations (including the Industrialists' Associations) are
applicable to Solmecs' employees by order of the Israeli Ministry of Labor.
These provisions concern principally the length of the work day, minimum daily
wages for professional workers, insurance for work-related accidents, procedures
for dismissing employees, determination of
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severance pay, and other conditions of employment. Solmecs generally provides
its employees with benefits and working conditions beyond the required minimums.
Israeli law generally requires severance pay, which may be funded by
Managers' Insurance described below, upon the retirement or death of an employee
or termination of employment without cause (as defined in the law). The payments
pursuant thereto amount to approximately 8.33% of wages. Furthermore, Israeli
employees and employers are required to pay predetermined sums to the National
Insurance Institute, which is similar to the United states Social Security
Administration. Such amounts also include payments by the employee for national
health insurance. The total payments to the National Insurance Institute are
equal to approximately 14.6% of the wages (up to a specified amount), of which
the employee contributes approximately 66% and the employer contributes
approximately 34%.
A general practice followed by Solmecs, although not legally required, is
the contribution of funds on behalf of most of its employees to a fund known as
"Managers' Insurance." This fund provides a combination of savings plan,
insurance and severance pay benefits to the employee, giving the employee
payments upon retirement or death and securing the severance pay, if legally
entitled, upon termination of employment. The employer decides whether each
employee is entitled to participate in the plan, and each employee who agrees to
participate contributes 5% of his salary and the employer contributes an amount
equal to between 13.3% and 15.8% of the employee's salary.
The Company's success will be dependent to a large degree on its ability to
retain the services of key personnel and to attract additional qualified
personnel in the future. Competition for such personnel is intense. There can be
no assurance that the Company will be able to attract, assimilate or retain key
personnel in the future and the failure of the Company to do so would have a
material adverse affect on the Company's business, financial condition and
results of operations.
Facilities
In addition to its laboratory arrangement at the Ben Gurion University,
Solmecs occupies certain laboratory and office space in Omer Industrial Park,
Israel (near Beer-Sheva) pursuant to a two-year lease expiring in November 1999
with a renewal option for an additional three-year period, at an annual rent of
approximately $41,000.
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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 51 Chairman of the Board of Directors
Professor Herman Branover 66 President, Chief Executive Officer and Director
Dr. Shaul Lesin 44 Executive Vice President and Secretary
Jacline Bavli 44 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, and is a Director of Solmecs. 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 a key man life insurance policy on the life of Professor Branover
in the amount of $1,000,000.
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
Concurrently with the consummation of this offering Solmecs will enter into
employment agreements with Professor Herman Branover, Dr. Shaul Lesin and
Jacline Bavli, the Company's President and Chief Executive Officer, Executive
Vice President and Chief Financial Officer, which provide for annual base
compensation of $98,400, $98,400 and $39,600, respectively, payable in NIS in
accordance with the rate of exchange into U.S. dollars in effect on the date of
payment. The base compensation may be increased from time to time by the Board
of Directors in its sole discretion. In addition, Solmecs will contribute on
behalf of each employee an amount equal to 15.8% of such employee's salary to a
fund known as "Manager's Insurance" and 7.5% of such employee's salary to a fund
known as "Education Fund." See "Business -- Employees."
Solmecs has agreed to provide Messrs. Branover and Lesin with an automobile
and a cellular phone during the term of their employment for which Solmecs shall
pay all expenses. Solmecs has also agreed to pay the costs associated with
maintaining a telephone line in their homes during the course of their
employment with the Company.
Each of the employment agreements contains a confidentiality provision
preventing the employees from disclosing, during the terms of their respective
employment agreements and at any time following the termination of their
employment, any proprietary information of the Company without the Company's
consent. Further, each of the employment agreements contains a provision that
such employee will not directly or indirectly compete or engage in a business
competitive with the Company or solicit the employees or consultants of the
Company for employment in a business in competition with the Company, during the
term of the employment agreement and for a period of one year thereafter.
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Pursuant to the terms of the employment agreements the Company has agreed
to indemnify the employee for any claim or liability arising from such
employee's good faith fulfillment of his employment obligations provided that
the employee: (i) provides the Company with timely written notice of the claim
or liability; (ii) cooperates with the Company in the defense of the claim and
(iii) allows the Company to control defense of the claim.
The employment agreements for Messrs. Branover and Lesin provide that in
the event of termination other than "for cause" or as a result of a continuing
disability (as defined in the employment agreements) the employee shall be
entitled to: (i) an adjustment grant equal to three months base salary payable
in three equal monthly installments beginning on the first day of the month
following the date of termination; (ii) an additional payment of one month's
base salary for each year in which employee was employed; and (iii) the use of
an automobile and cellular phone for a period of three months following
termination. The Company may not terminate an employee "for cause" unless it has
given the employee (i) written notice of the basis for termination, and (ii) at
least 30 days to cure the basis for such cause.
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.
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.
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It is the position of the Commission that insofar as the foregoing
provisions may be invoked to disclaim liability for damages arising under the
Securities Act, such provisions are against public policy as expressed in the
Securities Act and are therefore unenforceable.
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 and as adjusted to give
effect to the Acquisition and to reflect the sale by the Company of the
1,041,044 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.(3) 499,701 -- 24%
Level 8
580 St. Kilda Road
Melbourne, Victoria, 3004 Australia
Batei Sefer Limlacha(4) 312,313 58% 15%
766 Montgomery Street
Brooklyn, New York 11213
H.B. Capital Ltd.(5) 145,746 27% 7%
Emmanuel Althaus(6) 83,284 15% 4%
All executive officers and directors as a
group (four persons) 229,030 42% 11%
</TABLE>
(1) The address of HB Research Corp. and Mr. Althaus is c/o SCNV Acquisition
Corp., Omer Industrial Park, P.O.B. 3026, Omer, Israel 84965.
(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.
(3) Inasmuch as, following the consummation of this offering, each of Batei
Safer Limlacha and the Underwriter have the right to appoint a member of
the Company's Board of Directors and Professor Herman Branover and Mr.
Althaus have the right to be appointed to the Company's Board of Directors,
while Bayou has no such right, the Company does not consider Bayou to be a
control person of the Company. Moreover, Bayou has informed the Company
that it has no intention of seeking or exercising control over the Company.
(4) Batei Sefer Limlacha is a religious corporation organized under the New
York Religious Corporation Law. David Laine is President and trustee and
Joseph Kazin and Benzion Raskin are the remaining trustees. Batei Sefer
Limacha may be deemed to be a "promoter" of the Company as such term is
defined under the Federal Securities Laws.
(5) Professor Herman Branover is the sole shareholder of H.B. Capital Ltd., an
Irish corporation. Professor Branover and Shmuel Gurfinkel are the
directors. H.B. Capital Ltd. may be deemed to be a "promoter" of the
Company, as such term is defined under the federal securities laws.
(6) Mr. Althaus may be deemed to be a "promoter" of the Company, as such term
is defined under the federal securities laws.
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CERTAIN TRANSACTIONS
In May 1997, the Company issued 145,746 shares of Common Stock, 83,284
shares of Common Stock and 312,313 shares of Common Stock to H.B. Capital Ltd.,
Emmanuel Althaus and Batei Sefer Limlacha, respectively, for nominal
consideration. Emmanuel Althaus, the Chairman of the Board of Directors of the
Company, is a Director of Solmecs and 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 499,701 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 March 31, 1998,
of $5,082,897 as a capital contribution. Prior to the closing of the
Acquisition, Solmecs will have returned 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 499,701 shares to be issued to Bayou will not be
registered in this offering but will be subject to certain registration rights
to be granted by the Company.
During the period from inception through March 31, 1998, Batei Sefer
Limlacha, a principal stockholder of the Company, loaned to the Company $110,108
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 the period from September 1997 through March 1998, Batei Sefer
Limlacha loaned to Solmecs $337,900 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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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.
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 1997 was 14.5%, 8.1%, 10.6% and 7.0%, respectively. Although
during 1997 the rate of devaluation of the NIS against the dollar exceeded the
rate of inflation in Israel, for the several years preceding 1997 the rate of
inflation in Israel exceeded the rate of devaluation of the NIS against the
dollar.
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
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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, 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.
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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).
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.
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 1,041,044 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.
Units
Each Unit consists of one share of Common Stock and one Warrant to purchase
one share of Common Stock. 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.
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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 $7.50,
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 which
the Company gives notice has been at least $10.00 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).
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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
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.
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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 Continental 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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 2,082,088
shares of Common Stock outstanding (assuming no exercise of the Underwriter's
over-allotment, the Warrants or outstanding options or warrants), of which the
1,041,044 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 1,041,044 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, 499,701 may become eligible for sale commencing 90 days from the
date of this offering and 541,343 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.
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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.
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").
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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.
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.
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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 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.
-63-
<PAGE>
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 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
-64-
<PAGE>
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.
-65-
<PAGE>
UNDERWRITING
Patterson Travis, Inc. (the "Underwriter") has agreed, subject to the terms
and conditions contained in the Underwriting Agreement, to purchase 1,041,044
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 156,156 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
$104.00, an option (the "Underwriter's Unit Purchase Option") to purchase up to
104,104 Units at an exercise price of $6.90 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 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
-66-
<PAGE>
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.
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
-67-
<PAGE>
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 Company anticipates that the Units, and once separately transferable,
the Common Stock and Warrants will be quoted on the OTC Electronic Bulletin
Board under the symbols "SOLMU," "SOLM" and "SOLMW," respectively, but there can
be no assurance that an active trading market will develop. The Underwriter
intends to make a market in all of the publicly-traded securities of the
Company.
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
Arthur Andersen, independent public accountants, as indicated in their reports
with respect thereto, and are included 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.
-68-
<PAGE>
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. Berlack,
Israels & Liberman 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.
-69-
<PAGE>
- --------------------------------------------------------------------------------
SCNV ACQUISITION CORP.
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page
----
SCNV Acquisition Corp.
Report of Independent Public Accountants F-2
Balance Sheets as of June 30, 1997 (Audited) and as of March 31,
1998 (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 March 31, 1998 (Unaudited) F-8
Consolidated Statements of Operations for the years ended June
30, 1996 and 1997 (Audited) and for the nine months ended
March 31, 1997 and 1998 (Unaudited) F-9
Consolidated Statements of Changes in Shareholders' Deficiency
for the years ended June 30, 1996 and 1997 (Audited) and for
the nine months ended March 31, 1998 (Unaudited) F-10
Consolidated Statements of Cash Flows for the years ended June
30, 1996 and 1997 (Audited) and for the nine months ended
March 31, 1997 and 1998 (Unaudited) F-11
Notes to the Consolidated Financial Statements F-12
Pro Forma Financial Information F-22
SCNV Acquisition Corp. Pro Forma Consolidated Balance Sheet
as of March 31, 1998 (Unaudited) F-23
SCNV Acquisition Corp. Pro Forma Consolidated Statements of
Operations for the year ended June 30, 1997 and for the nine
months ended March 31, 1998 (Unaudited) F-24
Notes and Management's Assumptions to Pro Forma Consolidated
Financial Statements (Unaudited) F-25
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.
New York, New York /s/ Arthur Andersen LLP
January 8, 1998
F-2
<PAGE>
SCNV ACQUISITION CORP.
BALANCE SHEETS
June 30, March 31,
1997 1998
-------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Deferred public offering costs $ 25,000 $266,200
-------- --------
Total assets $ 25,000 $266,200
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ -- $108,500
Sundry payables -- 40,000
Short-term borrowings from
stockholder -- 110,108
-------- --------
Total current liabilities -- 258,608
LONG TERM LIABILITIES
Stockholder loan 17,408 --
-------- --------
Total liabilities 17,408 258,608
-------- --------
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;
541,343 shares issued and
outstanding 5,413 5,413
Additional paid-in-capital 2,179 2,179
-------- --------
Total stockholders'
equity 7,592 7,592
-------- --------
Total liabilities
and stockholders' equity $ 25,000 $266,200
======== ========
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 March
31, 1998. 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 March 31,
1998.
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 1,041,044 Units, which is
composed of 1,041,044 shares of Common Stock and 1,041,044 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 $7.50, 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 $104, 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.
Simultaneously with the consummation of the IPO, the Company will acquire
all of the issued and outstanding capital stock of Solmecs in consideration
for 499,701 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 $3,498,619, 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.
F-4
<PAGE>
SCNV ACQUISITION CORP.
NOTES TO THE FINANCIAL STATEMENTS
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
a. 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.
b. 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.
c. Reverse Stock Split
Subsequent to year-end, the Company effected a .7130438 for 1 reverse
split of Common Stock. All share data for all periods presented have
been retroactively restated, to give effect to this reverse stock
split.
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 sheet of Solmecs
Corporation N.V. (a Netherlands Corporation) as of June 30, 1997, and the
related consolidated statements of operations, changes in shareholders'
deficiency and cash flows for the years ended June 30, 1997 and 1996. 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 the years ended June 30, 1997 and 1996, 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 $13.2 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 Arthur Andersen
Beer-Sheva, Israel
August 29, 1997
F-7
<PAGE>
SOLMECS CORPORATION N.V.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 March 31
1997 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 39,539 $ 5,459
Trade receivables 32,267 33,377
Other receivables and prepaid expenses (Note 3) 14,044 68,306
------------ ------------
Total current assets 85,850 107,142
------------ ------------
FIXED ASSETS (Note 4)
Cost 164,292 244,116
Less - accumulated depreciation (126,459) (126,938)
------------ ------------
37,833 117,178
------------ ------------
Total assets $ 123,683 $ 224,320
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term borrowing (Note 5) $ -- $ 429,254
Sundry payables and accrued expenses (Note 6) 182,298 191,185
------------ ------------
Total current liabilities 182,298 620,439
------------ ------------
LONG-TERM LIABILITIES
Parent company (Note 7) 4,988,293 5,082,897
Long-term loan (Note 8) 200,000 200,000
Accrued severance pay (Note 9) 15,631 29,220
------------ ------------
Total long-term liabilities 5,203,924 5,312,117
------------ ------------
Total liabilities 5,386,222 5,932,556
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' DEFICIENCY (Note 11)
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 March 31, 1998 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 March 31, 1998 48,028 48,028
Share premium 8,336,155 8,636,155
Accumulated deficit (13,152,876) (13,898,573)
------------ ------------
Total (4,762,539) (5,208,236)
Less - Cost of shares of parent company (Note 12) (500,000) (500,000)
------------ ------------
Total shareholders' deficiency (5,262,539) (5,708,236)
------------ ------------
Total liabilities and shareholders' deficiency $ 123,683 $ 224,320
============ ============
</TABLE>
F-8
<PAGE>
SOLMECS CORPORATION N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the
year ended nine months ended
June 30 March 31
---------------------- ----------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(Unaudited)
REVENUES (Note 13)
<S> <C> <C> <C> <C>
Sales $ 22,982 $ 51,841 $ 40,011 $ 6,511
Contract services 52,075 5,435 2,900 32,365
--------- --------- --------- ---------
Total revenues 75,057 57,276 42,911 38,876
--------- --------- --------- ---------
COSTS AND EXPENSES
Research and development costs (Note 14) 347,318 276,259 219,595 187,143
Cost of merchandise purchased 17,420 48,638 37,337 5,257
Cost of contract services performed by
subcontractors -- -- -- 26,056
Marketing expenses (Note 15) -- 42,906 14,508 73,234
General and administrative expenses (Note 16) 323,614 220,313 163,263 190,589
--------- --------- --------- ---------
Total costs and expenses 688,352 588,116 434,703 482,279
--------- --------- --------- ---------
Operating loss (613,295) (530,840) (391,792) (443,403)
FINANCING EXPENSES, NET (300,069) (390,484) (282,143) (301,239)
--------- --------- --------- ---------
(913,364) (921,324) (673,935) (744,642)
OTHER INCOME (EXPENSES), NET (1996 -
Principally recovery of bad debt
from related party) 64,735 -- -- (1,055)
--------- --------- --------- ---------
Net loss $(848,629) $(921,324) $(673,935) $(745,697)
========= ========= ========= =========
Net loss per common share $ (116.47) $ (126.45) $ (92.50) $ (102.35)
========= ========= ========= =========
Weighted average number of common
Shares outstanding 7,286 7,286 7,286 7,286
========= ========= ========= =========
</TABLE>
F-9
<PAGE>
SOLMECS CORPORATION N.V.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Cost of shares
Preferred Common Share Accumulated of parent
Shares shares premium deficit company Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of July 1, 1995 $ 6,154 $ 48,028 $ 7,626,155 $(11,382,923) $ (500,000) $ (4,202,586)
Imputed interest on long-term
loan for the parent company -- -- 330,000 -- -- 330,000
Net loss for the year ended
June 30, 1996 -- -- -- (848,629) (848,629)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of June 30, 1996 6,154 48,028 7,956,155 (12,231,552) (500,000) (4,721,215)
Imputed interest on long-term
loan for the parent company -- -- 380,000 -- -- 380,000
Net loss for the year ended
June 30, 1997 -- -- -- (921,324) (921,324)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of June 30, 1997 6,154 48,028 8,336,155 (13,152,876) (500,000) (5,262,539)
Imputed interest on long-term
loan for the parent company -- -- 300,000 -- -- 300,000
Net loss for the nine months
ended March 31, 1998
(unaudited) -- -- -- (745,697) -- (745,697)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of March 31,
1998 (unaudited) $ 6,154 $ 48,028 $ 8,636,155 $(13,898,573) $ (500,000) $ (5,708,236)
============ ============ ============ ============ ============ ============
</TABLE>
F-10
<PAGE>
SCNV ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
year ended nine months ended
June 30 March 31
-------------------------- --------------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(848,629) $(921,324) $(673,935) $(745,697)
Adjustments to reconcile net loss to net cash used in
operating activities (see below) 243,762 380,534 252,348 238,471
--------- --------- --------- ---------
Net cash used in operating activities (604,867) (540,790) (421,587) (507,226)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in equipment (5,671) (3,853) (3,853) (56,671)
Short-term investment 35,000 -- -- --
Proceeds from sale of fixed assets 15,813 -- -- 5,959
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities 45,142 (3,853) (3,853) (50,712)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net (151,640) -- -- 429,254
Increase in liability to parent company 721,077 526,946 436,946 94,604
--------- --------- --------- ---------
Net cash provided by financing activities 569,437 526,946 436,946 523,858
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,712 (17,697) 11,506 (34,080)
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 $ 68,742 $ 5,459
========= ========= ========= =========
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Items not involving cash flows:
Imputed interest on long-term loan from the
parent company 330,000 380,000 277,000 300,000
Depreciation 10,515 9,364 7,071 8,577
Severance pay (8,524) (10,779) (6,810) 13,589
Gain on sale of equipment (4,735) -- -- 1,055
Changes in operating assets and liabilities:
Decrease (increase) in receivables
and prepaid expenses 19,738 (4,697) (1,767) (55,372)
Increase (decrease) in sundry payables and
accrued expenses (103,232) 6,646 (23,146) (29,378)
--------- --------- --------- ---------
$ 243,762 $ 380,534 $ 252,348 $ 238,471
========= ========= ========= =========
</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
Information as of March 31, 1998 and for the nine months
ended
March 31, 1998 and 1997, is unaudited
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, the
provision of contract services, and the sale 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 March 31, 1998, was U.S.$ 1.00 = 3.597 New Israeli Shekel
("NIS") (1997 - NIS 3.361) 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 March 31,
1998, has an accumulated deficit of approximately $13,899,000. At
March 31, 1998, the Company's working capital deficiency and
shareholders' deficiency amounted to approximately $513,000 and
$5,708,000, 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.
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.
F-12
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 1 - GENERAL (Cont.)
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 March 31, 1998, and statements of operations and
cash flows for the six month periods ended December 31, 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 six
month period ended March 31, 1998 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:
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. FIXED ASSETS
Fixed assets are 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. Leasehold improvements are amortized over the period of the
lease.
F-13
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
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.
Note 3 - OTHER RECEIVABLES AND PREPAID EXPENSES
June 30 March 31
1997 1998
------- --------
Advance payments to suppliers $ 4,528 158
Value Added Tax refundable 1,990 14,931
Grants receivable from the State of Israel 3,067 5,655
Prepaid expenses 2,826 45,152
Other 1,633 2,410
------- -------
$14,044 $68,306
======= =======
F-14
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 4 - FIXED ASSETS
June 30 March 31
1997 1998
------- --------
Cost
Computers and office equipment 134,719 159,717
Motor vehicles 29,573 40,488
Leasehold improvements -- 43,911
------- -------
164,292 244,116
------- -------
Accumulated depreciation
Computers and office equipment 114,289 117,966
Motor vehicles 12,170 7,904
Leasehold improvements -- 1,068
------- -------
126,459 126,938
------- -------
Net book value 37,833 117,178
======= =======
Principal annual depreciation rates:
Computers and office equipment 7% 7%
Motor vehicles 15% 15%
Leasehold improvements 20% 20%
Note 5 - SHORT-TERM BORROWING
Interest June 30 March 31
Rate 1997 1998
-------- ------- --------
Banks in shekels unlined 16.7% $ -- $ 91,354
Unsecured loans from private
institution in U.S.
dollars(*) 8% -- 337,900
-------- ------- --------
$ -- 429,254
-------- ------- --------
(*) 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.
F-15
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 6 - SUNDRY PAYABLES AND ACCRUED EXPENSES
June 30 March 31
1997 1998
-------- --------
Ben-Gurion University for services rendered $ 86,801 $ 86,801
Payroll and related expenses 50,357 36,764
Accrued expenses 20,194 13,664
Suppliers 3,280 40,727
Advance from customer 16,767 --
Other 4,899 13,229
-------- --------
$182,298 $191,185
======== ========
Note 7 - 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 April 1, 1999.
Imputed interest at a rate of 8% per annum was charged and reflected in the
statement of operations, and is presented as additional share premium.
Note 8 - LONG-TERM LOAN
The long-term loan is interest free. The date of repayment has not yet been
determined.
Note 9 - 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.
F-16
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 10 - COMMITMENTS AND CONTINGENCIES
A. Royalties - BGU
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 March 31, 1998, this liability amounted to
approximately $318,000 (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.
Through March 31, 1998, 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 March 31, 1998, 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 March 31, 1998, there were
no sales on which royalties were payable.
F-17
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 10 - COMMITMENTS AND CONTINGENCIES (Cont.)
D. Royalties and Licensing Fees
Subsequent to balance sheet date, an agreement was signed between the
subsidiary and a party which had participated in the development of a
certain product. In this agreement, the subsidiary undertook to pay
royalties as a certain percentage of sales and a certain percentage of
revenues from licensing fees. As of March 31, 1998, no sales had been
made for which royalties would be payable.
E. Lease Agreement
On October 28, 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. The Company has a renewal option for an additional
three years.
F. Letter of Intent
In September 1997 the subsidiary signed a letter of intent in which it
agreed to cooperate with another party in establishing a jointly owned
entity for the development of certain technology. The other party will
be responsible for providing financing of the jointly owned entity. As
of March 31, 1998, the subsidiary had received $10,000 from the other
party as participation in the costs of technology development.
G. Performance Guarantee
The subsidiary is contingently liable for a contract performance
guarantee issued by a bank in favor of a customer in the amount of
$20,000.
H. Lien.
Subsequent to the balance sheet date, in connection with a credit line
provided by a bank, the subsidiary recorded in favor of the bank, in
an unliited amount, a fixed charge on the subsidiary's uncalled share
capital and its goodwill and floating charge on all its present and
future acquired property and rights. As of May, 1998 the bank had
provided the subsidiary with a credit line of approximatley $270,000.
Note 11 - 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.
Note 12 - 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 March
31, 1998, is approximately $6,250.
F-18
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 13 - REVENUES
For the year For the nine months
ended June 30 ended March 31
-------------- -------------------
1996 1997 1997 1998
% % % %
---- ---- ---- ----
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 73 --
Customer C -- 31 18 9
Customer D 16 -- 3 --
Customer E -- -- -- 73
Note 14 - RESEARCH AND DEVELOPMENT COSTS
For the year For the nine months
ended June 30 ended March 31
--------------------- ---------------------
1996 1997 1997 1998
--------- --------- --------- ---------
Salaries and related
expenses (after deduction
of immigrant absorption
grant as follows March 31,
1998 - $5,711; 1997 -
$9,846; June 30, 1997 -
17,854; 1996 - none) $ 275,939 $ 219,642 $ 165,633 $ 144,322
Materials 8,157 6,187 6,187 1,957
Subcontractors 10,337 18,285 20,003 11,373
Consultants 26,049 9,074 2,624 6,631
Fee for use of facilities 13,200 13,711 9,900 17,127
Depreciation -- -- -- 1,481
Other 13,636 9,360 15,248 14,252
--------- --------- --------- ---------
347,318 276,259 219,595 197,143
Less - participation in
technology development (*) -- -- -- (10,000)
--------- --------- --------- ---------
$ 347,318 $ 276,259 $ 219,595 $ 187,143
========= ========= ========= =========
(*) See Note 10F.
F-19
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 15 - MARKETING EXPENSES
For the For the nine
year ended months ended
June 30 March 31
--------------------- ---------------------
1996 1997 1997 1998
-------- -------- -------- --------
Salaries and related expenses $ -- $ -- $ -- $ 29,155
Market research -- 22,514 9,100 15,814
Foreign travel -- 17,614 2,517 36,880
Publications -- 2,778 2,891 490
Other -- -- -- 4,895
-------- -------- -------- --------
-- 42,906 14,508 87,234
Less - government grants -- -- -- (14,000)
-------- -------- -------- --------
$ -- $ 42,906 $ 14,508 $ 73,234
======== ======== ======== ========
Note 16 - GENERAL AND ADMINISTRATIVE EXPENSES
For the For the nine
year ended months ended
June 30 March 31
------------------- -------------------
1996 1997 1997 1998
-------- -------- -------- --------
Salaries and related expenses $136,689 $ 88,133 $ 64,962 $ 98,530
Professional fees 38,054 43,820 35,942 28,100
Consulting fees 31,438 822 262 1,314
Rent fee 11,483 3,614 4,061 10,953
Vehicle maintenance 29,528 11,686 10,732 15,568
Communications 30,730 23,032 18,837 15,292
Foreign travel 13,956 9,143 1,238 --
Depreciation 10,515 9,364 7,071 7,096
Other 21,221 30,699 20,158 13,736
-------- -------- -------- --------
$323,614 $220,313 $163,263 $190,589
======== ======== ======== ========
F-20
<PAGE>
SOLMECS CORPORATION N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
Information as of March 31, 1998 and for the nine months ended
March 31, 1998 and 1997, is unaudited
Note 17 - 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, 1997, are approximately $315,000. In addition, research
and development expenses in the approximate amount of $698,000 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 $365,000 has been recorded.
The subsidiary has received final income tax assessments through
December 31, 1995.
F-21
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Consolidated Financial Statements as of March 31, 1998
and for the year ended June 30, 1997 and the nine months ended March 31, 1998
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 March 31, 1998, 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 $3,498,619, 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-22
<PAGE>
SCNV ACQUISITION CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
SCNV Solmecs Pro Forma Pro Forma
Acquisition Corporation Adjustments SCNV
Corp. N.V. Acquisition Corp.
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 5,459 $ -- $ 5,459
Trade receivables -- 33,377 -- 33,377
Deferred public offering costs 266,200 -- -- 266,200
Other receivables and prepaid expenses -- 68,306 (40,000) 2(f) 28,306
------------ ------------ ------------ ------------
Total current assets 266,200 107,142 (40,000) 333,342
------------ ------------ ------------ ------------
EQUIPMENT
Cost -- 244,116 -- 244,116
Less - accumulated depreciation -- (126,938) -- (126,938)
------------ ------------ ------------ ------------
-- 117,178 -- 117,178
------------ ------------ ------------ ------------
Total assets $ 266,200 $ 224,320 $ (40,000) $ 450,520
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term borrowing (mainly from
stockholder) $ 110,108 $ 429,254 $ -- $ 539,362
Sundry payables 40,000 177,521 (40,000) 2(f) 177,521
Accrued expenses 108,500 13,664 -- 122,164
------------ ------------ ------------ ------------
Total current liabilities 258,608 620,439 (40,000) 839,047
------------ ------------ ------------ ------------
LONG-TERM LIABILITIES
Stockholders' loans -- 5,082,897 (5,082,897) 2(c) --
Long-term loan -- 200,000 -- 200,000
Accrued severance pay -- 29,220 -- 29,220
------------ ------------ ------------ ------------
Total long-term liabilities -- 5,312,117 (5,082,897) 229,220
------------ ------------ ------------ ------------
Total liabilities 258,608 5,932,556 (5,122,897) 1,068,267
------------ ------------ ------------ ------------
STOCKHOLDERS' DEFICIENCY
Share capital 5,413 54,182 (49,185) 2(a),2(e) 10,410
Share premium 2,179 8,636,155 (5,767,872) 2(a),2(e) 2,870,462
Accumulated deficit -- (13,898,573) 10,399,954 2(b)-2(e) (3,498,619)
------------ ------------ ------------ ------------
Total shareholders' deficiency 7,592 (5,208,236) 4,582,897 (617,747)
------------ ------------ ------------ ------------
Less - Cost of shares of parent company -- (500,000) 500,000 2(d) --
------------ ------------ ------------ ------------
Total stockholders' deficiency 7,592 (5,708,236) 5,082,897 (617,747)
------------ ------------ ------------ ------------
Total liabilities and stockholders
deficiency $ 266,200 $ 224,320 $ (40,000) $ 450,520
============ ============ ============ ============
</TABLE>
The accompanying notes and management's assumptions to
the pro forma consolidated financial statements are an
integral part of this statement.
F-23
<PAGE>
SCNV ACQUISITION CORP.
PRO FORMA CONSOLIDTED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the year ended For the nine months ended
June 30, 1997 March 31, 1998
------------- --------------
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 $ 6,511 $ -- $ 6,511
Contract services 5,435 -- 5,435 32,365 -- 32,365
----------- ----------- ----------- ----------- --------- -----------
Total revenues 57,276 -- 57,276 38,876 -- 38,876
----------- ----------- ----------- ----------- --------- -----------
COSTS AND EXPENSES
Research and development costs 276,259 -- 276,259 187,143 -- 187,143
Cost of merchandise purchased 48,638 -- 48,638 5,257 -- 5,257
Cost of services provided by -- -- -- 26,056 -- 26,056
subcontractors
Marketing expenses 42,906 -- 42,906 73,234 -- 73,234
General and administrative expenses 220,313 120,000 (2g) 340,313 190,589 90,000 (2g) 280,589
----------- ----------- ----------- ----------- --------- -----------
Total costs and expenses 588,116 120,000 708,116 482,279 90,000 572,279
----------- ----------- ----------- ----------- --------- -----------
Operating loss (530,840) (120,000) (650,840) (443,403) (90,000) (533,403)
FINANCING EXPENSES, NET (390,484) 380,000 (2h) (10,484) (301,239) 300,000 (2h) (1,239)
----------- ----------- ----------- ----------- --------- -----------
(921,324) 260,000 (661,324) (744,642) 210,000 (534,642)
Other expenses, net -- -- -- (1,055) -- (1,055)
----------- ----------- ----------- ----------- --------- -----------
Net loss $ (921,324) $ 260,000 $ (661,324) $ (745,697) $ 210,000 $ (535,697)
=========== =========== =========== =========== ========= ===========
Pro Forma Net loss per share $ (0.64) $ (0.51)
=========== ===========
Weighted average number of shares
outstanding 1,041,044 1,041,044
=========== ===========
</TABLE>
The accompanying notes and management's assumptions to
the pro forma consolidated financial statements are an
integral part of this statement.
F-24
<PAGE>
SCNV ACQUISITION CORP.
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1998 and for the year ended June 30, 1997 and
for the nine months ended March 31, 1998
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 499,701 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 $3,498,619, 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 March 31, 1998, 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
March 31, 1998 (unaudited) and the financial statements of Solmecs as of
June 30, 1997 and as of March 31, 1998 (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-25
<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 499,701 shares of the
Company's common stock issued to Bayou for a purchase price of
$2,873,280.
(b) One-time write-off of acquired research and development in process of
$3,498,619.
(c) The forgiveness by Bayou of a loan to Solmecs of $5,082,897.
(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 elimination of inter-companies balances.
(g) The payment of approximately $120,000 (approximately $30,000 per
quarter) to officers in accordance with employment agreements.
(h) The elimination of imputed interest on the forgiven Bayou loan.
F-26
<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
The Company..................................................................9
Risk Factors................................................................13
Use of Proceeds.............................................................23
Dilution....................................................................25
Capitalization..............................................................27
Selected Financial Data.....................................................28
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................30
Business....................................................................35
Management..................................................................48
Principal Stockholders......................................................53
Certain Transactions........................................................54
Conditions in Israel........................................................55
Description of Securities...................................................57
Shares Eligible for Future Sale.............................................60
Certain Tax Considerations..................................................61
Underwriting................................................................66
Experts.....................................................................68
Legal Matters...............................................................69
Additional Information......................................................69
Index to Financial Statements..............................................F-1
----------
Until ______________, 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the shares of Common Stock or Warrants offered
hereby, whether or not participating in this distribution may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
================================================================================
1,041,044 Units
SCNV ACQUISITION
CORP.
1,041,044 Shares of Common Stock
and
Class A Redeemable Warrants to
Purchase
1,041,044 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:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................... $ 5,203.72
NASD filing fee....................................................... 2,263.99
Printing and engraving expenses....................................... 40,000.00
Legal fees and expenses............................................... 245,000.00
Accounting fees and expenses.......................................... 150,000.00
Blue sky fees and expenses (including legal fees)..................... 50,000.00
Transfer agent, warrant agent and registrar fees and expenses......... 2,500.00
Miscellaneous......................................................... 5,452.29
-------------
Total........................................................... $500,420.00
=============
</TABLE>
Item 26. Recent Sale of Unregistered Securities
Set forth below is information as to securities of the Registrant sold
within the past three years which were not registered under the Securities Act
of 1933, as amended (the "Act"). In connection with such sales, the Registrant
relied upon the exemption from registration provided by Section 4(2) of the Act.
The Company made a determination
II-1
<PAGE>
that each of the purchasers was a sophisticated investor. The purchasers in such
private offerings represented their intention to acquire the securities for
investment only and not with a view to distribution thereof. All purchasers had
adequate access, through their employment or other relationships to sufficient
information about the Registrant to make an informed investment decision.
In May 1997 the Company issued 145,746 shares of Common Stock, 83,284
shares of Common Stock and 312,313 shares of Common Stock to HB Research Corp.,
Emmanuel Althaus, and Batei Sefer Limlacha, respectively, for nominal
consideration.
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 Form of Stock Purchase Agreement between SCNV Acquisition
Corp., Solmecs Corporation, N.V. and Bayou International
Ltd.
10.2 Agreement, dated as of June 4, 1980 by and between Advanced
Products Beer Sheva Ltd. (AP) and the Ben Gurion University
of the Negar (The Research and Development Authority) and
Solmecs Corporation N.V.
10.3 Agreement, dated as of March 31, 1981, by and between the
Government of Israel Ministry of Energy and Infrastructure,
the Ben Gurion University of the Negev (The Research and
Development Authority - RDA) and Advanced Products Beer
Sheva Ltd. and Solmecs (Israel) Ltd. and Solmecs Corporation
N.V.
10.4 Agreement, dated as of November 5, 1981 by and between
Advanced Products Beer Sheva Ltd. (AP) and the Ben Gurion
University of the Negev (The Research and Development
Authority) (RDA), Solmecs Corporation N.V. and Solmecs
Corporation (U.K) Limited.
10.5 Agreement, dated as of January 25, 1990 by and between
International Lead Zinc Research Organization, Inc. and
Solmecs (Israel) Ltd.
10.6 Agreement, dated as of March 7, 1991 by and between
International Lead Zinc Research Organization, Inc. and
Solmecs (Israel) Ltd.
10.7 Agreement, dated as of June 9, 1997 by and between the
Institute of Physics in Riga, Latvia and Solmecs (Israel)
Ltd.
*10.8 Agreement, effective as of September 30, 1997, by and
between Solmecs Corporation N.V. and Batei Sefer Limlacha.
*10.9 Agreement, effective as of September 30, 1997, by and
between Registrant and Batei Sefer Limlacha.
10.10 Agreement, dated as of January 1, 1998 by and between
Solmecs (Israel) Ltd. and Leon Aprimov.
10.11 Lease by and between Tefen Entrepreneurship Ltd. and Solmecs
(Israel) Ltd. dated October 14, 1997.
10.12 Form of Employment Agreement between Registrant and
Professor Herman Branover.
*10.13 Form of Employment Agreement between Registrant and Dr.
Shaul Lesin.
*10.14 Form of Employment Agreement between Registrant and Jacline
Bavli.
*10.15 1997 Stock Option Plan.
23.1 Consent of Arthur Andersen LLP, Independent Certified Public
Accountants.
23.2 Consent of Luboshitz Kasierer & Co., Member of Arthur
Andersen, Independent Public Accountants.
23.3 Consent of Tenzer Greenblatt LLP (contained in such firm's
opinion filed as Exhibit 5.1).
II-2
<PAGE>
*24.1 A power of attorney relating to the signing of amendments
hereto is incorporated in the signature pages of this
Registration Statement.
- ----------
* Previously filed
** To be filed by amendment.
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 amendment to the
Registration Statement to be signed on its behalf by the undersigned, in the
city of Omer, State of Israel on June 1, 1998.
SCNV ACQUISITION CORP.
By: /s/ Herman Branover
-----------------------------------
Herman Branover
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
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
---------- -------- ----
* Chairman of the Board of June 1, 1998
- ---------------------------------- Directors
Emmanuel Althaus
/s/Herman Branover President, Chief Executive June 1, 1998
- ---------------------------------- Officer and Director
Herman Branover
* Executive Vice President June 1, 1998
- ----------------------------------
Shaul Lesin
* Chief Financial Officer June 1, 1998
- ----------------------------------
Jacline Bavli
/s/ Herman Branover
- ----------------------------------
Attorney-in-Fact
* By Attorney-in-Fact
II-4
Tenzer Greenblatt LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
(212) 885-5000 New Jersey Office
Tenzer, Greenblatt & Zunz, P.A.
15 Warren Street
Hackensack, N.J. 07801
(201) 487-7511
Cable: "Tengran New York"
Facsimile: (212) 885-5001
June 2, 1998
SCNV Acquisition Corp.
Omer Industrial Park
P.O.B. 3026
Omer, Israel 84965
Gentlemen:
You have requested our opinion in connection with the public offering and
sale (the "Offering") pursuant to a Registration Statement on Form SB-2 (File
No. 333-43955) (the "Registration Statement") of SCNV Acquisition Corp., a
Delaware Corporation (the "Company"), being filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act")
relating to:
(i) 1,041,044 units (the "Units"), each such Unit consisting of (A) one
share (an "Offered Share") of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), (B) one warrant (an "Offered Warrant"), each such
Offered Warrant to purchase one share of Common Stock and (C) one share of
Common Stock issuable upon exercise of an Offered Warrant;
(ii) up to (A) 156,156 additional Units subject to an over-allotment option
(the "Over-allotment Option") each such Unit consisting of one share of Common
Stock (the "Optional Shares"), (B) one warrant (the "Optional Warrants"), each
such Optional Warrant to purchase one share of Common Stock, subject to the
Over-Allotment Option and (C) 156,156 shares of Common Stock issuable upon
exercise of the Optional Warrants; and
(iii) (A) warrants to the underwriter (the "Underwriter's Warrants") to
purchase 104,104 Units consisting of 104,104 shares of Common Stock (the
"Underlying Shares") and 104,104 warrants (the "Underlying Warrants"), each such
warrant to purchase one share of Common Stock, (B) the Underlying Shares, (C)
the Underlying Warrants and (D) 104,104 shares of Common Stock issuable upon
exercise of the Underlying Warrants.
<PAGE>
Tenzer, Greenblatt LLP
SCNV Acquisition Corp.
June 2, 1998
Page 2
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents and corporate and public records as we have
deemed relevant and necessary as a basis for the opinion hereinafter expressed.
With respect to such examination, we have assumed the genuineness of all
signatures appearing on all documents presented to us as originals, the
conformity with the original documents of all documents presented to us as
conformed or reproduced copies or facsimiles and the enforceability of all
agreements and similar documents presented to us. Where factual matters relevant
to such opinion were not independently established, we have relied on
certificates of appropriate public officials and upon certificates of executive
officers or other responsible employees and agents of the Company.
Based upon and subject to the foregoing, it is our opinion that:
1. The Offered Shares and the Optional Shares have been duly authorized
and, when issued and paid for as contemplated by the Registration Statement,
will be validly issued, fully-paid and non-assessable.
2. The Offered Warrants, the Optional Warrants, the Underwriter's Warrants
and the Underlying Warrants, when sold and paid for as contemplated by the
Registration Statement, will constitute legal, valid and binding obligations of
the Company.
3. The shares of Common Stock issuable upon exercise of the Offered
Warrants, the Optional Warrants, the Underwriter's Warrants and the Underlying
Warrants have been duly authorized and, when issued and paid for in accordance
with the terms of the Offered Warrants, the Optional Warrants, the Underwriter's
Warrants and the Underlying Warrants, respectively, will be validly issued,
fully-paid and non-assessable.
The opinion expressed in paragraph 2 with regard to the valid and binding
nature of the obligations referred to therein are limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws relating to
or limiting creditors' rights generally and subject to general principles of
equity.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made
<PAGE>
Tenzer, Greenblatt LLP
SCNV Acquisition Corp.
June 2, 1998
Page 3
to us under the caption "Legal Matters" in the prospectus constituting part of
the Registration Statement. In giving this consent, we do not thereby concede
that we come within the categories of persons whose consent is required by the
Act or the General Rules and Regulations promulgated thereunder.
Very truly yours,
/s/Tenzer Greenblatt LLP
------------------------
TENZER GREENBLATT LLP
AGREEMENT
---------
made as of the 4th day of June, 1980, by and between:
Advanced Products Beer Sheva Ltd. (AP) and the Ben Gurion University of the
Negev (The Research and Development Authority)(RDA), jointly and severally,
(hereinafter referred to as "APRDA")
of the one part
and Solmecs Corporation N.V. (hereinafter referred to as "Solmecs")
of the other part
Whereas RDA engages, inter alia, in the carrying of scientific research
projects; and
Whereas AP was incorporated by the Ben Gurion University as the business
arm of RDA for the exploitation of marketing of the knowledge and know-how
accumulated within RDA; and
Whereas RDA has conducted research, by Professor Jeremiah Branover, and
developed know-how in the field of energy utilization by means of Liquid Metal
Magnetohydrodynamic system and has filed patents applications relating to the
said know-how in various countries as more particularly detailed in Schedule A
to this Agreement. (The patent applications and the patents already registered
in the name of RDA will hereunder be referred to as "The Patents") and the
method and know-how therein contained and any future development of same by RDA
shall hereinafter be referred to as - "The Process"); and
Whereas Solmecs is desirous of encouraging further research and development
of the process and its application for commercial and industrial use and to
realize the commercial and industrial potential of the process; and
Whereas the parties are desirous of entering into arrangements for the sale
and assignment of APRDA to Solmecs of the Patents and Patent Applications and of
RDA's know-how relating to the process, and for the conduct of research in
connection with the process hereafter set forth, and for all the other purposes
hereinafter set out; and
Whereas Solmecs is aware that APRDA has entered into agreements with the
Government of Israel and BSF for the partial financing of the R&D of part of the
process,
NOW THEREFORE, in consideration of the premises and the mutual covenants
and undertakings hereinafter set forth, it is agreed as follows:
1. Preamble and Schedules
1.01 The preamble to this Agreement forms an integral part of
<PAGE>
-2-
this Agreement.
1.02 The Schedule attached to this Agreement form an integral part of this
Agreement.
2. Solmecs and its Aims
2.01 APRDA is advised that: -
Solmecs has been formed and registered in the Dutch Antilles as a
limited company. It has also formed a subsidiary in the Netherlands
(Solmecs Netherlands) and is in the process of forming a subsidiary in
Israel (Solmecs Israel). It is agreed that Solmecs will be entitled to
exercise its rights under this Agreement through all or any of its
above mentioned subsidiaries.
2.02 The main objects of Solmecs are to engage in any one or more ways of
the exploitation of the process with a view to bring about the
production of commercial and industrial MHD Generators based on the
process; Solmecs Israel's main object is to bring about the erection
of a pilot liquid metal MHD Generator (LMMG) to be developed in
Israel, and if possible, thereafter, to produce or be engaged in the
production of LMMG in Israel.
3. Government Agreements
3.01 APRDA is advised that Solmecs intends to negotiate with the Ministry
of Industry, Commerce and Tourism and/or with the Ministry of Energy
(hereinafter - "The Ministry") an agreement whereby Solmecs through
RDA will undertake to carry out a research and development program
whilst the Ministry will contribute part of the funds necessary for
the implementation of the program (hereinafter - "The Government
Agreement").
3.02 At the request of Solmecs, RDA will prepare for submission to the
Ministry a comprehensive and detailed research and development program
for the research and development of the process within RDA. The scope
of outlines of such research will be decided by Solmecs and will be
such as will meet the research requirements in the Government
Agreement.
3.03 RDA undertakes to furnish Solmecs and the Ministry with all such
further particulars as may be required by them in
<PAGE>
-3-
respect to the R&D program or programs. RDA shall, if so required by
Solmecs, deal directly as best as it can with the Ministry in matters
affecting the allocation of funds or part of them pursuant to the
Government Agreement and at the request of Solmecs it will promptly
and efficiently assist Solmecs to pursue the processing of the said
R&D programs and applications for funds arising therefrom.
4. RDA Services and Coordination thereof
4.01 Solmecs hereby engages the services of RDA to carry out the research
and development work involved in the transformance of the process from
its present stage to a pilot LMMG and RDA hereby undertakes towards
Solmecs that it will carry out the said research and development work
to the best of its ability.
4.02 The said research and development work will be exercised by RDA team
headed by Professor Jeremiah Branover (hereinafter "The Team").
4.03 Solmecs will appoint a Project Manager and/or such other personnel as
it considers necessary for the advancement of the interests of
Solmecs, including the research and development side of Solmecs'
activities and RDA shall cooperate with the Project Manager and such
other Solmecs personnel.
4.04 In case the Government Agreement is signed, RDA will acquaint itself
with its terms and will assist Solmecs to comply with all the
scientific conditions imposed by the Ministry, in connection with the
R&D programs approved by the Ministry including the reporting to the
Ministry and all other obligations relating to the conduct of the R&D
as are contained in the Government Agreement, and furnish Solmecs with
all interim and other reports, as will be contemplated under the
Government Agreement.
4.05 RDA shall render Solmecs all aid as may be necessary to prepare any
patent applications.
4.06 Within 30 days after expiration of every period of three months from
date of commencement of research hereunder,
<PAGE>
-4-
RDA shall furnish the Project Manager with detailed written report of
the work done pursuant thereto, in the said three month period, and a
financial report showing monies disbursed in the said three month
period. If reports, as aforesaid, have been prepared by RDA for the
Ministry, they shall serve also as reports to Solmecs under this
Clause.
4.07 Whenever the Project Manager may consider it advisable, the Project
Manager will meet with the members of the Team to discuss progress of
the research and forthwith thereafter a Minute of such meetings shall
be prepared.
4.08 The first research and development program to be prepared and executed
by RDA shall be for a period of one year thereafter. If further
research is required, the parties will agree on the continuation of
the research.
4.09 RDA undertakes that all research work carried out by it in reference
to the process and all research work to be carried out by it in future
under this Agreement has been performed by it in accordance with
accepted university research standards in the past and will be so
performed by it in future.
4.10 RDA shall keep all contemporary records of research and all financial
records in good and efficient order, and preserve for the benefit of
Solmecs all records and archives relating thereto. Solmecs shall be
entitled to access thereto and copies thereof.
4.11 Subject to the provisions of paragraph 5.07 hereof RDA shall not
during the currency of this Agreement, and while AP is entitled to
Royalties hereunder, perform research or development work in
connection with the process for any party other than Solmecs and the
results of all research or development work carried out by it in
connection with the process are hereby assigned to Solmecs.
5. Patent Applications - Ownership etc.
APRDA covenants and represents as follows:
5.01 That RDA is the sole owner of all right, title and interest in the
Patents and that the subject matters of such Patents
<PAGE>
-5-
and Patent Applications do not, as far as it is aware, infringe upon
any other patents heretofore issued.
5.02 That, as far as APRDA is aware, there is no other person, firm or
corporation having any title or interest in the Patents or claiming
title through any other person, firm or corporation, which bar APRDA
from undertaking upon itself its obligations hereunder.
5.03 That subject to the situation described in paragraph 5.06 hereof,
there are no outstanding licenses or agreements of any kind on the
part of APRDA relating to the process or to the manufacture, use or
sale of the process.
5.04 That subject to the provisions of paragraph 5.07 hereof it has full
power to make the assignment and to grant the rights and privileges
herein given.
5.05 That any development or modifications made by RDA to the said Patents
and process and amounting to a substantial improvement shall accrue
for the benefit of Solmecs.
5.06 That RDA has entered into some kind of an arrangement whereby it
appointed representatives to assist RDA in commercializing U.S. Patent
No. 4191901 which is part of the process, in the United States. RDA
hereby assigns to Solmecs all its rights and powers under the said
arrangement, and Solmecs, at its own discretion, will be entitled,
inter alia, to accept or reject any offer brought forward by the said
representatives. Copy of said arrangements was given to Solmecs.
5.07 If at any stage after the discontinuation of research and development
of the process at RDA, Solmecs does not proceed with commercializing
the process, then the rights will remain with, or revert to, as the
case may be, APRDA, and if APRDA later makes commercial use of the
process a way will be found to involve Solmecs, or to reimburse
Solmecs for its investments.
6. Assignment of Rights to the Process
6.01 APRDA hereby grants unto Solmecs the sole right to exploit the
process. Solmecs will exploit the process through manufacturing and/or
licensing others to manufacture products based on the process.
6.02 After a pilot LMMG is built, APRDA will assign and transfer to Solmecs
all title and interest in the Patents and all title and interest in
the Patents and all
<PAGE>
-6-
research and development know-how, and all other rights which it may
possess in and to the process and howsoever relating to the process.
APRDA undertakes to execute any and all documents reasonably required
by Solmecs to implement the assignment to Solmecs the sale and
exclusive ownership in and to the Patents and the process know-how.
6.03 In virtue of the aforesaid Solmecs shall have the sole and exclusive
right to the production, marketing, sale and distribution of the
Products, the Patents and the process and/or any other patents filed
pursuant to this Agreement or any renewals or extension for the said
Patents and improvements thereon.
6.04 APRDA hereby covenants and represents that the assignment to Solmecs
of Patents and research and development know-how referred to in this
Agreement, constitutes a full and complete irrevocable assignment and
transfer, as the case may be, of all information, matters, patents and
all other rights which RDA may possess with respect to the process and
that APRDA has the full power to licence, assign and transfer the
same.
6.05 Every intention, process, device or other benefit, including know-how
relating to the process as shall be invented or otherwise accrue in
the course of or pursuant to the research conducted by RDA under this
Agreement, shall be considered part of the process and shall be
assigned to Solmecs. RDA shall assist Solmecs in securing the
registration in favour of Solmecs of Patents and/or other legal
protection for all such inventions, processes, devices, know-how or
other benefits as aforesaid.
7. Infringements.
7.01 In the event any Rights or Patents hereunder shall be infringed,
Solmecs may, at its own expense, prosecute any action necessary to
protect its rights under this Agreement, and any moneys received
through such action shall be retained by Solmecs. APRDA shall, at the
request and cost of Solmecs, furnish Solmecs with such assistance as
it is capable. APRDA will be entitled to receive royalties from
compensation received by Solmecs for loss of income.
<PAGE>
-7-
7.02 In the event that any action is commenced against Solmecs which
alleges that the subject of Patents and/or Patent Applications or any
of its improvements included within the scope of this Agreement
infringes the claims of any patent, or is otherwise invalid, Solmecs
shall have the privilege but it shall not be obligated to defend such
action at its expense.
7.03 In the event that Solmecs will be entitled to be compensated by APRDA,
because of damage caused to Solmecs as a result of one or more of
APRDA's representations in paragraphs 5.01 through 5.05 hereof being
incorrect, then such compensation will in no case exceed the total
amounts advanced or paid by Solmecs to APRDA as Royalties pursuant to
this Agreement - without interest, but linked to the U.S. Dollar.
8. Financial Provisions
8.01 Solmecs agrees to finance the research and development program to be
implemented by the Team during the 12 month period starting on June
1st, 1980 and ending on May 31, 1981, in accordance with the budget
attached hereto as Schedule "B" (the yearly budget). Solmecs'
obligation is to finance that part of the budget which is not covered
by government or other funds.
8.02 30 days from the end of every three months' period RDA will furnish
Solmecs with a report, detailing monies spent in accordance with the
budget within the said three months and monies received from the
Government of Israel as grants or otherwise towards the cost of the
research and development of the process. Solmecs will pay to RDA,
within 10 days as of receipt of such report, the excess of the
expenditures over monies received from the Government together with a
sum to cover the salaries for the next month period. Any excess monies
received from the Government over and above expenditures, will be
forwarded toward the expenditures in the next three months.
8.03 All payments made hereunder to RDA, shall be made against accounts
from RDA.
8.04 APRDA is advised that Solmecs intends to perform part of the research
and development program, more particularly
<PAGE>
-8-
that involved in the building of the Pilot LMMG outside of the RDA
Laboratory (hereinafter - "The Outside Development"). Solmecs will
bear all expenses involved in the Outside Development.
8.05 Solmecs will pay RDA the sum of $20,000 as an advance payment toward
the payments due to RDA from Solmecs for research for the first three
months period.
8.06 Solmecs intends, but does not oblige itself, to cause grants and
donations from abroad to be granted or donated to RDA. It is agreed
between the parties that such grants and donations, from whatever
source, will be allocated as follows:
25% - will belong to RDA
25% - will be used towards meeting Solmecs's obligations as per
paragraph 8.01 hereof and/or toward covering Solmecs's
activities towards the utilization of the process.
9. Royalties
9.01 In consideration of the sole licensing and assignment to Solmecs of
the Patents and of the research and development know-how, and other
rights in and relating to the process, and in consideration of APRDA's
other undertakings in their Agreement, Solmecs shall pay to RDA or
cause its subsidiaries to pay to RDA an amount equal to three (3%)
percent of the sale price of Solmecs' sales of the LMMG produced by
Solmecs or for Solmecs in accordance with the process and twenty (20%)
percent of Income received by Solmecs, Solmecs Israel and Solmecs
Netherlands from licensing or from allowing firms or bodies at arms'
length outside of Israel to use the process or any part of it.
9.02 "The sale price of Solmecs' Israel sales of LMMG produced in Israel" -
means their actual ex factory price less taxes included in the price
or levied thereon.
9.03 The date for payment of the Royalties based on sales, will be
quarter-annual for amounts received on account of sales during the
past three months. The date for payment of Royalties based on lump
sums for licensing the process abroad will be 30 days as of the
receipt of the Royalties by Solmecs.
<PAGE>
9.04 Royalties due to RDA resulting from income from a country where one or
more of the patents is registered will last during the period for
which such patent gives protection to the process in accordance with
the laws of that country. Royalties deriving from countries where
there are no patents registered will be paid during a period of 8
years starting as of the date when the accumulated royalties paid to
RDA in accordance with this Agreement will reach the sum of $250,000
or until the expiration of the patent now registered in Israel,
whichever period is shorter.
10. Equipment
10.01 Whenever equipment is purchased for the purposes of the research they
shall be maintained by RDA in good and serviceable order, the cost of
such maintenance to be part of the research budget and upon
termination of the research all such equipment which is still
serviceable shall be delivered to Solmecs or disposed of on its
instructions.
11. Confidentiality
11.01 APRDA and Solmecs shall maintain in strict confidence all information
not in the public domain disclosed under this Agreement, shall oblige
their employees, both during the period of their employment and
thereafter, to maintain the said information in strict confidence, and
shall take all reasonable steps to enforce the fulfillment of such
obligations by their employees. Solmecs shall be entitled to import to
any assignee or licensee or sub-licensee such information as may
reasonably be required in the circumstances. In any Agreement signed
with a Licensee or Assignee the Agreement shall stipulate that they
shall maintain in strict confidence all information, not in the
public domain, disclosed to them and that they shall take all
reasonable steps to enforce the fulfillment of such obligations by
their employees.
11.02 Articles and the like relating to any research hereunder prepared by
scientists engaged by RDA shall not be published unless previously
approved for publication in writing by Solmecs, but Solmecs shall not
be entitled to withhold such approval unless publication would
prejudice any of Solmecs' rights hereunder.
<PAGE>
-10-
12. Non Partnership or Joint Venture
12.01 Nothing in this Agreement shall be deemed to create any relationship
of Partnership, Joint Venture or otherwise between the Parties, it
being expressly agreed and understood that the rights and obligations
between the parties shall be only as specifically set forth herein.
13. Arbitration
13.01 In the event of any differences or dispute between the parties,
arising under this Agreement, such dispute shall be referred to
arbitration under the Israel Law of Arbitration. The Arbitrator shall
be such person as shall be appointed by consent by the President of
RDA and the Chairman or failing him the Managing Director for the time
being of Solmecs, and his award or decision shall be final and not
subject to appeal or review.
14. Law
14.01 This Agreement shall be governed by the Laws of the State of Israel.
15. Stamp Duty
15.01 Solmecs will bear all stamp duties due on this Agreement.
16. Addresses
16.01 The addresses of the parties for the purpose of sending any notice or
court documents under or relating to this Agreement shall be as
follows: and any notice sent by registered mail in Israel shall be
deemed received within ten (10) days of dispatch of such notice.
APRDA - Ben Gurion University, Beer Sheva, Israel
Solmecs - Handelskade 8, Curacao, Dutch Antilles.
IN WITNESS WHEREOF, the parties hereto have hereunto set their signatures
on the date first above appearing.
[UNINTELLIGBLE] /s/ David Schrieber
- ---------------------------------- --------------------------------
BEN GURION UNIVERSITY OF THE NEGEV SOLMECS CORPORATION, N.V.
/s/ J. Schechter
- ----------------------------------
ADVANCED PRODUCTS BEER SHEVA LTD.
<PAGE>
SCHEDULE 'A'
Patent Applications and Patents registered in the name of RDA.
1. USA Patent No. 4,191,901 granted June 1979
2. ISRAEL Application No. 57,200 4/5 1979
3. UNIFIED EUROPEAN APPLICATION Applies 2/5 1980
3.1 BRITAIN
.2 FRANCE
.3 GERMANY
.4 SWEDEN
.5 HOLLAND
.6 SWITZERLAND
.7 ITALY
.8 AUSTRIA
.9 BELGIUM
.10 LUXEMBURG
4. CANADA
5. SOUTH AFRICA
6. AUSTRALIA
7. BRAZIL
8. MEXICO
9. JAPAN
<PAGE>
AGREEMENT
Budget for SOLMECS' contribution to R&D costs of APRDA within laboratory.
1. BUDGET ($,USA)
1st Quarter
ITEM PER ANNUM 1/6-31/8/80
.1.1 Salaries 52,000 13,000
.1.2 Overhead loading (see 2.4) 17,333 4,333
.2 Materials and equipment 55,000 13,750
.3 Travel expenses 5,000 1,250
.4 Sundries 4,000 1,000
---------------------------------------------------------------------
Subtotal 133,333 33,333
.5 Less Grants due:
.5.1 Ministry Of Energy* 63,000
.5.2 Binational Foundation 33,000
------
Subtotal deduction of grants -96,000 -24,000
---------------------------
Net Budget 37,333 9,333
.6 ADVANCES (1st Quarter only)
.6.1 *Against future receipt of Ministry of Energy funds 10,000
SUM TO BE TRANSFERED TO APRDA WITHIN 7 DAYS
OF AGREEMENT DATE $19,333
.6.2 Against refurbishment of laboratory extension
Cheque 144538 handed to Mr. Lapide 30/5/80 for
a/c 5507249 within Mechanical Eng. Dept. to be
credited to SOLMECS from MOE funds $ 4,500
.7 Disbursed on extension of patent cover 7,000
Other expenses incured/committed 12,500
------
TOTAL SOLMECS COMMITTED FUNDS AS AT AGREEMENT $43,333
---------------------------------------------------------------------
2. NOTES
.1 The budget is intended to cover costs incurred by APRDA directly
related to the development of the system as outlined in Para. 4 of the
Agreement.
.2 The sum stated are estimates and will therefore be revised by mutual
agreement in the light of actual expenditures reported quarterly by
APRDA to SOLMECS (8.02)
.3 'Salaries' is taken to mean that proportion of salaries paid by the
University or the RDA that relates to work carried out on the
development of the system and excludes that proportion that relates to
teaching or other responsibilities of the 'team' not directly related
to the project.
.4 An overhead 'loading' of 33.33% will be added to the salaries as
defined in 2.3.
.5 SOLMECS agrees to accept retroactive salary increases implemented by
APRDA.
.6 No overhead 'loading' will be applied to materials and equipment if
handled by SOLMECS.
AGREEMENT
---------
made on the 31 of March, 1981
between
THE GOVERNMENT OF ISRAEL, on behalf of the State of Israel, represented by the
Assistant Director-General for Administration of the Ministry of Energy and
infrastructure and the Controller of the said Ministry (hereinafter - the
Government)
of the first part
and
THE BEN-GURION UNIVERSITY OF THE NEGEV (The Research and Development Authority -
RDA) and ADVANCED PRODUCTS BEER SHEVA Ltd. the business arm of the RDA, jointly
and severally (hereinafter - the Ben-Gurion University)
of the second part
and
SOLMECS (Israel) Ltd. and the SOLMECS CORPORATION N.V., jointly and severally
(hereinafter - SOLMECS)
of the third part
WHEREAS The Ben-Gurion University has conducted research and developed
know-how in the field of energy utilization by means of the Liquid
Metal Magnetohydrodynamic (MHD) system (hereinafter - the Research);
and
WHEREAS the Research indicates potential for commercial exploitation,
particularly for the production of commercial and industrial MHD
generators; and
WHEREAS after the stage where US Patent #4,191,901 was applied for, the
Government financed part of the Research costs and has acquired
certain rights to the same under the agreements signed between it and
Ben-Gurion University; and
WHEREAS the purpose of the Government in providing the said financing and in
acquiring the said rights was to ensure that the Israeli economy would
benefit from the results of the Research should the same be
successful; and
WHEREAS the Ben-Gurion University and SOLMECS have come to an understanding
under which SOLMECS would acquire the rights to exploit commercially
the Research in accordance with the provisions of the agreement
attached hereto as Annex A; and
<PAGE>
MOE-BGU-SOLMECS Contract, cont. Page 2/4
WHEREAS to give full effect to the provisions of Annex A the rights to be
acquired by SOLMECS include the rights of the Government in the
Research and, therefore, the consent of the Government is necessary so
that the Ben-Gurion University can lawfully enter into Annex A; and
WHEREAS The Ben-Gurion University and Solmecs have asked the Government to
give its consent; and
WHEREAS the Government is agreeable to giving its consent provided the same
would further the said purpose of the Government in participating in
the financing of the Research.
NOW, THEREFORE, the parties agree as follows:
1. The Preamble and all Annexes to this Agreement constitute an integral part
hereof.
2. The Government gives its consent to the Ben-Gurion University entering into
Annex A with SOLMECS and consents that its rights in the Research be
included among those which SOLMECS shall acquire under Annexe A, subject to
the respective undertakings of SOLMECS and the Ben-Gurion University
hereinafter.
3. SOLMECS undertakes:
3.1 to make best efforts in keeping with the sound management of the
entire commercialisation venture for which it is acquiring rights as
per Annex A, to maximise opportunities for Israeli Industry to produce
MHD generators and components thereof and other products based on the
Research should the production of such products become feasible and
commercially viable;
3.2 to build the first prototype of the MHD generator in Israel; the
Government accepts and agrees that certain supplementary research
activities will be sub-contracted to the Argonne National Laboratory
in the U.S., or to other bodies abroad, as it is not feasible to
perform them in Israel;
3.3 to inform the Government, in writing, of the manner in which it
intends to commercialize its rights acquired under Annex A,
particularly as regards the division of production between Israel and
abroad (hereinafter - the Commercial Plan); the Commercial Plan as
envisaged by SOLMECS at the time of the signing of this Agreement is
appended hereto as Annex B; Solmecs shall inform the Government in
writing of substantive changes in Annex B;
3.4 to inform the Government in writing of any production done by or for
Solmecs and of any licences or other production rights granted in
Israel and abroad; the proceeds received by Solmecs on the same shall
be submitted in an annual audited statement.
<PAGE>
MOE-BGU-SOLMECS Contract, cont. Page 3/4
4.
4.1 For the purpose of this clause the term "Financial Support" shall mean
- the total amount of money provided by Ben-Gurion University by the
Government for the execution of the Research the nominal sum being
linked to the consumer price index (including fruits and vegetables)
and bearing 4% linked interest until repayment of the Financial
Support in accordance with sub-clause 4.2 hereinafter; the amount of
the Financial Support including linkage and interest till the 31st.
March, 1981 is 645,125.12 Shekels as detailed in Annex C hereto.
4.2.1 The Ben-Gurion University undertakes to pay the Government
sums equal to 1.0% of the Sales Price (as this term is defined
in Annex A) of MHD generators produced by or for SOLMECS and
5% of the income received by SOLMECS from licencing or
otherwise allowing the use of rights acquired under Annex A
(hereinafter - Licencing Income) until repayment of the
Financial Support and thereafter sums equal to 0.3% of the
Sales Price and 2% of the Licencing Income for as long as the
Ben-Gurion University is entitled to receive royalties from
SOLMECS under Annex A;
4.2.2 Payments due to the Government under clause 4.2.1 hereinabove
shall be made within 30 days of the date on which the
Ben-Gurion University is entitled to receive payment from
Solmecs under Annex A;
4.3 The Ben-Gurion University shall make best efforts to verify the sums
upon which payments are due to the Government hereunder;
4.4.1 Solmecs guarantees the payments due to the Government under
clause 4.2.1 hereinabove and shall make payment within 30 days
of Ben-Gurion University being in default of payment;
4.4.2 In the event of default, as aforesaid, the Government shall
take all reasonable actions to receive payment from Solmecs as
guarantor before taking action against the Ben-Gurion
University.
5.1 The representation of the Ben-Gurion University under clauses 5.01,
5.02, 5.03 and 5.04 of Annex A and the compensation undertaking toward
SOLMECS under clause 7.03 thereof shall apply mutatis mutandis to the
Government.
5.2 Should rights to the Research remain with or revert to the Ben-Gurion
University under clause 5.07 of Annex A and should the Ben-Gurion
University not commercialize these rights within a reasonable period,
the Government shall be entitled to acquire the rights with suitable
compensation to be paid to the Ben-Gurion University and SOLMECS
should the Government commercialize the rights.
<PAGE>
MOE-BGU-SOLMECS Contract, cont. Page 4/4
6. Disputes under this Agreement between any two or among all parties shall be
referred to Arbitration under the Israeli Law of Arbitration, with a single
arbitrator to be appointed by consent of the Parties to the dispute.
7. This agreement shall be governed by the Law of the State of Israel.
8. Stamp duties in this Agreement shall be borne by Solmecs.
9. The representatives of the Parties for the purpose of this agreement and
the addresses thereof shall be:
The Government The Chief Scientist
Ministry of Energy and Infrastructure
234, Jaffa St. Jerusalem
Ben-Garion University The General Manager
Advanced Products Beer Sheva Ltd.
P.O.B. 1023
Beer-Sheve 84 110
SOLMECS The Managing Director
SOLMECS (Israel) Ltd.
17, Negba Street
Jerusalem 93 226
In Witness Whereof, the Parties hereto have set their signature on the date
first above appearing
THE GOVERNMENT SOLMECS BEN-GURION UNIVERSITY
- -------------- ------- ---------------------
/s/ [ILLEGIBLE] /s/ David Schrieber /s/ J. Schechter
- -------------------- -------------------- --------------------
/s/ [ILLEGIBLE]
- -------------------- --------------------
AGREEMENT
Made as of the 5th day of November, 1981, by and between:
Advanced Products Beer Sheva Ltd. (AP) and the Ben Gurion University of the
Negev (the Research and Development Authority) (RDA), jointly and severally,
(hereinafter referred to as "APRDA")
of the first part;
and Solmecs Corporation N.V. (hereinafter referred to as "Solmecs")
of the second part;
and Solmecs Corporation (U.K.) Limited (hereinafter referred to as "SCUK")
of the third part
Whereas on June 4th, 1980, APRDA and Solmecs have entered into an
agreement, a copy of which is attached hereto as Appendix "A"; and
Whereas the research and development of the Process (as defined in Appendix
"A") and especially the building of the first prototype of a Pilot Liquid Metal
MHD Generator ("Pilot Generator"), based on the Process, requires more funds,
efforts and time than envisaged when Appendix "A" was signed; and
Whereas, since the execution of Appendix "A", Professor Branover and his
Team have developed an additional concept and/or invention named Hydrosol
("Hydrosol") and it was agreed to include Hydrosol in Appendix "A" as per letter
by Dr. J. Schechter to Mr. D. Schreiber dated 30th March 1981, copy of which is
attached herewith as Appendix "B"; and
Whereas it is also in the interest of APRDA that the processing funds
raised and invested in the further development of the process, the building of a
bigger pilot generator than the 5 KW envisaged before, the commercialization and
exploitation of the Process and Patents; and
Whereas Solmecs and/or its controlling shareholders have formed SCUK, with
the intent to bring in new investors into SCUK by a private placing of shares
and loan stock to finance the further development of the process and Hydrosol
and the construction of the pilot generator; and it is necessary, for the
purpose of attracting new investors, to reduce the royalties paid in accordance
with Appendix "A", and also to assign all Solmecs' rights and obligations in
Appendices "A" and "B" to SCUK; and
<PAGE>
-2-
Whereas there were a few clerical errors which should be corrected in
Appendix "A" and there are a few clarifications which are to be made thereto;
Now, therefore, in consideration of the premises and the mutual covenants
and undertakings hereinafter set forth, it is agreed as follows:
1. Preamble, Schedules and Definitions
1.01 The preamble to this Agreement forms an integral part thereof.
1.02 The Schedules to this Agreement form an integral part thereof.
1.03 Words and phrases in this Agreement which are defined in Appendix "A",
will have the same definition and meaning, unless the contents require
otherwise.
2. Minor Changes and Clarifications
2.01 APRDA agrees that the provisions of paragraph 5.05 of Appendix "A"
refer to all improvements, and not only to "substantial improvements".
2.02 APRDA declare that the arrangement entered into as per paragraph 5.06
of Appendix "A", was for one year only; that the one year has elapsed
with no action taken in accordance with the said arrangement, and that
the arrangement is now null and void.
2.03 In paragraph 6.03 of Appendix "A", after the word "products" there
shall be inserted in brackets the words "(produced in accordance with
the process or based on it or pursuant to it)".
2.04 In paragraph 8.02 of Appendix "A", the words "three month period" or
"three months" wherever they appear therein will be replaced by the
word "month"; and the words "not later than" shall be added before the
number "30" appearing at the beginning of the paragraph.
2.05 In paragraphs 8.02, 8.03 and 9 of Appendix "A", the words "RDA" should
be replaced by the word "AP".
2.06 In paragraph 8.06 of Appendix "A", the percentage "towards meeting
Solmecs' obligation" is 75%.
<PAGE>
-3-
2.07 In paragraph 9.02, the phrase "the sale price of Solmecs Israel sales
of LMMG produced in Israel" should be replaced by the phrase "The sale
price of Solmecs' sales of LMMG produced by Solmecs or for Solmecs".
2.08 The quarter annual payments as per paragraph 9.03 of Appendix "A",
will be effected on the 5th day of April, July, October and January of
each year, starting on the first such date coming first after Solmecs
has received the first payment for sales of generators based on the
process and patents.
2.09 Notwithstanding anything in Appendix "A" contained - especially in
paragraph 11 thereof, Solmecs will be entitled to disclose this
Agreement, Appendix "A" and the other appendices to this Agreement or
any part thereof to underwriters, potential investors and their
representatives, advisers and employees; and also to reveal to the
above that part of the process which it will deem fit and proper, even
though it is not in the public domain.
2.10 APRDA hereby irrevocably empower Solmecs to pay to the Government of
Israel ("The Government") the royalties due to the Government from the
Ben Gurion University under paragraph 4 of the Agreement dated 31st
March 1981, a copy of which is attached hereto as Appendix "C". In
view of the provisions of the letter dated 29th March 1981, a copy of
which is attached herewith as Appendix "D", APRDA agrees that half of
such payment made by Solmecs to the Government may be deducted by
Solmecs from royalties due or to be due in the future to AP under
Appendix "A".
2.11 APRDA confirms that it has granted Solmecs the sole and exclusive
right to develop, commercialize and exploit Hydrosol upon the same
terms which refer to the process as per Appendix "A", and that
therefore the terms "Process", "know-how", "Patents" and "Patent
Applications" in Appendix "A" will also apply, mutatis mutandis, to
Hydrosol.
2.12 All royalty payments made to AP will be subject to withholding tax, if
any, in accordance with the laws of the countries from which the
royalties either derive or are paid now.
3. Coming into effect of the Whole Agreement
3.01 Solmecs and APRDA agree that if not later than by the 31st of March
1982, SCUK signs this Agreement and delivers a
<PAGE>
-4-
signed copy thereof to APRDA and pays AP the sum provided for in
paragraph 5.02 hereof, then the provisions of the whole of this
Agreement shall bind Solmecs, APRDA and SCUK. If such payment and
signed copy as aforesaid do not reach APRDA by the 31st of March,
1982, then only paragraph 2 of this Agreement shall bind Solmecs and
APRDA, as an amendment to Appendix "A", whilst all the other parts and
provisions of this Agreement will have no effect whatsoever.
3.02 Until such time as SCUK signs this agreement and makes the payment as
per paragraph 3.01 hereof (if it signs and pays same at all) this
Agreement shall be signed by Solmecs and APRDA.
4. Assignment and Transfer
4.01 Solmecs hereby transfers and assigns all its rights and obligations
under Appendices "A" and "B" as amended by this Agreement unto SCUK,
and SCUK hereby accepts the said transfer and assignment and
undertakes to fulfill directly towards APRDA the obligations contained
in Appendices "A" and "B" which were formerly the obligations of
Solmecs. Appendix "A" shall read as if SCUK replaces Solmecs N.V.
wherever there is reference therein to Solmecs N.V. and shall be
considered a direct Agreement between APRDA and SCUK.
4.02 Solmecs undertakes to transfer its shares in Solmecs Israel and/or
Solmecs Netherlands to SCUK, and SCUK agrees to acquire the said
shares, for their nominal value.
4.03 Solmecs assigns and transfers unto SCUK all its rights under Appendix
"C" and SCUK accepts the said transfer and further undertakes to
fulfill, instead of Solmecs, all Solmecs' obligations under Appendix
"C". Should Solmecs receive the Government of Israel's consent to the
assignment of all the rights and obligations of Solmecs' in Appendix
"C" to the Government, then the provisions of paragraph 4.01 hereof as
to Appendices "A" and "B" will apply, mutatis mutandis, also to
Appendix "C".
4.04 Solmecs hereby transfers and assigns unto SCUK all its rights under
letter of 6th September, 1981 copy of which is attached herewith as
Appendix "E" and SCUK accepts such transfer. SCUK and APRDA will
mutually agree in advance on
<PAGE>
-5-
the various security, ecological and environmental aspects resulting
from the building of the Pilot Generator within the premises of RDA.
4.05 APRDA agrees to the above transfers and assignments.
5. Royalties and Payment
5.01 In case not later than by the 31st of March, 1982, SCUK signs this
Agreement and delivers a signed copy thereof to APRDA and pays AP the
sum provided for in paragraph 5.02 hereof, then the royalties due to
AP as per Appendix "A" will be reduced as follows:-
(a) The figure 3% in paragraph 9 of Appendix "A" will be reduced to
1.725% (one point seventy two and a half percent).
(b) The figure 20% in paragraph 9 of Appendix "A" will be reduced to
11.5% (eleven and a half percent).
(c) On top of the above royalties, SCUK will bear, at its expense,
the whole of the royalties due to the Government under Appendix
"C". This sub-paragraph (c) cancels the provisions of paragraph
2.10 hereof and cancels Appendix A.
5.02 SCUK undertakes that upon delivery of a signed copy of this Agreement
to APRDA before 31st March 1982 it shall pay AP a sum of $100,000 (One
Hundred Thousand US Dollars).
6. Further Research and Development & Pilot Generator
6.01 SCUK declares that its projected budget for the next three years,
includes payments of not less than $400,000 (Four Hundred Thousand US
Dollars) to be paid to RDA for salaries of Professor Branover and his
Team, materials to be used in ___ Laboratory and overheads. SCUK
undertakes that the above mentioned payment will actually be spent and
paid to AP for services to be rendered as per paragraph 4 of Appendix
"A" over the next three years.
6.02 SCUK estimates that the projected pace of the above mentioned
expenditure during the next three years will not be less than $7000
(Seven Thousand US Dollars) per month.
6.03 SCUK declares that its projected budget for the next three years
includes an investment of approx. $1,500,000 (One Million Five Hundred
US Dollars) in the Pilot Generator, and that it intends to start
working on the building of the Pilot Generator as soon as possible.
<PAGE>
-6-
7. Arbitration
7.01 In the event of any difference or dispute between the parties, arising
under this Agreement or under Appendix "A", such dispute shall be
referred to arbitration under the Israel Law or Arbitration. The
Arbitrator shall be such person as shall be appointed by consent by
the President of the Ben Gurion University of the Negev or the
Managing Director of AP and the Chairman or failing him the Managing
Director for the time being of SCUK. The Arbitrator's award or
decision shall be final and not subject to appeal or review.
8. Law
8.01 This Agreement shall be governed by the Laws of the State of Israel.
9. Stamp Duty
9.01 SCUK will bear the stamp duty due on the Agreement.
10. Addresses
10.01 The addresses of the parties for the purpose of sending any notice or
court documents under or relating to this Agreement shall be as
follows and any notice sent by registered mail to such address (and if
sent from one coutry to another by express airmail) shall be deemed
received within ten (10) days of dispatch of such notice.
APRDA - Ben Gurion University, Beer Sheva, Israel.
Solmecs, - C/o David Schreiber, 17 Negba Street, Jerusalem, Israel.
SCUK - 33 Museum St., London, WC1A 1CH, England.
IN WITNESS WHEREOF, the parties hereto have hereunto set their signatures
on the date first above appearing.
/s/ [ILLEGIBLE]
------------------------------ -----------------------------
BEN GURION UNIVERSITY OF THE NEGEV SOLMECS CORPORATION N.V.
/s/ [ILLEGIBLE]
-------------------------------- ------------------------------
ADVANCE PRODUCTS BEER SHEVA LTD. SOLMECS CORPORATION (U.K.) LIMITED
<PAGE>
March 10, 1981
APPENDIX "B"
Mr. David Schriver
17 Negba Street
Jerusalem
Dear Mr. Shriver,
In response to your enquiry we would like to inform you that we agree that the
hydrosol concept developed by Prof. Branover and his group will be included
within the agreements we have made relating to liquid magnetohydrodynamic energy
production.
We request your confirmation of this arrangement.
Yours sincerely,
/s/ J. Schechter
--------------------------
J. Schechter, Director
Applied Research Institute
cc: Prof. H. Branover
JS:ss
<PAGE>
SOLMECS (ISRAEL) LTD.
17 Negba Street A SUBSIDIARY OF THE
Jerusalem, Israel DUTCH SOLMECS CORPORATION
Tel: (02) 669505 DEDICATED TO THE
telex: 25311 DEVELOPMENT OF ENERGY
CONVERSION SYSTEMS
APPENDIX "D"
29th, March, 1981
Dr. Zeev Raz
Research and Development Authority
Ben-Gurion University of the Negev
Beer Sheva, Israel.
Dear Dr. Raz:
With reference to the contract negotiated between the Government of Israel, the
Ben-Gurion University and Solmecs, we hereby confirm as follows:
1. SOLMECS will bear half of the liability undertaken by the University under
subclause 4.2.1. These amounts will be added to payments made by SOLMECS
under its agreement with BGU (Annex A of the contract).
2. In the event that subclause 4.4.1 will be called into effect, SOLMECS will
deduct such sums as are paid to the Government under that subclause from
subsequent payments to the University.
3. The University will send two copies of our agreement (Annex A of the
contract) duly signed and authorised as required by the statutes of the
University and the R and D Authority to SOLMECS at the above address,
within seven days of the signing of the Government/BGU/Solmecs contract.
As confirmation of your agreement to the above, please sign one copy of this
letter and return together with item (3) above.
Yours sincerely, signed for the University/RDA
Advanced Products Beer Sheva Ltd.
/s/ David Schreiber /s/ [ILLEGIBLE]
- ------------------------ --------------------------------
David Schreiber
Managing Director
<PAGE>
APPENDIX "E"
COPY OF LETTER DATED 6 SEPTEMBER 1981 FROM S. DEVSHONY, COORDINATOR FOR RESEARCH
AND STUDY SERVICES, TO DAVID SCHREIBER, SOLMECS CORPORATION--
"AT A RECENT MEETING OF YOUR CHAIRMAN, MR. PETER KALMS, WITH OUR GENERAL
DIRECTOR, MR. BEN AMITAI, PROFESSOR BRANOVER AND MYSELF, WE DISCUSSED THE SITE
FOR PROFESSOR BRANOVER'S M.H.D. PILOT PLANT.
AFTER FURTHER DELIBERATION AND FOLLOWING PRESIDENT GAZIT'S CONSENT, WE CAN NOW
POINT OUT THE SITE ALLOCATED FOR THE PROJECT. AS DESCRIBED ON THE ATTACHED
SKETCH OF THE NEW CAMPUS, THIS SITE IS LOCATED ADJACENT TO THE NORTH SIDE OF
BUILDING NUMBER C-26.
WE EXPECT THAT THE UNIVERSITY FINANCE COMMITTEE WILL SHORTLY RELEASE DOLLARS
200,000, AS WE APPLIED FOR, TO PREPARE THE INFRA-STRUCTURE AND THE NECESSARY
ACCOMMODATIONS FOR PROFESSOR BRANOVER'S STAFF, SO THAT THEY MAY COMMENCE THEIR
WORK EARLY NEXT YEAR."
REGARDS
AGREEMENT, made as of the 25th day of January, 1990, between International
Lead Zinc Research Organization, Inc., a North Carolina Non-Profit Corporation
with offices at 2525 Meridian Parkway, Post Office Box 12036, Research Triangle
Park, North Carolina 27709 ("Sponsor")
and
Solmecs (Israel) Ltd. corporation with offices at Clal Center, Suite 218, 97
Jaffa Road, Jerusalem 94341, Israel ("Contractor");
WHEREAS, Sponsor desires Contractor to carry out the program of research
(hereinafter called the "Project"), set forth in contractor's proposal dated
April 1989, attached hereto as Exhibit A and made a part hereof, and Contractor
is willing and able to perform such work, identified as:
LM-391 Use of Lead in LMMHD Cogeneration Systems
NOW, THEREFORE, the parties agree as follows:
1. Research on Project
(a) Contractor shall initiate and carry out the Project in accordance with
the provisions of Exhibit A and shall provide laboratory facilities, equipment,
materials, personnel and supervision, all as set forth in Exhibit A. If at any
time during the term of this Agreement, Contractor becomes aware of any
impending change of personnel assigned to the Project, for whatever reason,
Contractor will immediately notify Sponsor of the impending change and,
furthermore, will notify Sponsor of the name(s) and duties of the new personnel,
so assigned, as soon as this information is known to Contractor. Work on the
Project shall begin with three (3) months of the date of this Agreement and
Contractor shall promptly notify Sponsor of the date when work begins.
(b) All work done by Contractor, and all employment and other contracts
made by Contractor, in the performance of this Agreement shall be done or made
by it as principal, and not as the agent of Sponsor, and Sponsor shall not have
any liability whatsoever for any such work or under any such contracts or for
the payment of any claims made by any person on account of any property damage
or personal injury arising out of Contractor's performance of this Agreement.
Contractor shall discharge the duties and obligations of principal with respect
to such work and such contracts, including, but not limited to, the withholding
and payment of all applicable taxes and the filing of all necessary returns.
Upon Sponsor's request, Contractor at its own expense will defend any action or
claim brought or made by any person against Sponsor arising out of Contractor's
performance of this Agreement, provided that Sponsor shall have the right to
participate through counsel of its choice in the defense thereof. Contract will
hold Sponsor harmless from any and all damages, costs or other liabilities
incurred by Sponsor as the result of the bringing of any such action or the
assertion of any such claim, including Sponsor's reasonable attorneys' fees.
1
<PAGE>
2. Subcontracting
With the prior written approval of Sponsor's President, Contractor may
subcontract all or any part of the work on the Project to a subcontractor. Any
subcontract shall contain provisions, substantially similar to the provisions of
this Agreement, protecting all of Sponsor's rights under this Agreement,
including, without limitation, provisions substantially similar to paragraph (b)
of Section 5 and Sections 6, 9, 12, 14, and 15. However, no subcontract shall
relieve Contractor of any of its obligations under this Agreement.
3. Term and Termination
(a) This Agreement shall terminate one (1) year from the date when work on
the Project begins, unless terminated earlier as provided in Paragraph (b) of
this Section 3, or renewed as provided in Section 4.
(b) Either party may terminate this Agreement at any time upon sixty (60)
days' prior written notice to the other party.
(c) Termination of this Agreement shall bring an end to the Project and to
Sponsor's obligation to reimburse Contractor for costs of the Project incurred
thereafter. It shall not, however, affect rights and obligations already accrued
or clearly intended to survive, including, without limitation, Sponsor's
obligation under paragraph (a) of Section 5 to reimburse Contractor for costs
theretofore incurred and Sponsor's rights and Contractor's obligations under
paragraph (b) of Section 1, paragraph (b) of Section 5, and Sections 6, 9, 12,
13, 14, and 15, all of which shall survive.
4. Renewal
If this Agreement has not theretofore been terminated pursuant to paragraph
(b) of Section 3, Contractor shall, not later than June 1 of the year in which
the Agreement, or any renewal thereof is to terminate, advise Sponsor in writing
as to the desirability of doing further research work on the subject matter of
the Project. If further work is recommended, the recommendation shall be
accompanied by a formal proposal for renewal of this Agreement, setting forth in
detail the additional work recommended, the time required and the estimated
costs of performing the recommended work. Sponsor may accept the renewal
proposal by notifying the Contractor in writing prior to the expiration of the
original term of the contract or any subsequent renewal period, whereupon this
Agreement shall be renewed and extended for the term provided in the renewal
proposal or for one year, whichever is less. All terms and conditions of this
Agreement shall apply during any renewal term, except that during the renewal
term (i) the expression "Exhibit A" as used herein shall mean the renewal
proposal, (ii) the expression "Project" as used herein shall mean the program of
research set forth in the renewal proposal and (iii) Sponsor's liability under
Section 5 to reimburse Contractor for costs incurred during the renewal term
shall not exceed the dollar limit stated in Sponsor's letter accepting the
renewal proposal.
5. Costs
(a) Sponsor shall reimburse Contractor for the costs of the Project up to
but not exceeding a total of $45,165. Contractor shall render itemized invoices,
quarterly, for the costs actually incurred during the previous quarter, and
Sponsor shall pay invoices promptly upon presentation, provided that Sponsor
shall not be required to pay any invoice until any reports under Section 13 due
at the time the invoice is rendered have been
2
<PAGE>
submitted to Sponsor. Invoicing schedule: March 31, June 30, September 30 and
December 31.
(b) Contractor shall keep books of account showing all costs of the
project, which shall be open at all times to inspection by representatives of
Sponsor.
(c) For the purposes of this Section 5, the term "costs" shall include only
costs of the types contemplated by Exhibit A, and shall not include
administrative overhead or indirect costs except to the extent specifically
stated in Exhibit A.
6. Technical Data
All developments, inventions, improvements, information, data or ideas
(hereinafter referred to as "Technical Data") which flow from work on the
Project shall be the equally shared property of Contractor and Sponsor,
regardless of whether such Technical Data are patentable, and regardless of
whether patent applications are filed in respect thereto. In furtherance of this
provision:
(i) Contractor represents and agrees that it has required, or will promptly
require, each of its personnel engaged in work on the Project to agree in
writing (x) to disclose promptly to Contractor all Technical Data which flow
from work on the project and to specify whether such Technical Data (1)
incorporate any information turned over to Contractor by Sponsor or (2) embody
any invention made in whole or in part in the United States; (y) to assign to
Contractor or whomever Contractor specifies, the entire right, title and
interest, for the United States and all other countries, in and to any such
Technical Data as contractor shall request; and (z) to execute at any time
during the term of this Agreement or thereafter, all applications for patents
covering any of such Technical Data, as well as any other instruments which may
be considered necessary or appropriate to vest in and secure to the assignee the
rights to be assigned under this subparagraph (i) of Section 6 to aid in the
prosecution of applications for such patents.
(ii) Contractor further agrees (x) to disclose promptly to Sponsor all
Technical Data which flow from work on the project and to specify whether such
Technical Data (1) incorporate any information turned over to Contractor by
Sponsor or (2) embody any invention made in whole or in part in the United
States; (y) to formally assign to Contractor and Sponsor the entire right, title
and interest, for the United States and all other countries in and to such
Technical Data as Contractor and Sponsor will agree upon; and (z) at the
agreement of the Contractor and the Sponsor, to execute, or obtain the execution
of, at any time during the term of this Agreement or thereafter, all
applications for patents covering any such Technical Data, and any and all
instruments as may be considered necessary or appropriate by Contractor and
sponsor to vest in and secure to Contractor and to Sponsor the equally shared
rights assigned to Contractor and Sponsor, provided, however, that Sponsor shall
bear the expense of the preparation, filing and prosecution of such patent
applications and of the preparation of such instruments.
(iii) Contractor further agrees that it shall not file, cause to be filed,
or authorize the filing of nor allow any of its personnel to file, cause to be
filed, or authorize the filing of patent applications anywhere in the world
directed to any inventions embodied in such Technical Data or to any inventions
disclosed in any information turned over the Contractor by Sponsor without the
prior written approval of Sponsor's President together with (x) notification
that a license has been issued by the United States Government authorizing such
filing as required by the laws of the United States or (y) written confirmation
that such license is not required.
3
<PAGE>
7. Intellectual Property
(i) All data, findings, discoveries, etc. (hereinafter called
"information") that will accrue during research until the point that it ceases,
and which is not patentable, will remain the property of the parties themselves,
and shall not be transferrable to a third party.
(ii) The non-transferrability of the above rights to the information shall
expire five (5) years after the cessation of the mutual project, and each party
will be free to dispose of his rights according to his own judgment and
interest.
(iii) Notwithstanding the aforementioned above, each party will be free to
continue research at his own expense after cessation of the mutual project.
(iv) In the event that as a result of the continued research mentioned in
subsection (iii) above, information worthy of a patent is discovered and/or
developed, then the other party will be entitled to consideration in an amount
to be determined in negotiations between the parties at such a time.
8. Patents
(i) In the event that a patent is obtained, it shall be registered in the
name of both of the parties as co-owners.
(ii) Use of the patent shall be together, such that no party will sign a
contract with a third party without the other party's signature, and the patent
will only be transferrable with the signature of both parties.
(iii) The right of each party to transfer his rights shall be subject to
the other party's right of first refusal according to the same price and
conditions that were offered by the third party.
(iv) In the event that Sponsor will not be interested in patent
registration somewhere, Contractor will have the right to register the patent in
its own name, at its own expense. Sponsor will give prompt response to any such
notification received from Contractor.
9. Confidence
Contractor shall take all reasonable precautions, including requiring
personnel engaged in work on the Project to execute Agreements substantially
similar to this Section 9, to keep confidential all information turned over to
contractor by Sponsor, Sponsor's interest in the Project, and all Technical Data
as defined in Section 6 hereof, and shall not disclose nor allow its personnel
to disclose any such information or Technical Data to third persons, and shall
not publish nor allow its personnel to publish any such information or Technical
Data; provided, however, that the obligations of this Section 9 shall not apply
(a) in any case where prior written approval is obtained from Sponsor's
President or (b) to the extent that such information or Technical Data (i) is
generally available to the public, otherwise than as a consequence of a breach
of Contractor's obligations hereunder to maintain such matters in confidence, or
(ii) is already in contractor's written records prior to the date of this
Agreement. Such approval shall not be unreasonably withheld.
4
<PAGE>
10. Modification of Project
Both parties recognize that the program of research set forth in Exhibit A
may have to be modified as research results indicate that changes in emphasis of
direction are appropriate. Modifications may be agreed to at any time and from
time to time by Sponsor's President and the person designated by Contractor
pursuant to Section 11 to maintain liaison with Sponsor's President. Any
modification may be oral unless one of the persons agreeing to the modification
requests that it be in writing.
11. Liaison
Contractor shall designate a person to represent Contractor under this
Agreement and to maintain liaison for Contractor with sponsor's President.
Prompt written notice of the person so designated, and of any subsequent change
of designation, shall be given to Sponsor. The person so designated shall keep
Sponsor's President fully and currently informed of the Status of work on the
Project and of all research results. When requested by Sponsor's President, the
person so designated, and any other personnel of Contractor assigned to the
Project, shall meet with any persons designated by Sponsor's President to review
the Project. If the meeting takes place outside the State of Israel, Sponsor
will cover the costs involved in it, unless agreed otherwise.
12. Research Records
Contractor shall require personnel assigned to the project to keep
sufficiently detailed records of work done on the project, the findings and the
conclusions. Such records shall be open at all times to inspection and copying
by representatives of Sponsor. Contractor will keep these records for one year
after termination of Project as defined in the attached Exhibit A.
13. Reports
Subject to the limitations set forth in Section 14, Contractor shall make
the following reports; each of which must begin with an Executive Summary of the
principal results detailed in the main body of the report. This Executive
Summary should be limited to one page in length, if possible; should state the
overall objective of the research program; should clearly summarize the results
obtained during the latest reporting period; and should describe the work
proposed for the next reporting period. As this Summary will be read by some
persons who have no special knowledge of the research area, simple language is
recommended.
During each calendar year that the contract, or its continuation, is in
force, two written progress reports must be submitted in accordance with the
following schedule:
Type of Report Date Due at ILZRO Office Copies Required
- -------------- ------------------------ ---------------
Semi-Annual July 15 - July 30 20
Annual/Final (Cumulative) February 1 - February 15 30
Within 60 days of
contract termination date
5
<PAGE>
The first report after project initiation may, of necessity, be brief if
the elapsed time from the starting date to the first reporting period is short.
However, aside from this limitation, every effort should be made to insure that
the semi-annual report is as comprehensive as possible since this report will
constitute the principal basis on which the Contractor's performance will be
judged in regard to contract renewal.
At the agreement of Contractor and Sponsor, and subject to the provisions
of Section 9, Contractor shall prepare and submit to Sponsor a written summary
setting forth the data and conclusions resulting from Contractor's research, in
a form suitable for publication, in a journal to be mutually agreed upon between
Sponsor and Contractor.
14. Disclosure of Patentable Material
Contractor shall promptly call Sponsor's attention to any Technical Data
flowing from work on the Project which appear to contain patentable inventions.
Contractor shall not include information as to such Technical Data in the
reports required by Section 13, but shall furnish Sponsor with copies of a
special report marked "Industrial Confidential" containing a full disclosure as
to such Technical Data. Such special report shall specify whether any inventions
contained in such Technical Data (a) were disclosed in whole or in part in
information turned over to Contractor by Sponsor or (b) were made in whole or in
part in the United States.
15. Materials and Equipment
All unconsumed materials and equipment purchased or fabricated by
Contractor and charged to Sponsor under Section 5 shall be the property of
Sponsor. Upon termination of this Agreement, Contractor shall notify Sponsor of
any such materials and equipment that were not consumed on the Project and, if
Sponsor so requests, shall deliver such materials and equipment, at Sponsor's
expense, to such place as Sponsor may direct.
16. Plant
(i) According to the Appendix the plant will be erected on the property of
Ben-Gurion University of the Negev at the expense of Sponsor including parts and
labor.
(ii) At the end of the period of the mutual project the plant will become
the property of Sponsor.
(iii) Sponsor will notify Contractor within six (6) months from the date of
the cessation of the mutual project what is to be done with the plant.
(iv) In the event that Sponsor has not notified Contractor by the end of
six (6) months the ownership of the plant will be automatically transferred to
Contractor.
(v) In the event that the University demands the removal of the plant
before the expiration of the six-month period, Sponsor must notify Contractor of
its decision regarding disposition of the plant no later than fifteen (15) days
before the removal date which the University has given to Contractor.
6
<PAGE>
17. Delegation by President
The powers and duties assigned to Sponsor's President under this Agreement
may be delegated by him to any member of Sponsor's staff. Contractor shall not
be required to recognize such delegation until it has received written notice
thereof from Sponsor's President.
18. Interpretation
In the case of any inconsistency between the provisions of Exhibit A and
the provisions of this Agreement, the latter shall govern.
19. Notices
Any notice, report or other communication required to be given or made
under this Agreement by one party to the other shall be deemed to have been
sufficiently given or made for all purposes if mailed prepaid by registered mail
addressed to such other party at its address set forth at the beginning of this
Agreement. Either party may, at any time, change its address for the purposes of
this Section 19, by giving written notice of such change to the other party.
20. Assignability
This Agreement may not be assigned by Contractor without Sponsor's prior
written consent. Subject to the foregoing restriction on assignment, this
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and assigns.
21. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina.
IN WITNESS WHERE0F, the parties have executed this Agreement on the day and
year first above written.
SOLMECS (ISRAEL) LTD. INTERNATIONAL LEAD ZINC
RESEARCH ORGANIZATION, INC.,
/s/ H. Branover /s/ [ILLEGIBLE]
- ------------------------- ----------------------------
President
7
AGREEMENT, made as of the 7 day of March, 1991.
between
INTERNATIONAL LEAD ZINC RESEARCH ORGANIZATION, INC., a North Carolina Non-Profit
Corporation with offices at 2525 Meridian Parkway, Post Office Box 12036,
Research Triangle Park, North Carolina 27709 ("Sponsor").
and
SOLMECS (ISRAEL) LTD, corporation with offices at Clal Center, Suite 218, 97
Jaffa Road, Jerusalem 94341, Israel ("Contractor");
WHEREAS, Sponsor desired Contractor to carry out the program of research
(hereinafter called the "Project"), set forth in contractor's proposal dated
June 1990, attached hereto as Exhibit A and made a part hereof, and Contractor
is willing and able to perform such work, identified as:
LM-391, Use of Lead in LMMHD Cogeneration Systems
NOW, THEREFORE, the parties agree as follows:
1. Research on Project
(a) Contractor shall initiate and carry out the Project in accordance with
the provisions of Exhibit A and shall provide laboratory facilities, equipment,
materials, personnel and supervision, all as set forth in Exhibit A. If at any
time during the term of this Agreement, Contractor becomes aware of any
impending change of personnel assigned to the Project, for whatever reason,
Contractor will immediately notify Sponsor of the impending change, and
furthermore, will notify Sponsor of the name(s) and duties of the new personnel,
so assigned, as soon as this information is known to Contractor. Work on the
Project shall begin with three (3) months of the date of this Agreement and
Contractor shall promptly notify Sponsor of the date when work begins.
(b) All work done by contractor, and all employment and other contracts
made by Contractor, in the performance of this Agreement shall be done or made
by it as principal, and not as the agent of Sponsor, and Sponsor shall not have
any liability whatsoever for any such work or under any such contracts or for
the payment of any claims made by any person on account of any property damage
or personal injury arising out of Contractor's performance of this Agreement.
Contractor shall discharge the duties and obligations of principal with respect
to such work and such contracts, including, but not limited to, the withholding
and payment of all applicable taxes and the filing of all necessary returns.
Upon Sponsor's request, Contractor at its own expense will defend any action or
claim brought or made by any person against Sponsor arising out of Contractor's
performance of this Agreement, provided that Sponsor shall have the right to
participate through counsel of its choice in the defense thereof. Contractor
will hold Sponsor harmless from any and all damages, costs or other liabilities
incurred by Sponsor as the result of the bringing of any such action or the
assertion of any such claim, including Sponsor's reasonable attorney's fees.
1
<PAGE>
2. Subcontracting
With the prior written approval of Sponsor's President, Contractor may
subcontract all or any part of the work on the Project to a subcontractor. Any
subcontract shall contain provisions, substantially similar to the provisions of
this Agreement, protecting all of Sponsor's rights under this Agreement,
including, without limitation, provisions substantially similar to paragraph (b)
of Section 5 and Sections 6, 9, 12, 14, and 15. However, no subcontract shall
relieve Contractor of any of its obligations under this Agreement.
3. Terms and Termination
(a) This Agreement shall terminate one (1) year from the date when work on
the Project begins, unless terminated earlier as provided in Paragraph (b) of
this Section 3, or renewed as provided in Section 4.
(b) Either party may terminate this Agreement at any time upon sixty (60)
days' prior written notice to the other party.
(c) Termination of this Agreement shall bring an end to the Project and to
Sponsor's obligation to reimburse Contractor for costs of the Project incurred
thereafter. It shall not, however, affect rights and obligations already accrued
or clearly intended to survive, including, without limitation, Sponsor's
obligation under paragraph (a) Section 5 to reimburse Contractor for costs
theretofore incurred and Sponsor's rights and Contractor's obligations under
paragraph (b) of Section 1, paragraph (b) of Section 5, and Sections 6, 9, 12,
13, 14, 15, and 17 all of which shall survive.
4. Renewal
If this Agreement has not theretofore been terminated pursuant to paragraph
(b) of Section 3, Contractor shall, not later than June 1 of the year in which
the Agreement, or any renewal thereof is to terminate, advise Sponsor in writing
as to the desirability of doing further research work on the subject matter of
the Project. If further work is recommended, the recommendation shall be
accompanied by a formal proposal for renewal of this Agreement, setting forth in
detail the additional work recommended, the time required and the estimated
costs of performing the recommended work. Sponsor may accept the renewal
proposal by notifying the Contractor in writing prior to the expiration of the
original term of the contract or any subsequent renewal period, whereupon this
Agreement shall be renewed and extended for the term provided in the renewal
proposal or for one year, whichever is less. All terms and conditions of this
Agreement shall apply during any renewal term, except that during the renewal
term (i) the expression "Exhibit A" as used herein shall mean the renewal
proposal, (ii) the expression "Project" as used herein shall mean the program of
research set forth in the renewal proposal and (iii) Sponsor's liability under
Section 5 to reimburse Contractor for costs incurred during the renewal term
shall not exceed the dollar limit stated in Sponsor's letter accepting the
renewal proposal.
5. Costs
(a) Sponsor shall reimburse Contractor for the costs of the Project up to
but not exceeding a total of $387,229. Contractor shall render itemized
invoices, quarterly, for the costs actually incurred during the previous
quarter, and Sponsor shall pay invoices promptly upon presentation, provided
that Sponsor shall not be required to pay any invoice until any reports under
2
<PAGE>
Section 13 due at the time the invoice is rendered have been submitted to
Sponsor. Payment schedule:
$100,00 each in 1991 and 1992
$85,000 in 1993
$50,000 in 1994
$52,229 in 1995
(b) Contractor shall keep books of account showing all costs of the
project, which shall be open at all times to inspection by representatives of
Sponsor.
(c) For the purposes of this Section 5, the term "costs" shall include only
costs of the types contemplated by Exhibit A, and shall not include
administrative overhead or indirect costs except to the extent specifically
stated in Exhibit A.
6. Technical Data
All developments, inventions, improvements, information, data or ideas
(hereinafter referred to as "Technical Data") which flow from work on the
Project shall be the equally shared property of Contractor and Sponsor,
regardless of whether such Technical Data are patentable, and regardless of
whether patent applications are filed in respect thereto. In furtherance of this
provision:
(i) Contractor represents and agrees that it has required, or will promptly
require, each of its personnel engaged in work on the Project to agree in
writing (x) to disclose promptly to Contractor all Technical Data which flow
from work on the project and to specify whether such Technical Data (1)
Incorporate any information turned over to Contractor by Sponsor or (2) embody
any invention made in whole or in part in the United States; (y) to assign to
Contractor or whomever Contractor specifies, the entire right, title and
interest, for the United States and all other countries, in and to any such
Technical Data as contractor shall request; and (z) to execute at any time
during the term of this Agreement or thereafter, all applications for patents
covering any of such Technical Data, as well as any other instruments which may
be considered necessary or appropriate to vest in and secure to the assignee the
rights to be assigned under this subparagraph (i) of Section 6 to aid in the
prosecution of applications for such patents.
(ii) Contractor further agrees (x) to disclose promptly to Sponsor all
Technical Data which flow from work on the project and to specify whether such
Technical Data (1) incorporate any information turned over to Contractor by
Sponsor or (2) embody any invention made in whole or in part in the United
States; (y) to formally assign to Contractor and Sponsor the entire right, title
and interest, for the United States and all other countries in and to such
Technical Data as Contractor and Sponsor will agree upon; and (z) at the
agreement of the Contractor and the Sponsor, to execute, or obtain the execution
of, at any time during the term of this Agreement or thereafter, all
applications for patents covering any such Technical Data, and any and all
instruments as may be considered necessary or appropriate by Contractor and
sponsor to vest in and secure to Contractor and to Sponsor the equally shared
rights assigned to Contractor and Sponsor, provided, however, that Sponsor shall
bear the expense of the preparation, filing and prosecution of such patent
applications and of the preparation of such instruments.
(iii) Contractor further agrees that it shall not file, cause to be flied,
or authorize the filing of nor allow any of its personnel to file, cause to be
filed, or authorize the filing of patent applications anywhere in the world
directed to any inventions embodied in such Technical Data or to any inventions
disclosed in any information turned over the Contractor by Sponsor without the
prior written approval of Sponsor's President together with (x) notification
that a license has been issued by the United States Government authorizing such
filing as required by the laws of the United States or (y) written confirmation
that such license is not required.
3
<PAGE>
7. Intellectual Property
(i) All data, findings, discoveries, etc. (hereinafter called
"Information") that will accrue during research until the point that is ceases,
and which is not patentable, will remain the property of the parties themselves,
and shall not be transferrable to a third party.
(ii) The non-transferability of the above rights to the information shall
expire five (5) years after the cessation of the mutual project, and each party
will be free to dispose of his rights according to his own judgment and
interest.
(iii) Notwithstanding the aforementioned above, each party will be free to
continue research at his own expense after cessation of the mutual project.
(iv) In the event that as a result of the continued research mentioned in
subsection (iii) above, information worthy of a patent is discovered and/or
developed, then the other party will be entitled to consideration in an amount
to be determined in negotiations between the parties at such a time.
8. Patents
(i) In the event that a patent is obtained, it shall be registered in the
name of both of the parties as co-owners.
(ii) Use of the patent shall be together, such that no party will sign a
contract with a third party without the other party's signature, and the patent
will only be transferrable with the signature of both parties.
(iii) The right of each party to transfer his rights shall be subject to
the other party's right of first refusal according to the same price and
conditions that were offered by the third party.
(iv) In the event that Sponsor will not be interested in patent
registration somewhere, Contractor will have the right to register the patent in
its own name, at its own expense. Sponsor will give prompt response to any such
notification received from Contractor.
9. Confidence
Contractor shall take all reasonable precautions, including requiring
personnel engaged in work on the Project to execute Agreements substantially
similar to this Section 9, to keep confidential all information turned over to
Contractor by Sponsor, Sponsor's interest in the Project, and all Technical Data
as defined (i) Section 6 hereof, and shall not disclose nor allow its personnel
to disclose any such information or Technical Data to third persons, and shall
not publish nor allow its personnel to publish any such information or Technical
Data; provided, however, that the obligations of this Section 9 shall not apply
(a) in any case where prior written approval is obtained from Sponsor's
President or (b) to the extent that such information or Technical Data (i) is
generally available to the public, otherwise than as a consequence of a breach
of Contractor's obligations hereunder to maintain such matters in confidence, or
(ii) is already in Contractor's written records prior to the date of this
Agreement. Such approval shall not be unreasonably withheld.
4
<PAGE>
10. Modification of Project
Both parties recognize that the program of research set forth in Exhibit A
may have to be modified as research results indicate that changes in emphasis of
direction are appropriate. Modifications may be agreed to at any time and from
time to time by Sponsor's President and the person designated by Contractor
pursuant to Section 11 to maintain liaison with Sponsor's President. Any
modification may be oral unless one of the persons agreeing to the modification
requests that it be in writing.
11. Liaison
Contractor shall designate a person to represent Contractor under this
Agreement and to maintain liaison for Contractor with Sponsor's President.
Prompt written notice of the person so designated, and of any subsequent change
of designation, shall be given to Sponsor. The person so designated shall keep
Sponsor's President fully and currently informed of the status of work on the
Project and of all research results. When requested by Sponsor's President, the
person so designated, and any other personnel of Contractor assigned to the
Project, shall meet with any persons designated by Sponsor's President to review
the Project. If the meeting takes place outside the State of Israel, Sponsor
will cover the costs involved in it, unless agreed otherwise.
12. Research Records
Contractor shall require personnel assigned to the Project to keep
sufficiently detailed records of work done on the Project, the findings and the
conclusions, such records shall be open at all times to inspection and copying
by representatives of Sponsor. Contractor will keep these records for one year
after termination of Project as defined in the attached Exhibit A.
13. Reports
Subject to the limitations set forth in Section 14, Contractor shall make
the following reports; each of which must begin with an Executive Summary of the
principal results detailed in the main body of the report. This Executive
Summary should be limited to one page in length, if possible; should state the
overall objective of the research program; should clearly summarize the results
obtained during the latest reporting period; and should describe the work
proposed for the next reporting period. As this Summary will be read by some
persons who have no special knowledge of the research area, simple language is
recommended.
During each calendar year that the contract, or its continuation, is in
force, two written progress reports must be submitted in accordance with the
following schedule:
<TABLE>
<CAPTION>
Type of Report Date Due at Il ZRO Office Copies Required
- -------------- ------------------------- ---------------
<S> <C> <C>
Semi-Annual July 15 - July 30 20
Annual/Final (Cumulative) February 1 - February 15 30
Within 60 days of
Contract termination date
</TABLE>
At the agreement of Contractor and Sponsor, and subject to the provisions
of Section 9, Contractor shall prepare and submit to Sponsor a written summary
setting forth the data and conclusions resulting from Contractor's research, in
a form suitable for publication, in a journal to be mutually agreed upon between
Sponsor and Contractor.
5
<PAGE>
14. Disclosure of Patentable Material
Contractor shall promptly call Sponsor's attention to any Technical Data
flowing from work on the Project which appear to contain patentable inventions.
Contractor shall not include information as to such Technical Data in the
reports required by Section 13, but shall furnish Sponsor with copies of a
special report marked "Industrial Confidential" containing a full disclosure as
to such Technical Data. Such special report shall specify whether any inventions
contained in such Technical Data (a) were disclosed in whole or in part in
information turned over to Contractor by Sponsor or (b) were made in whole or in
part in the United States.
15. Materials and Equipment
All unconsumed materials and equipment purchased or fabricated by
Contractor and charged to Sponsor under Section 5 shall be the property of
Sponsor. Upon termination of this Agreement, Contractor shall notify Sponsor of
any such materials and equipment that were not consumed on the Project and, if
Sponsor so requests, shall deliver such materials and equipment, at Sponsor's
expense, to such place as Sponsor may direct.
16. Plant
(i) According to the Appendix the plant will be erected on the property of
Ben-Gurion University of the Negev at the expense of Sponsor including parts and
labor.
(ii) At the end of the period of the mutual project the plant will become
the property of Sponsor.
(iii) Sponsor will notify Contractor within six (6) months from the date of
the cessation of the mutual project what is to be done with the plant.
(iv) In the event that Sponsor has not notified Contractor by the end of
six (6) months the ownership of the plant will be automatically transferred to
Contractor.
(v) In the event that the University demands the removal of the plant
before the expiration of the six-month period, Sponsor must notify Contractor of
its decision regarding disposition of the plant no later than fifteen (15) days
before the removal date which the University has given to Contractor.
17. Payments by Contractor to ILZRO
In consideration of Sponsor's substantial five-year commitment to the
Project, Contractor agrees to remit yearly payments to Sponsor based upon the
usage of lead in LMMHD systems which generate steam, electricity, or both in
facilities intended for all except solely research purposes. To calculate such
payments, Contractor will determine at the end of the calendar year, the number
of facilities brought to initial operation during that year which are based on
the LMMHD technology developed by Contractor. The total amount of lead used in
such facilities will be calculated from actual purchasing documents for each
facility or by assuming that 200 metric tons are required for each MW of
generated power and adjusting for steam production. Based upon this total,
Contractor will remit payments to Sponsor based upon the following schedule:
o $1.37 for each metric ton of lead up to a total sum of $932,000
o $0.27 for each additional ton of lead until another $932,000 is paid.
6
<PAGE>
Each payment shall be due and payable within sixty (60) days after the end
of the calendar year, and the full amount of such payment shall be remitted in
U.S. currency and paid to Sponsor's account with a bank designated by Sponsor in
writing. Contractor shall not make any deduction whatsoever from such payments.
18. Delegation by President
The powers and duties assigned to Sponsor's President under this Agreement
may be delegated by him to any member of Sponsor's staff. Contractor shall not
be required to recognize such delegation until it has received written notice
thereof from Sponsor's President.
19. Interpretation
In the case of any inconsistency between the provisions of Exhibit A and
the provisions of this Agreement, the latter shall govern.
20. Notices
Any notice, report or other communication required to be given or made
under this Agreement by one party to the other shall be deemed to have been
sufficiently given or made for all purposes if mailed prepaid by registered mail
addressed to such other party at its address set forth at the beginning of this
Agreement. Either party may, at any time, change its address for the purposes of
this Section 20, by giving written notice of such change to the other party.
21. Assignability
This Agreement may not be assigned by Contractor without Sponsor's prior
written consent. Subject to the foregoing restriction on assignment, this
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and assigns.
22. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
SOLMECS (ISRAEL) LTD. INTERNATIONAL LEAD ZINC
RESEARCH ORGANIZATION, INC.
By: /s/ H. Branover By: /s/ [ILLEGIBLE]
---------------------- ----------------------
President
7
AGREEMENT
This agreement has been signed on June 09, 1997 between the Institute of
Physics in Riga, Latvia, hereafter referred as "IPH" and Solmecs (Israel) Ltd.,
hereafter referred as "SOLMECS"
whereas the IPH has developed during a number of years a know-how related to
Magnesium, hereafter referred as "Mg" MHD Pumps;
and whereas SOLMECS is developing a Mg pumping system for the Mg R&D
division of the Dead Sea Works Ltd., hereafter referred as "DSW";
Therefore it is hereby agreed, undertaken and declared by the parties
hereto as follows.
1. IPH will design, construct and supply a conductive MHD Mg pump
according to the attached parameters and conditions presented in
Appendix A and Appendix B accordingly.
2. SOLMECS will pay to IPH for the work described in parag.(1) a sum of
15,000 US $(fifteen thousand) F.O.B. Riga according to the term of
payment described in Appendix B.
3. The pump will be shipped to Israel in (within) five months following
the signing on this agreement.
4. For the first operation of the pump, including assembling to the whole
Mg pumping system in the DSW R&D plant, an IPH expert representative
will be sent to Israel. His travel and accommodation expenses will be
covered by SOLMECS.
5. The parties agree that all future commercial and R&D activities with
DSW regarding MHD Technology will be coordinated by SOLMECS and
elaborated both by SOLMECS and IPH.
6. Both partners agree to treat as confidential all information,
know-how, documents and material samples, which are subject of the
contract. The partners shall disclose such information and documents
only to those of their own staff members who need to know the said
information and documents. Any disclosure of information or documents
to third party except of "DSW', requires a written agreement in
advance.
For the Institute of Physics For Solmecs (Israel) Ltd.
/s/ OLGERTS LICLAUSIS /s/ SHAUL LESIN
---------------------------- ------------------------------
Olgerts Liclausis Shaul Lesin
Director General Manager
<PAGE>
Appendix A
Conductive Mg MIID Pump Parameters
o Nominal Flow - 1 Kg/scc
o Nominal Head - 0.7 / 0.8 meter
o Operational Voltage - 6 / 12 Volt
o Operational Current - 2000 / 3000 Amp.
o Construction material - Stainless steel with very low Nickel
content (less than 0.25%) for those
in direct contact with Mg.
o Pump dimensions According to the schema
[GRAPHIC]
D-l50 mm max
A-150 mm
H--550 mm
F--800 mm
D--3/4 in. or 1/2 in.
L--50 / 80 mm
(Should be movable
between the range)
<PAGE>
Appendix B - Agreement Conditions
Terms of payment
The totals amount of 15,000 US $ will be paid as follows:
o 25% (3750 US $) as advance payment, a week following the signing on
this agreement.
o 15% (2250 US $) 15 days following the submission by IPH and approval
by Solmecs of a report with calculations and design drawings.
o 20% (3000 US $) 15 days following the submission by IPH and approval
by Solmecs of a report on completion of pump productions,
o 20% (3000 US $) 15 days following the pumps arrival to Israel.
o 20% (3000 US $) 15 days following first operation in the plant and
approval by DSW.
Each payment is subject to receiving of an invoice.
Delay clause
In case of delay in the pump shipping to Israel by IPH, a penalty of 2%
(300 US $) per week of the total amount (15000 US $), will be paid by IPH to
Solmecs, for every week following the agreed five month period.
Warranty
A one-year warranty, starting from first operation (by the IPH
representative) will be given for perfect junction under the specified
parameters and proper quality of the design and of all pump materials.
Spare parts
One or two sets of spare parts will be supplied with the pump.
Agreement
Entered into as of the 1st day of January, 1998, by and between Leon Aprimov,
Israeli Identification Number 1679561, ("Leon") and Solmecs (Israel) Ltd.
("Solmecs").
WHEREAS in July 1993, the parties entered into an agreement, a copy of
which is attached hereto as Exhibit 1 (the "Initial Agreement");
and
WHEREAS pursuant to the Initial Agreement, the parties agreed to commence
a project (the "Project") for the development and exploitation of
technology relating to electronic display systems for
solar/electrical heaters; and
WHEREAS pursuant to the Initial Agreement, Leon agreed to transfer all of
his know-how, including any patent applications, relating to
electronic display systems for solar/electrical water heaters (as
set forth in Exhibit 2, the "Know-how") to the Project and to
provide the Project with certain consulting services; and
WHEREAS pursuant to the Initial Agreement, Solmecs, with the assistance
of certain consulting services provided by Leon, has further
developed the ideas contained in the Know-how and has funded the
Project; and
WHEREAS pursuant to the Initial Agreement, after the initial stages, the
Project was to be performed in the context of a limited liability
company, Heatex Ltd, 85% of the shares of which are owned by
Solmecs and 15% of which are owned by Leon; and
WHEREAS to date, the Project has been performed by Solmecs; and
WHEREAS the parties wish to terminate the Initial Agreement and replace
it with this Agreement.
NOW THEREFORE, the parties have agreed as follows:
1. The Initial Agreement is hereby terminated and of no further force and
effect.
2. The term "Technology" as used in this Agreement shall mean all information,
data and know-how, including but not limited to, inventions, creations,
ideas, discoveries, copyrights, programs, and trade secrets, in whatever
form or medium, owned or developed by Leon, relating to electronic display
systems for electric and solar water heater, and all improvements,
modifications, enhancements, refinements and the like thereto (whether
patentable or unpatentable) owned or developed by Leon, and all patent
applications and patents, whether filed or issued now or in the future,
with respect thereto.
3. Leon hereby irrevocably assigns, effective as of July 1993, to Solmecs all
rights, title and interest he may have in and to any and all Technology,
whether existing at that time or
<PAGE>
developed thereafter. Leon hereby waives any claims he may have in and to
any of the Technology.
4. In consideration for the assignment set forth in Section 2, Solmecs shall
pay Leon royalties based on net revenues received by Solmecs from the sale
or licensing of the Technology or of products incorporating the Technology
as follows:
a. For purposes of this Agreement, "Net Revenues" shall mean gross
revenues received by Solmecs from the sale or licensing of the
Technology or of products incorporating the Technology less: (i)
shipping, handling, insurance, taxes and other similar charges; and
(ii) rebates and other allowances actually paid or allowed, provided,
however, that in the case of sale or licensing of the Technology or of
products incorporating the Technology to an Affiliate of Solmecs, the
Net Revenues shall be determined by the gross revenues which would be
obtained from a purchaser who is not an Affiliate. For purposes of
this Section, "Affiliate" means with respect to any person, any other
persons that, directly or indirectly, control, are controlled by or
are under common control with such person.
b. With respect to the first US$200,000 in Net Revenues received by
Solmecs, Leon will not be entitled to royalties on Net Revenues
received by Solmecs from the sale of products incorporating the
Technology.
c. Once Solmecs has received an aggregate of $200,000 in Net Revenues,
Leon will be entitled to 1.5% of any additional Net Revenues received
by Solmecs from the sale of products incorporating the Technology.
d. With respect to the first US$300,000 in Net Revenues received by
Solmecs, Leon will not be entitled to royalties on Net Revenues
received by Solmecs from the sale or licensing of the Technology.
e. Once Solmecs has received an aggregate of $300,000 in Net Revenues,
Leon will be entitled to 8% of any additional Net Revenues received by
Solmecs from the sale and/or licensing of the Technology.
f. Royalties pursuant to this Section shall accrue and be payable on a
quarterly basis within thirty (30) days after the end of each calendar
quarter in which Solmecs receives Revenues. Each payment of royalties
pursuant to this Section 3 shall be accompanied by a statement setting
forth such details as may be necessary for the calculation of the
royalty payment. Leon shall bear all taxes, to which Leon may be
subject, in connection with such payments and
-2-
<PAGE>
Solmecs may withhold any taxes on such payments to the extent required
by applicable law.
5. Leon recognizes and acknowledges that all of the specifications, programs
and documentation, the methods and data, and the developments, designs,
inventions, improvements and trade secrets, which Solmecs exclusively owns,
plans or develops, including the Technology, are confidential and are the
property of Solmecs. All of these materials and information will be
referred to below as "Proprietary Information." Leon shall not (a) directly
or indirectly reveal, report, publish, disclose or transfer the Proprietary
Information or any part thereof to any person or entity; (b) use any of the
Proprietary Information or any part thereof for any purpose other than for
the benefit of Solmecs; or (c) assist any person or entity other than
Solmecs to secure any benefit form the Proprietary Information or any part
thereof.
6. All notices, requests, consents and other communications, required or
permitted to be given hereunder, shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by prepaid telegram,
telex, telefax, or mailed first-class, postage pre-paid, by registered or
certified mail, as follows (or to such other address as either party shall
designate by notice in writing to the other in accordance herewith):
Solmecs: Shaul Lesim
Omen Industrial Park
P.O. Box 3026, Omen 84365, ISRAEL
Leon: Leon Aprimov
Mavu Brosh 3, Kiryat Savioniw
Ehud, ISRAEL
7. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Israel.
8. This Agreement contains the entire understanding of the parties. There are
no restrictions, agreements, promises, warranties, covenants or
undertakings between the parties with respect to the subject matter hereof.
All prior agreements with respect to the subject matter hereof are
superseded by this Agreement and are of no further force and effect.
9. This Agreement may be altered, modified or amended except by a written
instrument signed by the parties.
10. This Agreement shall be binding upon and shall inure to the benefit of
Solmecs, its successors and assigns and Solmecs shall require successor or
assign to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the company would be required to perform
it if no such succession or assignment had taken place. The term
-3-
<PAGE>
"successors and assigns" as used herein shall mean a corporation or other
entity acquiring all or substantially all the assets and business of
Solmecs (including this Agreement) whether by operation of law or
otherwise.
11. The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day first
above written.
- -------------------------------- --------------------------------
Solmecs Leon
-4-
RENTAL AGREEMENT
Table of Contents
1. Introduction....................................................... 1
2. Rental Period...................................................... 1
3. Rent............................................................... 2
4. Letter of Authorization............................................ 2
5. Suitability........................................................ 3
6. Use................................................................ 3
7. Receipt of Permits................................................. 3
8. Electrical Power and Water......................................... 4
9. Maintenance of the Premises........................................ 4
10. Repairs to the Premises............................................ 5
11. Damage by the Lessee............................................... 5
12. Damages and Insurance.............................................. 5
13. Cleaning........................................................... 6
14. Preservation of the Premises....................................... 6
15. Public Areas....................................................... 7
16. Signposting........................................................ 7
17. Service Fee........................................................ 7
18. Services by the Company............................................ 7
19. Modifications to the Premises...................................... 8
20. Prevention of Nuisances............................................ 9
21. Entrance to the Premises........................................... 9
22. Transfer of Rights................................................. 9
23. Vacation........................................................... 10
24. Early Vacation a the Lessee's Initiative........................... 10
25. Breach and Rescission of the Agreement............................. 11
26. Paying the Lessee's Debts.......................................... 12
27. Taxes.............................................................. 12
28. Tenant Protection Law.............................................. 12
29. Legal and Other Expenses........................................... 13
30. Changes in the Agreement........................................... 13
31. Linkage and Interest............................................... 13
32. Expenses of the Agreement.......................................... 14
33. Value Added Tax.................................................... 14
34. Security and Guarantee............................................. 15
35. Jurisdiction....................................................... 15
36. Non-Offset of payments............................................. 15
37. Notices............................................................ 15
-i-
<PAGE>
Description of the Premises
Settlement: Omer
Building No.: 3/d
Contract No.:
Building area in m2:
Annex area in m2:
Facilities:
Appendices
Appendix A (Section 3)
Appendix B (Section 4)
Appendix C (Section 34)
Appendix E - Modifications
Appendix F - Connection of Electrical Power
Appendix H - Fire Detection and Air Conditioning
-ii-
<PAGE>
RENTAL AGREEMENT
Drawn up and signed in Omer, this 14th day of the month of October in the
year 1997.
BETWEEN: TEFEN ENTREPRENEURSHIP LTD.
Company No. 51-141489-8
POB 11, 24949 Tefen
(hereinafter the "Company")
OF THE FIRST PART
AND: SOLMECS (ISRAEL) LTD.
Company no. 51-085552-1
of 7 Ben Zvi Street, 84893 Beersheva
by signatory:
ID No.:
(hereinafter the "Lessee")
OF THE SECOND PART
WHEREAS the Company is the legal owner of rights to develop
land and erect buildings intended for industry,
commerce or offices in the area of the Omer
Industrial Park (hereinafter the "Industrial Park");
AND WHEREAS the Company has agreed to rent to the Lessee,
in the Industrial Park, a building whose number is 3c
at an area of _____________ (external dimensions)
(hereinafter the "Premises");
AND WHEREAS the Lessee desires to rent the Premises for its business,
_______________ (hereinafter the "Purpose");
NOW THEREFORE THE PARTIES HAVE STIPULATED AND AGREED AS FOLLOWS:
1. Introduction
a. The Preamble to this Agreement constitutes an integral part hereof.
b. The section headings in this Agreement are for convenience only and
are not part of the Agreement.
c. All Appendices to this Agreement constitute an integral part hereof.
2. Rental Period
The Company hereby rents the Premises to the Lessee and the Lessee hereby
rents the Premises from the Company, starting on December 1, 1997
(hereinafter the "Rental
<PAGE>
Starting Date") and ending on November 39, 1999 (hereinafter the "Rental
Ending Date"), in accordance with the terms set forth in this Agreement.
The period from the Rental Starting Date to the Rental Ending Date shall
hereinafter be referred to for the sake of brevity as the "Rental Period."
3. Rent
The Lessee shall pay the Company in advance, on the first day of each
month, the principal of the rent, as set forth in Appendix A attached
hereto and constituting an integral part of this Agreement (hereinafter the
"Principal of the Rent"). The Principal of the Rent shall be increased by
Linkage Differentials defined as follows:
Index: the Consumer Price Index, including fruit and vegetables, published
by the Central Bureau of Statistics. Should the Index or the method of its
calculation and composition be replaced, or should it be published by
another entity instead of said Bureau, the Company shall calculate the
increase in the Index for the purposes of this Section by taking the above
changes into consideration.
Base Index: the Index which was/shall be published on November 15, 1997.
New Index: the last Index which shall be published, from time to time,
prior to the date set forth in this Agreement for making any payment of the
payments to which the Lessee is obligated as set forth above.
Linkage Differentials: the difference between the New Index and the Base
Index divided by the Base Index and multiplied by the Principal of the
Rent.
The Principal of the Rent together with the Linkage Differentials shall
hereinafter be referred to as the "Rent." The Rent, plus Value Added Tax,
shall hereinafter be referred to for the sake of brevity as the "Receipt."
The Parties agree that the Company shall be entitled to round the periodic
Receipt which the Lessee must pay to the Company pursuant to this Agreement
to the nearest whole New Israel Sheqel.
4. Letter of Authorization.
To facilitate collection of the Rent, the Lessee shall sign one or more
Letter(s) of Authorization to a bank, in the wording attached hereto and
marked as Appendix B and constituting an integral part of this Agreement
(hereinafter the "Letter of Authorization"). Payment of the Rent shall be
made via the Letter of Authorization by debiting the Lessee's account at
the bank. As long as the Lessee has not vacated the Premises, the Lessee
shall not be entitled to change or cancel the Letter of Authorization.
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5. Suitability
The Lessee confirms that it has seen, checked and examined the land upon
which the Premises are to be built and that he is aware of all details of
the UBP, the architectural plans and the specifications, and has found them
satisfactory and suitable for its needs from all standpoints and without
reservation.
6. Use
a. The Lessee shall use the Premises for the Purpose only.
b. Without derogating from any other right of the Company, the Company
shall be entitled, three months from a breach of the Agreement as
above, to seize possession of the Premises, after having notified the
Lessee 30 days in advance of the date of seizure of possession.
c. In case of seizure of possession by the Company as stated in this
Section, the Lessee hereby irrevocably empowers the Company to seize
or removed the Lessee's effects, in the presence of two witnesses who
shall sign the list of effects in confirmation thereof, and to store
them at the Lessee's expense, on the Premises or in another place, and
the Company shall bear no responsibility for said effects. The Lessee
hereby irrevocably empowers the Company to seize or remove the
Lessee's effects, in the presence of two witnesses who shall sign the
list of effects in confirmation thereof, and to store them at the
Lessee's expense, on the Premises or in another place, and the Company
shall bear no responsibility for said effects. The Lessee hereby
empowers the Company to sell the effects, at its discretion, and to
use the proceeds to cover the expenses of transfer, storage, insurance
and sale of the effects and to pay any amount owed by the Lessee to
the Company.
d. To preclude all doubt, it is hereby declared that the Lessee's keeping
its effects on the Premises or paying the Rent shall not derogate from
the Company's permission to act according to that stated in this
Section.
7. Receipt of Permits
a. The Lessee shall ensure the receipt of all permits required by the law
for the conducting of its business.
b. The Lessee declares that it is aware that the Company shall bear no
responsibility for receipt of any permits which shall be required for
the conducing of the Lessee's business.
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c. Should the Lessee, for any reason, not receive a permit for the
conducting of its business, this shall not exempt the Lessee from
payment of the Rent until the end of the Rental Period pursuant to
this Agreement.
8. Electrical Power and Water
a. The Lessee confirms that it is aware that payment for the ongoing
supply of water shall be made by it to the Company.
b. The Lessee confirms that it is aware that payment for the ongoing
supply of electrical power shall be made by it to the Company,
according to the tariffs of the Israel Electric Corporation for
similar supply, which shall be in force as at the date of consumption.
c. Payment in respect of the ongoing supply of water and electrical power
pursuant to subsections (a) and (b) above shall be made by way of the
Letter of Authorization.
d. The Lessee agrees that failure to supply electrical power and water to
the Premises, for reasons not dependent upon the Company, shall not
derogate from its obligations pursuant to this Agreement.
e. The Lessee shall have no claim on any grounds whatsoever against the
Company in respect of the failure to supply electrical power, or
interference with the supply of electrical power, which result from
the Israel Electric Corporation Ltd.
9. Maintenance of the Premises
a. The Lessee undertakes to keep the Premises in a complete and
functional state, to the satisfaction of the Company, and to comply
with all demands and instructions which it shall receive from time to
time from the Company's engineer (hereinafter the "Engineer"). The
Lessee shall not be entitled to make repairs to the Premises other
than with the approval of the Company. All expenses involved in
fulfillment of the obligations set forth in this Section shall be
borne and paid by the Lessee.
b. Should the Company perform the works set forth in subsection (a)
above, the Lessee shall refund to the Company, within 30 days of its
demand, any amount which the Company shall expend for the maintenance
and repair of the Premises. The Company's invoice, approved by the
Company's Engineer and with the approval of the Lessee, shall
constitute final and decisive evidence of its issuance and the
validity of that stated herein.
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10. Repairs to the Premises
a. The Parties agree that the Company shall be responsible for repairing,
at its own expense, only damages to be incurred to the outside walls
and roof of the Premises and resulting from normal wear.
In addition, the Company shall be responsible for repairing
maintenance malfunctions of water and power infrastructure which was
installed by the Company.
b. Without derogating from that stated in Section 9 above, the Lessee is
responsible for the maintenance and repair of parts of the Premises
not set forth in subsection (a) above, and shall bear the costs of
maintenance of said parts of the Premises. To preclude all doubt, the
repairs and maintenance shall be performed by the Lessee with the
consent of the Company.
11. Damage by the Lessee
The Lessee undertakes to use the Premises in a cautious and reasonable
manner and to ensure that the Premises and all facilities therein shall
remain in a functional state throughout the entire Rental Period, and to
avoid causing damage and/or malfunction to the Premises and/or to any of
its facilities and/or the defacement and/or soiling of any of the parts of
the Premises. Without derogating from that stated above, any damage and/or
malfunction and/or change as above shall be repaired by the Lessee with the
consent of the Company. The Lessee shall give notice of any such damage
within 48 hours of its discovery.
12. Damages and Insurance
a. The Lessee shall be liable for all damage, loss and/or injury to its
direct and indirect employees, and the Lessee undertakes to indemnify
the Company for any such damage, loss and/or injury (including legal
and other expenses), should such be incurred.
b. The Lessee shall be liable for all damage, loss and/or injury to any
person and/or property (including, and without derogating from the
generality of that stated above, property owned by it, under its
supervision, under its protection and any other property) caused due
to any reason resulting from use of the Premises and/or due to any
reason resulting from any action or omission by the Lessee and/or the
Lessee or anyone on its behalf. The Lessee undertakes to indemnify the
Company for any such damage, loss and/or injury (including legal and
other expenses), should such be incurred.
c. The Lessee shall be liable for all damage, loss and/or injury to any
property owned by it, under its supervision, under its protection, in
its possession, on
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deposit with it and/or other property for which it is responsible
(including property in the stages of setup and/or under construction)
and for any consequential damage, financial monetary or other, and the
Lessee undertakes to indemnify the Company for any such damage, loss
and/or injury (including legal and other expenses), should such be
incurred by the Company.
The Company includes its principals, its agents and all those on its
behalf.
d. The Lessee undertakes to waive the right of subrogation to which it
shall be entitled under any law, vis-a-vis the Company as stated
above.
e. The Lessee undertakes to ensure itself/its company, its liability and
its property as stated above, at its full value and with reasonable
limits of liability (third party - as shall be agreed by the Lessee
and the Company). The insurance shall include, inter alia,
(1) Waiver of subrogation vis-a-vis the Lessor, in property
insurance.
(2) Adding the Company as a beneficiary, in liability insurance.
(3) Adding a cross-liability clause in the Lessee's insurance policy.
(4) A clause stating that the insurance company cannot cancel the
policy unless it has given advance notice in writing to the
Lessor, 90 days before said cancellation.
(5) A clause stating that failure to make timely payment of the
premium shall not cancel the liability of the insurance company
other than subject to Section e(4) above.
13. Cleaning
The Lessee undertakes to keep the Premises in a functional state and to
keep the Premises and its surroundings clean. Without derogating from the
generality of that stated in this section, the Lessee undertakes to cause
all industrial waste to be removed from the Premises and its surroundings.
14. Preservation of the Premises
a. Should the Lessee seek to make use of the walls of the Premises and/or
of the Premises' system of ceilings and roof, and/or of the other
components of the Premises, for the purpose of attaching or loading
facilities and/or items of any kind, it shall be the Lessee's
responsibility to obtain the written consent of the Company prior to
performing that stated above.
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<PAGE>
b. The Lessee shall not introduce into the Premises equipment liable to
cause damage to the Premises and shall not load the floor of the
Premises more than the load for which it was intended, 500 kg/m2.
15. Public Areas
The Lessee shall not be entitled to make any use of the sidewalks, roads or
any other public area outside the Premises, as this is defined above, other
than for the purpose for which said public areas were intended.
16. Signposting
The Lessee shall make a general plan of the form of signposting for the
Premises, and for the signposting in the entire Industrial Park. This plan
shall take into consideration and shall be reflected in the special
signposting for the Lessee. The Lessee shall implement its sign in the
format and location to be determined by the Company as stated above.
17. Service Fee
a. The Lessee shall be entitled to use the services and other joint
facilities in the Industrial Park in which the Premises are located.
b. The Company undertakes to provide the Lessee, along with the other
Lessees in the Industrial Park, with the following services: perimeter
gardening, lunchroom (meals at the Lessee's expense), conference room,
gardening, cleaning of public areas, waste removal, maintenance of the
following systems: sewage, water, electricity, communications up to
the Premises, internal roads, parking lots, and lighting in public
areas.
c. The Lessee shall pay the Company, on dates to be determined by the
Company, a service fee as set forth in Appendix A for every m of the
Premises, according to the representative rate of exchange of the US
dollar on the actual date of payment. Upon exercise of the option for
an additional Retail Period ( should there be such an option), the
create of the service e shall be equal to the terms of payment of the
service fee by the companies in the Omer Industrial Park at that time.
18. Services by the Company
a. The Company shall be entitled, at its sole discretion, to perform the
operations in Section 17 above or part thereof, itself or through
others provided that the Company shall give notice of its intention to
the Lessee 30 days in advance.
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<PAGE>
b. Should the Company have given notice of its intention to provide
additional services, the Lessee shall pay the Company an amount which
the Company shall extend for the provision of the services, pursuant
to the division set forth in Section 17 above.
c. Any amount which shall be owed by the Lessee pursuant to this Section
176 above./
d. Should the Lessee receive energy services from the Company - i.e.
heating water and/or cold water for cooling and air conditioning
facilities and/or compressed air, the Lessee shall pay the Company the
actual expenses for the supply of said services according to a unit
price and with a measurement method which shall be determined by the
Company.
e. (1) The Company undertakes to ensure that a lunch room shall be
opened on the site and that is shall supply, itself or through a
contractor, meals to the Lessee's employees.
(2) The Lessee shall entitled to received, each day, on regular
working days, breakfast and lunch for the Lessee's employee, at a
price to be determined by the Company or the contractor.
19. Modifications to the Premises
a. The Lessee shall not be entitled to make any modifications or
additions to the Premises without the Company's consent in advance and
in writing. Approved modifications shall be performed by a contractor
approved for the works by Tefen Entrepreneurship Ltd. in the Omer
Industrial Park.
b. For approval of the modifications, the Lessee shall submit plans to
Tefen Entrepreneurship Ltd. for its approval. The plans shall include:
a structure division plan, an electrical plan, including fire
detection, linked to the general system in the Industrial Park, an air
conditioning plan and a plumbing plan.
c. The Company shall be entitled to remove or destroy any modification or
addition made by the Lessee without its consent, or to restore the
Premises to their former stage, and the Lessee shall bear any expense
which shall be incurred by the Company in connection therewith.
d. Notwithstanding that stated in this Section, the Lessee shall be
entitled, at any time up to the end of the Rental Period, to dismantle
any addition which it shall install in the Premises with the consent
of the Company and to treat it, following its dismantling, after the
manner of owners, provided that the Lessee shall not cause damage to
the Premises by dismantling the addition.
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<PAGE>
20. Prevention of Nuisances
a. The Lessee shall refrain from causing any nuisance, and accordingly,
the Lessee undertakes not to cause loud noise, order and shock
vibrations liable to interfere with enterprises adjoining the
premises.
b. In any case of breach of the provisions of paragraph a) above, in
addition to any other right which shall be available to the Company
pursuant to the provisions of this Agreement and/or pursuant to the
provisions of the law, the Company shall be entitle to perform any
examination and/or measurement and/or repair and/or any the operation
which the Company shall deem proper, in order to restore the situation
to its former state and/or to remove the nuisance. Any expenses which
shall be incurred by the Company in respect thereof shall be borne and
paid by the Lessee.
The above shall be coordinated with the Lessee in advance, on 30 days'
notice.
The Lessee hereby undertakes to return to the Company any amount which
shall be expended by the Company as stated above, plus linkage and interest
s noted in Section 31 below, from the date on which the expense was
incurred till the date of refund by the Lessee.
The Company's invoices in the amount of said expenditures shall constitute
prima facie evidence of the correctness of that stated therein, and the
Lessee undertakes to pay them with 30 days of the first demand.
21. Entrance to the Premises
The Company's employees and agents are entitled to enter the Premises at
any time during normal working hours, in coordination with the Lessee, for
the purpose of examination or for the purpose of performing repairs and
other works which shall be necessary in the opinion of the Company.
22. Transfer of Rights
a. The Lessee shall not be entitled to transfer all or part of the rights
conferred upon it by virtue of this Agreement to another and/or
others, except to Gavish Industrial Technologies and Materials
(1995)Ltd.
Without derogating from the generality of that stated above, The
Lessee shall not be entitled to enable another to use the premises
and/or any part thereof, unless agreed otherwise at the time of
signing the Agreement.
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<PAGE>
b. The Company shall be entitled to transfer its rights and duties
pursuant to this Agreement to another, provided that the Lessee's
rights under this Agreement shall not be harmed.
23. Vacation
a. The Lessee shall vacate the Premises at the end of the Rental Period
and shall return them to the Company, the Premises then being free of
allowed persons or objects belonging to the Lessee.
In any case where the Lessee is obligated to vacate the Premises
pursuant to this Agreement, whether for a reason set forth in this
paragraph or for any other reason set forth in this Agreement, it
shall be obligated to return them and the keys, the Premises then
being entirely vacant and in a good and immediately usable condition,
except for reasonable wear, to the satisfaction of the Company's
Engineer.
The Lessee shall also provide the Company, at the end of the Rental
Period or upon actual vacation of the premises, with certificates from
the local authority stating that there is no debt on the Premises in
respect of taxes and/or fees to the local authority in respect of the
Premises up to the end of the Rental Period of the date of actual
vacation.
b. Without derogating from that stated in Section 34 below, should the
Lessee shall pay the Company pre-estimated liquidated damages
(hereinafter: the "PLD") for each day of delay, in an amount equal to
twice the Rent which shall apply to the Premises in respect of one
day's rental in the last month of the last year of the Rental. The PLD
shall be linked to the Consumer Price Index, as this is defined in
Section 31 below, mutatis mutandis, and the calculation of the linkage
Differentials shall be made by the Company on a monthly basis. The
PLD, together with the Linkage Differentials, shall be paid no later
than 30 days from the date of the demand.
The stated above shall not detract and/or derogate from any right of
the Company, andy particularly from its right to demand vacation of
the premises.
To preclude all doubt, it is agreed that the Lessee's liability as set
forth in this paragraph shall also apply following the end of the
Rental Period and up to the actual vacation of the premises.
24. Early Vacation a the Lessee's Initiative
a. Should the Lessee, at its own initiative, vacate the Premises prior to
the end of the Rental Period, the Lessee shall be liable for payment
of the Rent for the entire Rental Period.
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b. Should the Company have rented the Premises, the Company shall agree
not to collect Rent from the Lessee as stated in subsection a) above
as from the day on which the Premises we re ted to anyone who is not
the Lessee.
25. Breach and Rescission of the Agreement
a. The Parties agree that this Agreement shall be deemed breached by the
Lessee, should any of the following cases occur:
(1) Should a Court judgement have been given for the winding-up of
the Lessee.
(2) Should a Court judgment have been given for the winding-up of the
lessee.
(3) Should a receiver have been appointed for the Lessee's assets or
part thereof.
The Agreement shall be deemed breached as from the date of filing of
the application for a receivership order against the Lessee or the
application for winding-up of the Lessee or the application for
enforcement of encumbrances and/or the appointment of a receiver, and
provided that such a order or Court judgment shall have been given and
foreclosed. Vacation of the Premises shall take place within 30 days
of the end of the agreed 60 days.
b. In addition to any relief to which the Company shall be entitled
pursuant to the provisions of this Agreement and/or pursuant to any
law, and without derogating from the generality of the stated above,
the Company shall be entitled to cause the immediate rescission of
this Agreement in the cases listed below:
(1) Failure to provide, or cancellation of the Letter of
Authorization as set forth in Section 4.
(2) Failure to use the Premises as set forth in Section 6.
(3) Transfer of the Lessee's rights in the Premises to another, in
contravention of the provisions of Section 22, except for Gavish
Industrial Technologies and Materials (1995) Ltd.
(4) Failure to pay any amount owed by the Lessee to the Company,
within 30 days of the due date.
(5) Creating a nuisance in a manner liable to interfere with
enterprises adjoining the premises.
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<PAGE>
(6) Committing any act in contravention of the provisions of Section
15 and/or 19a of this Agreement above.
c. Should the Company give notice of the rescission of this Agreement,
the Lessee shall vacate the Premises within 30 days of receipt of the
notice.
d. The provisions of this Section shall not derogate from the Company's
rights pursuant to the provisions of this Agreement and/or pursuant to
any law.
26. Paying the Lessee's Debts
a. The Company shall be entitled, should it so desire, to pay instead of
the Lessee any amount in connection with the Premises, whose payment
is incumbent upon the Lessee pursuant to the provisions of this
Agreement and/or pursuant to any law.
b. The Company shall notify the Lessee of its intention to pay said
amount instead of the Lessee, 30 days before its payment.
c. The Lessee shall refund to the Company any amount paid by the Company
as stated, within 30 days of the date on which it is demanded to do
so, plus interest and linkage as stated in Section 31 below, from the
date of dispatch of the demand to the actual date of payment.
27. Taxes
a. All Government and/or municipal and/or other taxes, fees and levies
and other payments of any type and kind, concerning the conducting of
the Lessee's business and/or applying to the Premises and/or which
shall apply to the Lessee and/or the Premises during the Rental
Period, shall be paid by the Lessee.
b. The Lessee shall pay the amount of the fee and/or the tax as stated in
a manner to be determined by the Company.
28. Tenant Protection Law
The Parties hereby declare that, in respect of the rental pursuant to this
Agreement, the Lessee has not paid the Company any key money, whether
directly or indirectly, and it is not a protected tenant pursuant to the
Tenant Protection Law (Combined Version) 1972 and/or any law which shall to
replace such law (hereinafter: the "Tenant Protection Law"). Should the
Lessee perform work on the Premises at its own expense, this work shall
under no circumstances be deemed payment of key money and the Lessee shall
not be deemed a protected tenant pursuant to the Tenant Protection Law.
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29. Legal and Other Expenses
a. The Parties agree and declare that should the Lessee fail to vacate
the Premises at the end of the Rental Period, or after having been
sent notice of rescission of the rental pursuant to the provisions of
Section 25 of this Agreement above, then, in addition to all remedies
set forth in this Agreement and under law, the Lessee shall bear all
expenses which shall be incurred by the Company in all matters related
to legal action against the Lessee, in connection with any Court
session or lawsuit or operation in the Execution Office, including
legal fees for the Company's attorney to whom the matter has been
handed over for handling (hereinafter: the "Legal Expenses ").
To preclude all doubt, it is agreed that the Lessee must return all
expenses which shall be incurred by the Company in respect of filing
suit and/or taking execution measures, even if these expenses are not
approved for payment by the Court of the Execution Office, for any
other reason. The expenses set forth in this paragraph shall be
included in the Company's Legal Expenses and the provisions of
subsections b) and c) below shall apply to them as well.
b. The Lessee shall pay the Legal Expenses to the Company immediately
after receiving a demand in writing, plus linkage and interest as set
forth in Section 31 below, from the date of dispatch of the demand to
the actual date of payment.
c. The Parties agree that the Company's documents shall constitute final
and decisive evidence of the amount of the Legal expenses.
30. Changes in the Agreement
Any change in the terms of this Agreement or waiver of the Company's rights
pursuant hereto shall be made exclusively in writing and signed by those
authorized to bind the Company.
31. Linkage and Interest
The Parties agree that in respect of any amount which the Lessee shall not
pay in time (hereinafter: the "Amount in Arrears", the Lessee shall be
obligated to pay the Company, in addition to the Amount in Arrears. Linkage
Differentials, the manner of whose calculation is set forth below ( the
Amount in Arrears, plus the Linkage Differentials, shall be hereinafter
referred to as the "Revalued Debt"). The Revalued Debt shall bear interest
at the rate of 13% per year (hereinafter: the "Annual Interest") from the
date of creation of the debt and up to the Date of Record as this defined
below.
Index: the Consumer Price Index, including fruit and vegetables, published
by the Central Bureau of Statistics. Should the Index or the method of its
calculation and composition be replaced, or should it be published by
another entity instead of said
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<PAGE>
Bureau, the Company shall calculate the increase in the index for the
purposes of this Section by taking the above changes into consideration.
Base Index: the Index known as at the due date of any amount of the amounts
which the Lessee shall have undertaken to pay as set forth in the Rental
Agreement and which shall not have been paid on time.
New Index: the last Index which shall be known on the first day of the
month in which actual payment was made (hereinafter: the "Date of Record").
Linkage Differentials: the difference between the New Index and the Base
Index divided by the Base Index and multiplied by the Amount in Arrears.
Should actual payment of the Amount in Arrears be made on any date after
the Date of Record and up to the last day of the month of payment inclusive
(hereinafter: the "Actual Date of Payment"), the Revalued Debt shall also
bear daily interest at the rate which shall be determined, from time to
time in the month of payment, in loan accounts in excessive arrears at Bank
Leumi Le-Israel B.M., from the Date of Record to the actual Date of
Payment.
Any payment made by the Lessee to the Company in respect of the Amount in
Arrears shall be split proportionally against the component of the debt in
arrears, i.e., the component of the daily interest, the component of the
Amount in Arrears.
Should such payment not be sufficient to cover the Lessee's entire debt to
the Company as at the Actual Date of Payment,the provisions set forth in
the beginning of this Section shall apply to the unsettled balance of the
Amount in Arrears as stated above.
32. Expenses of the Agreement
The Lessee and the Company shall bear the expenses of the Company's
handling of this Agreement, in the amount of NIS 1800, in equal shares.
33. Value Added Tax
Any amount whose payment is incumbent on the Lessee shall bear Value Added
Tax pursuant to its legal rate on the date of payment. the Parties agree
that the Company shall be entitled to round the amounts which the Lessee is
obligated to pay the Company pursuant to this Agreement, or under law, to
the nearest whole New Israel Sheqel. Payment of Value Added Tax shall be on
the date set for making any payment of the payments set forth in this
Agreement and against a Tax Invoice as provided by law.
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34. Security and Guarantee
As security for the fulfillment of the Lessee's obligations pursuant to
this Agreement, the Lessee hereby gives the Company a promissory note i the
amount of $10,000 (ten thousand United States dollars) linked to the actual
date of payment, signed by the Lessee and by two guarantors, to the
satisfaction of the Company, according to the wording of the promissory
note attached thereto and constituting an integral part of this Agreement
and marked Appendix C. The Lessee hereby irrevocably empowers the Company
and gives the Company an irrevocable order to fig in the dat of payment of
said note.
The Company shall be entitled, in addition to any other right conferred
upon it pursuant top this Agreement or under law, in the case of
fundamental breach of this Agreement, to present said note for payment. A
fundamental breach, inter alia, includes failure to vacate the Premises at
the end of the Rental Period or on the date on which the Lessee is demanded
to vacate them, upon rescission of the rental in respect of any of the
grounds set forth in Section 25 above. The Lessee releases the Company from
the duties of a holder of said promissory note.
In addition to that stated above, the promissory note shall be used to
settle all of the Lessee's debts to the local authority in respect of the
Premises.
35. Jurisdiction
The Parties shall fulfill the provisions of any and all laws in connection
with the Premises and the use thereof.
36. Non-Offset of payments
The parties agree that the amounts which they owe or shall owe each other
in resect of this Agreement or for any other reason shall not be subject to
offset.
37. Notices
Any notice which the Parties to this Agreement are obligated to give each
other shall be deemed delivered within 72 hours of his dispatch by
registered mail from a post office in Israel to the addresses of the
Parties as set forth in this Agreement.
Delivery of notice in the Premises to the Lessee or its employees, or
posting the notice on the door of the Premises,shall be deemed due delivery
to the Lessee.
In addition to that stated above,the Parties shall be entitled to send each
other notices by messenger; in such a case, the date of delivery of the
notice shall be deemed the date appearing on the delivery form signed by
the messenger.
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IN WITNESS WHEREOF THE PARTIES HAVE AFFIXED THEIR SIGNATURES:
/s/ Unintelligible
- ----------------------------- ----------------------------------
THE COMPANY THE LESSEE
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APPENDIX A (SECTION 3 AND SECTION 17 OF THE RENTAL AGREEMENT)
Principal of the Rent and Service Fee for Agreement No. ______
1. The Lessee shall pay the Company in advance, on the first day of each
month, the Principal of the Rent in New Israel Sheqels equal to $5 per m2,
and a Service Fee in New Israel Sheqels equal to $1 per m2, respectively,
according to the representative rate of exchange of the US dollar o the
Rental Starting Date.
The price for air conditioning is $0.75 per m2.
2. The amounts set forth above shall be increased by Linkage Differentials
pursuant to the provisions of Section 3 of the Rental Agreement.
3. The amounts set forth plus the Linkage Differentials shall be subject to
Value Added Tax pursuant to its legal rate on the date of payment.
<PAGE>
APPENDIX D
The Lessee is given an option to continue the Rental Agreement for a period of
three additional years or part thereof. The Rent shall be that commonly charged
at the Omer Industrial Park on the date of exercise of the option.
The Lessee is entitled to exercise the option by giving the Company notice in
writing at least two months before the Rental Starting Date for the additional
area, provided that it has fulfilled all of its obligations pursuant to the
Rental Agreement.
<PAGE>
APPENDIX F
CONNECTION OF ELECTRICAL POWER
1. The Company shall install, at its own expense, an electrical power supply
line up to the electrical panel of the Premises. The size of the line to be
supplied shall be suitable, from the engineering standpoint, to the full
load of the air conditioning system (in an air conditioned area only) of
the Premises + 0.32 A per m2 of the Premises.
2. Should the Lessee require a greater supply of electrical power, the Lessee
shall bear the difference in cost between the price of the expanded line
and that set forth in Section 1 above.
3. The special electrical facility and the electrical panels for power and
lighting in the Premises shall be implemented by the Lessee and at its
expense, except for the concealed electrical facility in the toilet area
and the electrical facility of the air conditioning system. These
facilities shall be implemented by the Company. The connection between the
electrical panel of the Premises and the electrical facility of the toilet
area, and the connection between the electrical panel of the Premises and
the air conditioning panel, shall be made by the Lessor at its expense.
Prior to the commencement of implementation of the special electrical
facility and the panels which the Lessee intends to install in the
Premises, the Lessee shall produce detailed electrical plans for the
facility and panels, for their approval. Only after receipt of approval may
the Lessee commence implementation on site.
4. Parallel to the preparations for the special electrical facility and the
electrical panels, the Lessee must install a fire detection system linked
to the central fire detection system located in the Industrial Park Gate
building (the system of Hashmira Company Ltd). The system shall be
inspected and approved for fire detection by the Standards Institution of
Israel. The Lessee must produce, each year, a certificate from Hashmira
Company Ltd. attesting to the functional state of the system.
<PAGE>
APPENDIX H
Fire Detection
A. The Lessee undertakes to install a fire detection system made by Hashmira
Company Ltd. in buildings in which there is no fire detection system, and
to connect it to the gate building via the infrastructure provided by the
Company (due to the central system by Hashmira Company Ltd.).
B. The Lessee undertakes to produce the approval of the Standards Institution
of Israel for the functional state of the fire detection system; this is a
prerequisite for connection of the electrical power in the building.
C. The Lessee shall produce, each year, a certificate from Hashmira Company
Ltd. attesting to the functional state of the fire detection system.
D. For the area in which the Lessee receives an existing fire detection
system, the Lessee shall participate in the cost of the relative part
installed in the area. The payment shall be made to Hashmira Company Ltd.
for insurance and guarantee of the fire detection facility.
E. Should the Lessee fail to implement any of Section A to D above, the
Company shall perform the work set forth in those sections and shall
collect payment therefor, against an invoice, by means of the standing
order.
Air Conditioning:
A. In buildings equipped with an air conditioning system by the Company, the
Lessee undertakes to implement a service agreement for the air conditioning
system at its expense.
B. The Lessee shall conclude an agreement with the service company to be
determined by the Company, on the basis of the most economical proposal
examined.
C. The Lessee shall provide the Company, each year, with the service agreement
and guarantee for the air conditioning.
D. Should the Lessee fail to implement any of the above sections, the Company
shall perform the work set forth in those sections and shall collect
payment therefor, against an invoice, by means of the standing order.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the ___ day of _________, 1998 by and
between Solmecs Ltd., company number 51-085552-1 (the "Company") and Professor
Herman Branover, Israel I.D. number ___________ (the "Executive").
WHEREAS: The Company desires to employ the Executive as the President
and Chief Executive Officer of the Company, and the
Executive desires to engage in such employment, on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, the parties agree as follows
1. Employment
(a) The Company agrees to employ the Executive and the Executive agrees to
be employed by the Company on the terms and conditions set out in this
Agreement.
(b) The Executive shall be employed as the President and Chief Executive
Officer of the Company. The Executive shall perform the duties,
undertake the responsibilities and exercise the authority customarily
performed, undertaken and exercised by persons situated in a similar
capacity subject to the direction of the Board of Directors of the
Company or such officer of the Company as may be appointed by the
Board of Directors of the Company (the "Board").
(c) Excluding periods of vacation, sick leave and military reserve service
to which the Executive is entitled or required, the Executive agrees
to devote total attention and full time to the business and affairs of
the Company and its subsidiaries as required to discharge the
responsibilities assigned to the Executive hereunder. During the term
of this Agreement, the Executive shall not be engaged in any other
employment nor engage actively in any other business activities or in
any other activities which may hinder his performance hereunder, with
or without compensation, or any other person, firm or company without
the prior written consent of the Company
(d) The Executive's duties shall be in the nature of management duties
that demand a special level of loyalty and accordingly the Law of Work
Hours and Rest 5711 - 1951 shall not apply to this Agreement. The
parties hereto confirm that this is a personal services contract and
that the relationship between the parties hereto shall not be subject
to any general or special collective employment agreement or any
custom or practice of the Company in respect of any of its other
employees or contractors.
<PAGE>
2. Base Salary
(a) The Company agrees to pay or cause to be paid to the Executive during
the term of this Agreement a gross salary of $8,200 (eight thousand,
two-hundred US Dollars) per month which amount shall include the
benefits set forth in Section (b) below and all other statutory
employer contributions (the "Base Salary"). The Base Salary shall be
payable monthly in arrears, on the first day of each month and shall
be paid in NIS based on the representative exchange rate on the date
of payment.
(b) The Base Salary specified in Section 2(a) includes remuneration for
working overtime, and the Executive shall not be entitled to any
further remuneration or payment whatsoever other than the Base Salary
and/or benefits, unless expressly specified in this Agreement. The
Executive acknowledges that the Base Salary, to which he is entitled
pursuant to this Agreement constitutes due consideration for him
working overtime.
(c) All amounts payable hereunder shall be reviewed annually by the Board
of Directors. At such review, the Board of Directors shall also
consider whether to grant a bonus to the Executive.
3. Executive Benefits
(a) The Executive shall be entitled to the following benefits:
(i) Sick Leave. The Executive shall be entitled to fully paid sick
leave pursuant to the Sick Pay Law 5736 - 1976
(ii) Vacation. The Executive shall be entitled to an annual vacation
of twenty (20) working days per year. A "working day" shall mean
Sunday to Thursday inclusive. Up to two years equivalent of
vacation days may be accumulated and may, at the Executive's
option, upon thirty days written notice to the Company, be
converted into cash payments in an amount equal to the
proportionate part of the Base Salary for such days to the extent
provided by law.
(iii)Manager's Insurance. The Company shall effect a Manager's
Insurance Policy (the "Policy") in the name of the Executive, and
shall pay a sum equal to 15.83% of the Executive's Base Salary
towards such Policy of which 8.33% will be on account of
severance pay and 5% on account of pension fund payments and a
further 2.5% of the Executive's Base Salary on account of
disability pension payments. The Company shall deduct 5% from the
Executive's Base Salary to be paid on behalf of the Executive
towards such Policy. Payments by the Company towards the Policy
under this Section 3(a)(iii) shall be in lieu of any statutory
obligations to pay
-2-
<PAGE>
severance pay, subject to the approval of the Minister of Labor
under Section 14 of the Severance Pay Law 5723-1963. The figures
specified in this Section 3(a)(iii) above shall be amended in
accordance with any amendment to the maximum allowances permitted
or deductions required by the provisions of any relevant law.
(iv) Further Education Fund Contributions. The Company shall pay a sum
equal to 7.5% of the Executive's Base Salary and shall deduct
2.5% from the Executive's Base Salary to be paid on behalf of the
Executive toward a further education fund. Use of these funds
shall be in accordance with the by-laws of such fund.
(v) Motor Vehicle. The Company shall provide the Executive with the
use of a motor vehicle with an engine size of at least 1800 cc.
Such motor vehicle shall belong to or be leased the Company and
shall be registered in the Company's name for use by the
Executive, his spouse and their children during the term of this
Agreement. The motor vehicle shall be returned by the Executive
to the Company upon the termination of the Executive's employment
with the Company for any reason, except as set forth in Section
5(iii)(c). The Company shall bear all expenses with regard to
such motor vehicle, including gasoline expenses, comprehensive
insurance coverage, maintenance, repairs, registration, yearly
tests and other costs of the motor vehicle. All income tax for
which the Executive shall become liable as a result of his use of
the motor vehicle shall be borne by the Executive who
acknowledges that such taxes will be withheld from the
Executive's Base Salary as required by law.
(vi) Telephone. The Company shall maintain a telephone line at the
Executive's home and make a cellular phone available to the
Executive. The Company will bear all fixed and variable expenses
relating to such telephone and cellular phone lines.
(vii)Medical Examination. The Company shall pay for one comprehensive
medical examination for the Executive during each year of his
employment by the Company.
(viii) Options in SCNV. The Executive shall be entitled to receive
options in SCNV Acquisition Corporation. The number of options
and the terms and conditions of their exercise, including vesting
and price shall be determined by the Board of Directors of SCNV.
4. Expenses
The Executive shall be entitled to receive prompt reimbursement of all
direct expenses reasonably incurred by him in connection with the
performance of his duties hereunder,
-3-
<PAGE>
including but not limited to professional literature related to the
performance of his duties hereunder in an amount of up to $1,000 per year,
provided that written receipts are produced for the same and approved by
the Board.
5. Term and Termination
(a) The term of employment under this Agreement shall commence as of the
date of this Agreement and will continue unless terminated under the
following circumstances
(i) Disability. The Company may terminate the Executive's employment
after having established the Executive's disability. For purposes
of this Agreement, "disability" means a physical or mental
infirmity which impairs the Executive's ability to substantially
perform his duties under this Agreement which continues for a
period of at least one hundred and eighty (180) consecutive days.
Upon termination for disability, the Executive shall be entitled
to severance pay, required by law (subject to the provisions of
Section 6(b) below).
(ii) Cause. The Company may terminate the Executive's employment for
cause. For purposes of this Agreement termination for "cause"
shall mean and include: (i) conviction of any felony involving'
moral turpitude or affecting the Company or its subsidiaries;
(ii) any refusal to carry out a reasonable directive of the Board
of Directors of the Company which involves the business of the
Company or its subsidiaries and was capable of being lawfully
performed, (iii) embezzlement of funds of the Company or its
subsidiaries; (iv) ownership direct or indirect, of an interest
in a person or entity (other than a minority interest in a
publicly traded company) in competition with the products or
services of the Company or its subsidiaries, including those
products or services contemplated in a plan adopted by the Board
of Directors of the Company or its subsidiaries; (v) any breach
of the Executive's fiduciary duties or duties of care to the
Company (except for conduct taken in good faith); and (vi) any
conduct (other than conduct in good faith) materially detrimental
to the Company); provided, however, that the Company may not
terminate the Executive's employment for cause under Section
5(a)(ii) or (iv) unless it has given the Executive (i) written
notice of the basis for the proposed termination and (ii) at
least thirty days (30) in which to cure such basis. If the
employment of the Executive is terminated for cause, then the
Executive shall be entitled to severance pay in the amount
required by law (subject to the provisions of Section 5(b)
below).
(iii) Without Cause. The Company may terminate the Executive's
employment without cause provided that the Executive is given not
less than 90 days written notice. During such 90-day period the
Executive shall be entitled
-4-
<PAGE>
to compensation pursuant to Section 3 and to all of the benefits
set forth in Section 3. During such 90-day period, the Executive
shall transfer his position to his replacement in an orderly and
complete manner and shall return to the Company all documents,
professional literature and equipment belonging to the Company
which may be in his possession at such time. Upon termination of
his employment pursuant to this sub-Section 5(a)(iii), the
Executive shall be entitled to the following.
(A) An adjustment grant equal to three months of compensation
pursuant to Section 9. Such compensation shall be paid in
three monthly installments, commencing on the 15th day of
the month following the termination of employment.
(B) The telephone and cellular phone benefits set forth in
sub-Section 3(a)(vi) for an adjustment period of three
months.
(C) Use of the motor vehicle as set forth in Section 3(v) for an
adjustment period of three months.
(D) Severance pay required by law (subject to the provisions of
Section 5(b) below).
(E) An additional payment of one-month's salary, as set forth in
Section 2, for each year in which the Executive is employed
by the Company commencing on the date of this Agreement.
(iv) Termination by Executive. The Executive may terminate his
employment with the Company upon 90 days notice to the Company.
During such 90-day period the Executive shall be entitled to
compensation pursuant to Section 2
(b) The Company and Executive agree and acknowledge that in the event the
Company transfers ownership of any executive insurance policy to the
Executive, then such transfer shall constitute the partial payment of
any severance pay the Company is required to pay to the Executive
pursuant to the Severance Pay Law 5727-1963. Upon the termination of
the Executive's employment with the Company, other than for cause as
defined herein, the right to receive the Manager's Insurance Policy
and the further education fund shall be automatically assigned to the
Executive.
6. Confidentiality
(a) Proprietary Information. Executive recognizes and acknowledges that
the designs, inventions improvements, trade secrets, software systems
(including specifications, programs and documentation), the methods
and data, and the
-5-
<PAGE>
developments, and works of authorship, which the Company or its
subsidiaries uses, owns, plans or develops (whether for their own use
or for use by their clients) are confidential and are the property of
the Company. All of these materials and information, other than
material or information then already in the public domain through no
act or omission by the Executive will be referred to below as
"Proprietary information."
(b) Non-Disclosure. Executive agrees that, except in the ordinary course
of the business of the Company or its subsidiaries Executive will not
during or after the Executive's employment with the Company disclose
to any person or entity or use, directly or indirectly for Executive's
own benefit or the benefit of others. any Proprietary information, or
permit any person to examine or make copies of any documents which may
contain or be derived from Proprietary Information Executive agrees
that the provisions of this paragraph shall survive the termination of
this Agreement and Executive's employment with the Company.
7. Intellectual Property Rights
(a) For purposes of this Agreement, "Intellectual Property" means the
following items of intangible and tangible property:
(i) Patents, whether in the form of utility patents or design patents
and all pending applications for such patents;
(ii) Trademarks, trade names, service marks, designs, logos, trade
dress, and trade styles, whether or not registered, and all
pending applications for registration of the same;
(iii)Copyrights or copyrightable material, including but not limited
to books, articles and publications, whether or not registered,
and all pending applications for registration of the same;
(iv) Inventions, research records, trade secrets. confidential
information, product designs, engineering specifications and
drawings, technical information, formulae, customer lists,
supplier lists and market analyses;
(v) Computer programs, including, without limitation, computer
programs embodied in semiconductor chips or otherwise embodied.
and related flow-charts, programmer notes, updates and data,
whether in object or source code form; and
(vi) Semiconductor chip designs, whether or not registered as mask
works or topographies.
-6-
<PAGE>
(b) The Executive hereby confirms that he has transferred in whole to the
Company all of his rights, title and interest in any and all
intellectual Property which is currently being used or contemplated to
be used by the Company on the date hereof ("Intellectual Property").
(c) The Executive hereby assigns to the Company by way of fixture
assignment all Intellectual Property, originated, conceived, written
or made by the Executive during the term of his employment with the
Company, which is in any way connected to the products or services of
the Company or its subsidiaries, including those products or services
contemplated in a plan previously adopted by the Board of Directors of
the Company or its subsidiaries, regardless of whether the
Intellectual Property was made or acquired (i) during business hours
(ii) at the premises of the Company, (ii) with the assistance of
material supplied by the Company or (iii) at the request of the
Company.
(d) In furtherance of the foregoing Sections 7(a) through 7(d), the
Executive agrees that all fruits of the Executive's work in connection
with the business of the Company or its subsidiaries, including all
Intellectual Property and future products (hereinafter referred to as
an "Invention") which are invented or developed by the Executive
during the term of his employment with the Company shall be
wholly-owned by the Company, and the Company shall be entitled to deal
therewith as it desires and register the Invention in its name or in
the name of its subsidiaries. The duty of confidentiality in Section 6
shall also apply to any such Invention.
(e) Upon request, the Executive will execute any instrument required to
vest in the Company or its subsidiaries complete title and ownership
to any intellectual Property or Invention. The Executive will, at the
request of the Company, execute any necessary instrument to obtain
legal protection in Israel and foreign countries for Intellectual
Property or Inventions and for the purposes of vesting title thereto
in the Company or its subsidiaries, all at the Company's expense and
without any additional compensation of any kind to the Executive. The
Executive irrevocably appoints the Company as his attorney in his name
and on his behalf to execute all documents and do all things required
in order to give full affect to the provisions of this Section.
8. Competitive Activity
(a) During the term of this Agreement and for a period of twelve (12)
months from the date of termination of this Agreement for any reason
("the Termination Date"), the Executive will not directly or
indirectly:
(i) carry on or hold any interest in any company, venture, entity or
other business (other than a minority interest in a publicly
traded company) which competes with the products or services of
the Company or its
-7-
<PAGE>
subsidiaries, including those products or services contemplated
in a plan adopted by the Board of Directors of the Company or its
subsidiaries ("a competing business") (including, without
limitation, as shareholder);
(ii) act as a consultant or employee or officer or in any managerial
capacity in a competing business or supply in competition with
the Company or its subsidiaries restricted services to any person
who, to his knowledge, was provided with services by the Company
or its subsidiaries any time during the twelve (12) months
immediately prior to the Termination Date;
(iii)solicit, canvass or approach or endeavor to solicit, canvass or
approach any person who, to his knowledge, was provided with
services by the Company or its subsidiaries at any time during
the twelve ( 12) months immediately prior to the Termination
Date, for the purpose of offering services or products which
compete with the services or products supplied by the Company or
its subsidiaries at the Termination Date ("restricted services");
(iv) employ, solicit or entice away or endeavor to solicit or entice
away from the Company or its subsidiaries any person employed by
the Company or its subsidiaries any time during the twelve (12)
months immediately prior the Termination Date with a view to
inducing that person to leave such employment and to act for
another employer in the same or a similar capacity
9. Reserve Duty
The Executive shall continue to receive the salary provided for hereunder
during periods of military reserve duty. The Executive hereby assigns and
undertakes to pay to the Company any amounts received from the National
Insurance Institute as compensation for such reserve duty service.
10. Indemnification
Subject to the limitations set forth in the Companies Ordinance (New
Version) 5743 - 1983, the Company undertakes to indemnify the Executive for
any claim or liability arising, or resulting, from the good faith
fulfillment of his obligations hereunder, provided that (i) the Executive
notifies the Company in writing, of any such claim or liability, (ii)
cooperates with the Company in the defense or settlement thereof, and (iii)
allows the Company to control the defense or settlement of the same.
11. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when
-8-
<PAGE>
personally delivered or sent by registered mail, postage prepaid, addressed
to the respective addresses set forth below or last given by each party to
the other, except that notice of change of address shall be effective only
upon receipt.
The initial addresses of the parties for purposes of this Agreement shall
be as follows:
The Company:
The Executive:
12. Miscellaneous
(a) No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Israel.
(c) The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes all prior agreements, understandings and
arrangements, oral or written, between the parties hereto with respect
to the subject matter hereof. No agreement or representations, oral or
otherwise express or implied, with respect to the subject matter
hereof have been made either party which are not expressly set forth
in this Agreement.
(e) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns, and the Company shall require
such successor or assign to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment
had taken place. The term "successors and assigns" as used herein
shall mean a corporation or other entity acquiring all or
substantially all the assets and business of the Company (including
this Agreement) whether by operation of law or otherwise.
(f) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or
legal representatives, except by
-9-
<PAGE>
will or by the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
personal representative.
(g) The provisions of Sections 6 through 8 and 11 of this Agreement shall
survive the rescission or termination, for any reason, of this
Agreement and shall survive the termination of the Executive's
employment with the Company.
(h) The section headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
Solmecs Ltd.
By: ____________________________ ___________________________________
Name: __________________________ Professor Herman Branover
Title:__________________________
-10-
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 Amendment
No. 2 (no. 333-43955).
/s/ Arthur Andersen LLP
New York, New York
June 2, 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 Amendment
No. 2 (no. 333-43955).
/s/Luboshitz, Kasierer & Co.
Beer-Sheva, Israel
June 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENT IN THIS REGISTRATION STATEMENT ON FORM SB-2,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1998
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<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 266,200
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 266,200
<CURRENT-LIABILITIES> 258,608
<BONDS> 0
0
0
<COMMON> 5,413
<OTHER-SE> 2,179
<TOTAL-LIABILITY-AND-EQUITY> 266,200
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
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