As filed with the Securities and Exchange Commission on February 27, 1998
Registration No. ____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
USABG CORP.
(Exact Name of Registrant as Specified in Charter)
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Delaware 1700 11-2974406
State of Incorporation) Primary Standard Industrial (I.R.S. Employer
Classification Code Number Identification No.)
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53-09 97th Place
Corona, New York 11368
(718) 699-0100
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
Joseph M. Polito, President
53-09 97th Place
Corona, New York 11368
(718) 699-0100
(Name, Address, and Telephone Number of Agent for Service)
Copies to:
David S. Klarman
Klarman & Associates
2303 Camino Ramon, Suite 200
San Ramon, California 94583
(510) 327-6200
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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 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, please check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [X]
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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>
CALCULATION OF REGISTRATION FEE
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==============================================================================================================================
Title of each class Proposed maximum Proposed maximum aggregate Amount of registration
of securities Amount to be Registered offering price Offering price fee
to be registered per Share (2)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock,
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$.001 par value (1) 562,500 $1.00 $562,500 $193.95
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.001 par value (3) 50,000 $1.125 $ 56,250 $ 19.40
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, $ 70,500
$.001 par value (3) 50,000 $1.41 $ 24.31
- ------------------------------------------------------------------------------------------------------------------------------
$ 237.66
Totals........... $689,250
==============================================================================================================================
- ----------------------------
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(1)Represents an estimate of the shares of Common Stock issuable underlying
the subordinated debentures (the "Debentures") equal to 100% of the 5 day
average closing bid price, as reported by Bloomberg, LP, for the 5 trading days
immediately preceding the closing date (February 3, 1998) of the private
placement offering ($.80) being sold by certain selling security holders (the
"Selling Securityholders"), issuable upon conversion of debentures, together
with additional shares of Common Stock, which may be issued upon conversion of
the Debentures by reason of the conversion terms of the Debentures. See
"Description of Securities - 8% Convertible Debentures."
(2) Total estimated solely for the purpose of determining the registration
fee, based on the closing price ($1.00) reported by a market maker on February
25, 1998.
(3) Represents the resale of shares of Common Stock issuable upon the
exercise of Warrants owned by the Selling Securityholders, together with such
indeterminate number of securities as may be issuable by reason of anti-dilution
provisions contained therein.
<PAGE>
Cross Reference Sheet Pursuant to Rule 404 (a)
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
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Item in Form SB-2 Prospectus Caption
1. Front of Registration
Statement and Outside Front
Cover Page of Prospectus Cover Page and Cover Page of Registration Statement
2. Inside Front and Outside
Back Cover Pages of
Prospectus Continued Cover Page, Table of Contents
3. Summary Information and Prospectus Summary, Risk Factors, Summary
Risk Factors Financial Information
4. Use of Proceeds Use of Proceeds
5. Determination of Offering
Price Not Applicable
6. Dilution Risk Factors
7. Selling Securityholders Selling Securityholders
8. Plan of Distribution Cover Page, Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers,
Promoters and Certain Control
Persons Management
11. Security Ownership of
Certain Beneficial Owners Principal Securityholders,
and Management Selling Securityholders
12. Description of Securities Description of Securities
-ii-
<PAGE>
13. Interest of Named Experts
and Counsel Legal Opinions, Experts
14. Disclosure of Commission Position Management and Item 24. Indemnification
on Securities Act Liabilities Officers and Directors
15. Organization Within Five Years Prospectus Summary, Business, Principal
Securityholders, Certain Relationships and Related
Transactions, Risk Factors
16. Description of Business Business
17. Management's Discussion Management's Discussion and Analysis of
and Analysis or Plan of Operation Financial Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related
Transactions Certain Relationships and Related Transactions
20. Market for Common Equity Market for Common Equity
and Related Stockholder and Related Stockholder
Matters Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements
with Accountants and Financial
Disclosure Not Applicable
</TABLE>
-iii-
<PAGE>
Preliminary prospectus subject to completion, dated February __, 1998
Prospectus
USABG CORP.
662,500 Shares of Common Stock
This Prospectus covers the sale of shares of common stock, par value $.001
per share (the "Common Stock"), of USABG Corp., representing (i) an estimated
562,500 shares of Common Stock, subject to adjustment, issuable upon the
conversion of $450,000 in principal amount of 8% convertible subordinate
debentures (the "Debentures") and (ii) an aggregate of 100,000 shares of Common
Stock underlying Common Stock Purchase Warrants (the "Warrants"), being sold by
certain "Selling Securityholders". The Debentures, plus interest accrued
thereon, are convertible into shares of Common Stock at the lesser of (i) 100%
of the 5 day average closing bid price, as reported by Bloomberg, LP, for the 5
trading days immediately preceding the closing date (February 3, 1998) of the
private placement offering ($.80); or (ii) 75% of the 5-day average closing bid
price, as reported by Bloomberg, LP, for the 5 trading days immediately
preceding the date(s) of conversion of all or a portion of the Debentures. See
"Selling Securityholders" and "Description of Securities".
The Warrants to purchase an aggregate of 100,000 shares of Common Stock are
exercisable as follows: 1/2 of the warrants entitle the holders thereof to
purchase an aggregate 50,000 shares at an exercise price of $1.125; and the
remaining 1/2 of the warrants entitle the holders thereof to purchase an
aggregate 50,000 shares at an exercise price of $1.41. The shares may be sold
from time to time in negotiated transactions, at fixed prices which may be
changed, at market prices prevailing at the time o sale, or via a combination
thereof. The Company will not receive any of the proceeds from the sale of any
securities sold by the Selling Stockholders. See "Plan of Distribution."
The Company's Common Stock is quoted on the Nasdaq SmallCap Stock Market
("Nasdaq") under the symbol "USBR." Quotation on Nasdaq does not imply that
there is a meaningful sustained market for the Common Stock, or that if one is
developed, it will be sustained for any period of time. In the absence of a
listing on Nasdaq, the Common Stock will be available for trading in the
over-the-counter market on the OTC Bulletin Board. See "Market For Common
Equity."
THE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION; NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February ___, 1998.
<PAGE>
AVAILABLE INFORMATION
For further information with respect to the Company and the Securities
offered hereby, reference is made to the Public Reference Section of the
Securities and Exchange Commission (the "Commission") at its principal office at
450 Fifth Street, N.W., Washington, D.C., 20549. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information which is filed electronically through the Commission's Edgar system,
all of which may be viewed through accessing the Commission's Web site located
at http://www.sec.gov.
The Company's fiscal year end is June 30. The Company is subject to the
informational reporting requirements of the Exchange Act, and in accordance
therewith, files periodic reports, proxy statements and other information with
the Commission. In the event the Company's obligation to file such periodic
reports, proxy statements and other information is suspended, the Company will
voluntarily continue to file such information with the Commission. The Company
will distribute to its stockholders annual reports containing audited financial
statements, together with an opinion by its independent auditors. In addition,
the Company may, in its discretion, furnish quarterly reports to stockholders
containing unaudited financial information for the first three quarters of each
year.
<PAGE>
PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent facts and
highlights from material contained in the body of this Prospectus. The summary
is qualified in its entirety by the detailed information and financial
statements appearing elsewhere in this Prospectus.
USABG Corp. ("the Company") was incorporated on September 12, 1988, in
the state of Delaware, as Colonial Capital Corp. Effective in May 1994, in
connection with the reverse acquisition of its subsidiaries, the Company amended
its certificate of incorporation to effect the change of its to U.S. Bridge
Corp. On January 14, 1998, the Company amended its Certificate of Incorporation
to change in its name to its current name, USABG Corp. The Company currently
owns 50.1% of the outstanding shares of U.S.A Bridge Construction of N.Y., Inc.
("NY") and 100% of the outstanding shares of common stock of Worldwide
Construction Limited ("Worldwide"). These two subsidiaries are the only ones
through which the Company operates. Two additional subsidiaries of the Company
(each wholly owned subsidiaries), One Carnegie Court Associates, Inc. and U.S.
Bridge Corp. (Maryland) ceased operations in August 1997 and November 1996,
respectively, though neither company has formally dissolved. Unless the context
requires otherwise, all references to the Company include NY and Worldwide.
Worldwide was formed by the Company in December 1997 and is a British
Virgin Islands corporation. It was formed to own 80% of Falcon TChad SA
("Falcon"), a company formed in N'djamena, Chad to operate as a full service
transportation, forwarding and warehousing company in N'djamena TChad. Falcon
shall offer transportation services including trucking, customs clearance, and
warehousing. In January 1998, Falcon purchased 16 transport vehicles and a
communications system. It is currently in discussion with the Chad governmental
authorities regarding the transportation of cotton, the country's main export,
though no agreement with respect to same has been executed. In addition, Falcon
has commenced discussions with several large foreign corporations setting up to
do business in Chad in order to provide their trucking needs.
In February 1998, through the sale of the Debentures, the Company
raised $450,000 for the Worldwide/Falcon operation. These funds are being used
to purchase the trucks and to establish offices and operations in Chad.
NY commenced operations in or about June 1993 to serve primarily as a
general contractor for construction projects sponsored by federal, state, and
local government authorities in New York State and in the New York City
metropolitan area. Though formed to operate as a general contractor, NY operated
initially only as a subcontractor. Its goals were to become a general contractor
for municipal projects; however, it needed financing to enable it to obtain
bonding, which is required for all municipal projects. Since its commencement of
operations, NY has provided steel erection for building, roadway, and bridge
repair projects for general contractors who have been engaged by private and
municipal/governmental customers. As of December 31, 1997, NY has completed in
excess of nineteen projects with an aggregate project value of $34,329,756 and
is currently engaged in three projects with an aggregate value of approximately
$12,752,681. NY plans to maintain its subcontractor presence in the steel
industry; however, now that it has obtained general contractor bonding, it
intends to focus on obtaining projects as a general contractor.
In recent years there has been a resurrection in the construction
industry in the New York Metropolitan Area. Major transportation arteries in New
York are under extensive construction programs to increase their ability to
handle the ever increasing volumes of traffic they carry. Work is in progress on
the major thruways, expressways, and parkways across New York State. NY
currently is preparing subcontracting bids for some of the roadway projects in
the Metropolitan area.
NY obtains its projects primarily through the process of competitive
bidding. In response to bid requests, NY submits to the soliciting entity a
proposal detailing its qualifications, the services to be provided, and the cost
of its services. Based on its evaluation of the proposals submitted, the
soliciting entity awards the contract to the bidder it deems appropriate.
<PAGE>
NY expects to bid on both private and public sector projects as a
general contractor. Most of these projects, both public and private sector,
shall require Bid Bonds and Payment and Performance Bonds. NY's ability to
obtain bonding and its bonding capacity are primarily determined by its net
worth, liquid working capital (consisting of cash and accounts receivable), past
performance, management expertise, the number and size of projects under
construction, and various other factors.
In December 1996, NY obtained a commitment for a Surety Bond Line of Credit
($10,000,000 single project limit) from United American Guarantee Company, Ltd.
("UAGC") for its general contracting projects. This commitment will allow NY to
pursue those general contracting projects in the public and private sectors
which require Performance Bonds. To date, it has also allowed NY to obtain
Performance Bonds and Labor and Material Bonds for the three subcontracting
projects which have required same: the Ecklec Co., Grand Central Terminal, and
Korean Mission projects.
The Company's executive offices are located at 53-09 97th Place,
Corona, New York 11368. The Company's telephone number at its principal office
is (718) 699-0100.
<PAGE>
The Offering
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Common Stock Outstanding 7,844,148 Shares
Prior to the Offering (1)
Common Stock To Be 8,506,648 Shares
Outstanding After the
Offering (1)
Risk Factors This offering involves a high degree of risk. See "Risk
Factors."
Use of Proceeds (2)
All of the proceeds of this Offering will be paid to
the respective Selling Stockholders and none of the proceeds
will be received by the Company. The net proceeds from the
exercise of any Warrants will be used by the Company for
working capital. All the expenses of this Offering will be
paid by the Company. See "Use of Proceeds."
Terms of the Warrants
The Warrants entitle the holders thereof to purchase an
aggregate of 100,000 shares of Common Stock as follows:
50,000 shares at an exercise price of $1.125 and 50,000
shares at an exercise price of $1.41, commencing March 31,
1998 and expiring March 31, 2001.
NASDAQ Symbol (3) Common Stock : USBR
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(1) Includes (i) an estimated 562,500 shares of Common Stock issuable upon
the conversion of the Debentures; (ii) 100,000 shares issuable upon exercise of
the Warrants; (iii) 250,000 shares issued in February 1998 to various employees
of the Company pursuant to the Company's 1994 Senior Management Incentive Plan
(the "Plan"); and (iv) 192,000 shares issued to R.S.J.J. Realty Corp. ("RSJJ")
as payment in full under the RSJJ/NY lease for the period January 1, 1998
through December 31, 1998. See "Certain Relationships and Related Transactions"
"Description of Securities - 8% Convertible Preferred" and "--Warrants."
(2) The Company will receive the proceeds from the exercise of any of the
Warrants held by the Selling Stockholders. See "Use of Proceeds."
(3) Quotation on Nasdaq does not imply that there is a meaningful market
for the Company's securities or that if a market is developed, that it will be
sustained for any period of time. In the absence of a listing on Nasdaq, the
Company's securities will be available for trading on the OTC Bulletin Board.
<PAGE>
Summary Financial Data:
Set forth below is the historical summary financial information with
respect to the Company for the years ended June 30, 1997 and 1996 and for the
six months ended December 31, 1997 and 1996. The annual financial data for the
Company has been derived from audited financial statements by Scarano & Tomaro,
P.C., Certified Public Accountants. The selected historical financial data
presented below at December 31, 1997 and 1996 is unaudited. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting of normal recurring adjustments and accruals, necessary for a fair
presentation of the financial position and results of operations of the Company
for these periods. The summary historical financial data presented below should
be read in conjunction with the audited financial statements of the Company and
related notes thereto included elsewhere in this Prospectus.
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Summary of Operations Data:
=========================================================================================================================
=========================================================================================================================
Six Months Six Months
Ended Year Ended Ended Year Ended
12/31/97 06/30/97 12/31/96 06/30/96
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Revenues $12,269,286 $15,494,447 $5,807,441 $7,401,433
- -------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 240,003 ($540,876) ($208,676) 40,569
- -------------------------------------------------------------------------------------------------------------------------
Net Income (loss) per share (1)
$.03 ($.08) ($.03) Nil
=========================================================================================================================
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Summary Balance Sheets Data:
=============================================================================================================
June 30 December 31 December 31
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1997 1996 1997 1996
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Working Capital $2,546,132 $1,528,934 $7,445,671 $1,966,126
- -------------------------------------------------------------------------------------------------------------
Total Assets $15,500,254 $9,816,630 $13,682,929 $11,553,896
- -------------------------------------------------------------------------------------------------------------
Total Liabilities $9,902,048 $4,973,023 $7,551,632 $6,381,747
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity $5,598,206 $4,843,607 $6,131,297 $5,172,149
=============================================================================================================
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(1) Weighted average number of shares outstanding at December 31 1997; June
30, 1997; December 31 1996; June 30, 1996 are 7,402,148, 6,450,736, 6,854,390
and 6,137,530; respectively.
<PAGE>
RISK FACTORS
The Securities offered hereby are speculative and involve a high degree
of risk. The purchase of Securities should not be considered by anyone who
cannot afford the risk of loss of his entire investment. The statements
contained in this Prospectus which are not historical facts contain forward
looking information with respect to plans, projections, or future performances
of the Company, the occurrences of which involve certain risks and uncertainties
as detailed herein.
1. Unanticipated Costs, Expenses, and Difficulties in Commencing
Projects as a General Contractor. NY, the Company's subsidiary and operating
arm, has started to expand its business operations to include operating as a
general contractor. NY has not commenced construction on any public or private
sector projects as a general contractor. It has, however, commenced two projects
as prime contractor. Although NY and Mr. Joseph M. Polito, President of the
Company, have subcontractor experience in the erection and fabrication of steel
structures, neither has experience as a general contractor. As a general
contractor, NY will be responsible for all aspects of a project and will be
required to hire and oversee the work of subcontractors. There can be no
assurances that NY will be able to implement its business plan successfully or
that unanticipated expenses, problems, or difficulties will not result in
material delays in its implementation or ability for NY to implement such plan.
In addition to the unanticipated costs or problems that may be
incurred as a general contractor, many contracts are also subject to completion
requirements, and liquidated damages may be assessed against NY if schedules
with respect thereto are not met. NY has not been materially adversely affected
by these provisions in the past as a subcontractor.
2. Operations Conducted in Chad a Country located in Africa and
Dependence on Political and Economic Stability of Chad. The operations of Falcon
will be conducted in N'djamena, Tchad, a country within the African continent.
To effectively manage the operations in TChad, the Company requires and will
require the engagement of persons with appropriate managerial skills and the
implementation of an effective supervisory program which will include a
continual flow of reliable current information to its officers in the United
States and frequent reports from, and visits to, the operation in Chad. Richard
Miller has been engaged by Falcon to run the Chad operation as Chief Executive
Officer of Falcon. The TChad operation is subject to more administrative costs
and greater security and operational risks than would be incurred if the
operations were conducted solely in the United States. Mr. Miller has no prior
experience working in Chad, and therefore, no assurances can be given that he or
other persons hired to work in Chad will be able effectively to supervise and
operate Falcon's business operations in Chad. Chad, as a country in Africa, is
in a region where there is ongoing political turmoil. Falcon's operations are,
and will continue to be, dependent on the political and economic stability of
Chad, in general. Likewise, they will be subject to Chad's laws, rules, and
regulations, particularly with respect to licenses, permits, and governmental
authority.
3. Dependence on Bonding. As a general contractor, and to some extent
as a subcontractor, NY anticipates being required to provide bonding, in the
form of Bid and/or Performance bonds. A bid bond is a bond issued by a bonding
company which is usually in an amount equal to 10% of the bid price and which
guarantees that the contractor will be able to produce such other additional
documents and information as are required in order to commence the project
including the issuance of a performance bond. A performance bond is a guarantee
by a surety, customarily 100% of the value of the contract amount, that the
contractor will complete the project pursuant to the terms and conditions of the
contract.
<PAGE>
In determining whether to issue a bond, surety companies
perform credit checks and other due diligence disclosure requirements and
investigate NY's capitalization, working capital, past performance, management's
expertise, and such other factors as are discussed above. The surety companies
require companies receiving bonding to maintain certain amounts of capital and
liquid assets and base the amount of bonding they will issue on a formula, which
is usually based on certain industry standards which take into account such
factors. The surety companies also require that the bonds be personally
guaranteed by Joseph M. Polito.
Bonding requirements vary depending upon the nature of the project to be
performed. NY anticipates paying premiums of between 1 1/4% to 3 1/2% of the
total amount of the contracts to be performed. Since these premiums are
generally payable at the beginning of a project, NY must maintain sufficient
working capital to satisfy the premium prior to receiving revenue from the
project. Bonding premiums are a line item in the submitted bid and are included
as part of NY's billing to its clients.
4. Inability to Obtain New York State Projects as a General Contractor.
New York State agencies require bonds from only those bonding companies which
they have approved. NY has received bonding from a company which is not approved
for state and city projects; therefore, NY is unable to bid as a general
contractor on projects for New York State and city agencies. NY has approached
several New York State approved bonding companies, but as of the date hereof has
not been approved by any company to receive bonding.
In determining whether to issue a bond, surety companies
perform credit checks and other due diligence disclosure requirements and
investigate NY's capitalization, working capital, past performance, management's
expertise, and such other factors as are discussed above. The surety companies
require companies receiving bonding to maintain certain amounts of capital and
liquid assets and base the amount of bonding they will issue on a formula, which
is usually based on certain industry standards which take into account such
factors. The surety companies also require that the bonds be personally
guaranteed by Joseph M. Polito.
There can be no assurance that NY will be able to obtain
bonding from a New York licensed bonding company. In addition, new or proposed
legislation in various jurisdictions may require the posting of substantial
additional bonds or require other financial assurances for particular projects.
Therefore, there can be no assurances that NY will be able to implement its
proposed business plan to obtain projects as a general contractor. See "Business
- - The Company," "-- The Contract Process" and "-- Insurance and Bonding."
5. Unit Bid Versus Lump-Sum Bid. In bidding on contracts, there are two
types of bid requests made by the soliciting entity: a unit cost bid and a
lump-sum bid. The unit cost bid is based upon a cost per unit basis; a lump-sum
bid obligates NY to complete the project at a fixed price. With a lump-sum bid,
the risk of estimating the quantity of units required for a particular project
is on NY, while with a unit cost bid, NY must estimate the per unit cost, not
the number of units needed. Any increase in NY's unit cost over its unit bid
price or cost over its lump-sum bid, whether due to inefficiency, faulty
estimates, weather, inflation, or other factors, must be borne by NY and may
adversely affect its results of operations. See "Business - The Contract
Process."
6. Amount and Concentration of Construction Projects. For the year
ended June 30, 1997 NY had 3 unrelated customers, which accounted for
approximately 86% of total revenues. For the six months ended December 31, 1997,
NY had one unrelated customers, which accounted for approximately 45% of total
revenues. At June 30, 1997 and December 31, 1997, approximately 83% and 75% of
contracts and retainage receivables are due from four and two customers,
respectively. The discontinuance of any of the projects in which NY is engaged,
or a general economic downturn in the State of New York (where the projects are
located), could have a material adverse affect on NY's results of operations.
<PAGE>
7. Competition. All aspects of NY's business are, and will continue to
be, highly competitive. NY is one of many subcontractors which erects and
furnishes steel for projects. Many of these subcontractors have substantially
greater financial resources and sales than those of NY. When contractors seek
construction contracts, they request bids from numerous subcontractors based on
the various requirements of the project. These subcontractors compete primarily
as to price, name recognition, and prior performance. As a general contractor,
NY will be competing with many larger and more experienced (and thus more
established) contractors whose names are more readily recognized and whose
relationships with federal and state municipalities and agencies, and those
private companies who are bidding against NY, have been established. NY is a
subcontractor and a general contractor specializing, but not exclusively, in
bridge and roadway repair and replacement as well as in furnishing and erecting
steel structures for buildings. NY's competitors are numerous, and many have
substantially greater marketing, financial, bonding, and human resources. There
can be no assurance that NY will be able to compete successfully with its
competitors. See "Business - Competition."
8. Dependence of Suppliers; Subcontractors; Union Employees. NY
receives approximately 60% of the steel it requires from Hirschfeld Steel Co.,
Inc., Queens County Ironworks and New York Iron, Inc. NY currently depends upon
various vendors to supply spare parts, cranes, and other heavy equipment, and
its ability to hire skilled workers depends upon its ability to comply with
certain union agreements and contracts. NY does not depend on any one vendor to
provide it with spare parts, cranes, and other heavy equipment. NY does rent an
immaterial amount of cranes from Crown Crane, Ltd., a company of which Joseph M.
Polito is a 50% shareholder and does rent an immaterial amount of generators and
other equipment from Atlas Gem Leasing Inc., a company which is wholly owned by
Joseph M. Polito. NY believes that there are a sufficient number of vendors, so
that in the event any individual or group of vendors can no longer service NY's
needs, NY will be able to find other vendors at competitive prices. NY does hire
skilled steel workers represented by the International Union of Structural
Ironworkers, Local 40, operating engineers locals 14, 14B, 15, 15A, 15C and 15D
and cement masons local 780 (collectively referred to as the "Unions") and must
comply with agreements between NY and the Unions, which agreements regulate all
employment issues between NY and the Union employees including pay, overtime,
working conditions, vacations, benefits, etc., and which agreements expire on
June 30, 1999. No assurance can be given that NY will continue to be in
compliance with the Unions or successfully negotiate extensions to NY's
agreements with such Unions. In the event problems or conflicts with the Unions
arise or there is a loss of skilled steel and operating engineers, this would
have a detrimental effect on NY's operations.
NY's success as a general contractor, in part, will be dependent, upon
its ability to hire workers and comply with union contracts and agreements,
oversee and retain qualified subcontractors to perform certain work for projects
NY receives as general contractor. Although NY believes that it will be able to
attract subcontractors to bid on projects it bids as general contractor, there
can be no assurances. NY will be responsible for performance of the entire
contract, including the work done by subcontractors. Accordingly, NY may be
subject to substantial liability if a subcontractor fails to perform as
required. Also there may be unanticipated difficulties in hiring and overseeing
subcontractors of which NY is currently not aware of. See "Business - Suppliers
and Subcontractors" and "-- The Contract Process."
9. Government Regulation: Potential Liability for Environmental Damages
and Personal Injuries. NY must comply with the Occupational Safety and Health
Administration ("OSHA"), a federal agency which regulates and enforces the
safety rules and standards for the construction industry. In addition, NY must
also comply with a wide range of other state and local rules and regulations
applicable to its business, including regulations covering labor relations,
safety standards, affirmative action and the protection of the environment
including requirements in connection with water discharge, air emissions and
hazardous and toxic substance discharge. Continued compliance with OSHA and the
broad federal, state and local regulatory network is essential and costly and
the failure to comply with such regulations may have an adverse effect on NY's
operations.
<PAGE>
The construction industry is subject to significant risks of statutory,
contractual and common law liability for environmental damages and personal
injury. NY, and in certain instances, its officers, directors and employees, may
be liable for claims arising from its on-site or off-site services, including
mishandling of hazardous or non-hazardous waste materials, or environmental
contamination caused by NY or its subcontractors, the costs for which could be
substantial, even if NY exercises due care and complied with all relevant laws
and regulations. NY is also subject to worker and third party claims for
personal injury, resulting in substantial liability for which it may be
uninsured. NY carries insurance which it considers sufficient to meet regulatory
and customer requirements and to protect NY's assets and operations.
Nevertheless, an uninsured claim against NY could have a material adverse effect
on NY's financial condition and results of operations. Moreover, any inability
to obtain insurance of the type and in the amounts required in connection with
specific projects could impair NY's ability to bid or complete such projects.
See "Business - Government Regulations" and " --Litigation."
10. Tax Lien. As of December 31, 1997 the Company and NY owe the Internal
Revenue Service, New York State and New York City withholding taxes of
approximately $1,786,677. If such amounts are not paid the such authorities can
levy on the accounts, assets and future earnings of these companies. The
Internal Revenue Service has placed a tax lien on NY's assets until all such
taxes are paid. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
11. Seasonality; Weather Conditions. Though NY does not believe its
business is seasonal, its operations slow during the winter months due to the
decreased productivity of the workers caused by the inability to work in severe
weather conditions. As a result of the foregoing, NY's costs are increased.
12. Control by Management and Joseph M. Polito. Joseph M. Polito,
president, a director owns approximately 59.4% of the Common Stock of the
Company. Accordingly, Mr. Polito will continue to be able to elect the entire
board of directors of the Company and to direct the affairs of the Company. The
investors in this Offering will not be able to elect any of the directors.
13. Conflicts of Interest. Joseph M. Polito is an officer, director and
principal shareholder of various companies in addition to the Company.
The Company has an audit committee, which committee comprises the
Company's two outside directors and one inside director, Ronald Polito. The
audit committee reviews the Company's audited financial statements and any
potential conflicts of interest between any of the Company's officers,
directors, employees, affiliates or associates. In addition to the audit
committee reviewing and resolving any conflicts of interest, the officers and
directors of the Company have a fiduciary obligation to deal fairly and in good
faith with the Company. Inasmuch as NY leases equipment from Crown Crane, Ltd.
or Atlas Gem Leasing, Inc., NY checks prices in the industry prior to engaging
in any such transactions and will transact business with such companies only on
terms which may be considered similar. The audit committee intends to exercise
reasonable judgment and take such steps as they deem necessary under all of the
circumstances in resolving any specific conflict of interest which may occur and
will determine what, if any, specific measures, such as retention of an
independent advisor, independent counsel or special committee, may be necessary
or appropriate. There can be no assurance that the Company will employ any of
such measures or that conflicts of interest will be resolved in the best
interest of the shareholders of the Company. The fact that Joseph M. Polito is
an officer, director and principal shareholder in other companies including
those that transact business with the Company, opens the potential that there
may be conflicts of interest in decisions made by Mr. Polito, which may
compromise his fiduciary duty to the Company. Any remedy under state law, in the
event such circumstances arise, would most likely by prohibitively expensive and
time consuming. Mr. Polito estimates he devotes 80% of his business time to the
operations of NY and a combined 20% to all the other companies he owns and
operates. See "Management," "Certain Relationships and Related Transactions,"
"Business-History" and "Description of Securities."
<PAGE>
14. Dependence on Management. The Company is dependent upon the
personal efforts and abilities of Joseph M. Polito, the Company's president and
the majority shareholder. Mr. Polito has entered into a three year employment
agreement expiring April 1998 with NY and he is restricted from competing with
the Company pursuant to provisions in the employment agreement. Mr. Polito has
agreed to devote 80% of his time to the business of NY. The loss of the services
of Mr. Polito would adversely affect the business of the Company and NY. Neither
the Company nor NY have any key-man insurance on the life of Mr. Polito or any
other officer or director. See "Management - Employment Agreements."
15. Indemnification of Officers and Directors. As permitted under the
New York General Corporation Law, the Company's Certificate of Incorporation
provides for the indemnification and elimination of the personal liability of
the directors to the Company or any of its shareholders for damages for breaches
of their fiduciary duty as directors. As a result of the inclusion of such
provision, shareholders may be unable to recover damages against directors for
actions taken by them which constitute negligence or gross negligence or that
are in violation of their fiduciary duties. The inclusion of this provision in
the Company's Certificate of Incorporation may reduce the likelihood of
derivative litigation against directors and other types of shareholder
litigation. See "Business-Recent Developments" and "Management."
16. Limited Public Market for Securities. At present there is a limited
public market for the Company's Securities, which are traded on the Nasdaq
SmallCap Market under the symbol "USBG". There is no assurance that a continuous
regular trading market will be sustained for any period of time. Therefore,
purchasers of the Company's securities may be unable to resell such securities
at or near their original offering price or at any price. Furthermore, it is
unlikely that a lending institution will accept the Company's securities as
pledged collateral for loans even if a regular trading market develops.
17. No Dividends and None Anticipated. The Company has not paid any
dividends nor, because of its present financial status and its contemplated
financial requirements, does it contemplate or anticipate paying any dividends
upon its Common Stock in the foreseeable future. See "Dividend Policy."
18. Increase Public Float Through Shares Available for Resale. A total
of 7,844,148 shares of Common Stock have been issued by the Company of which
approximately 5,200,156 shares may be deemed "restricted securities" (as such
term is defined in Rule 144 issued under the Act) and, in the future, may be
publicly sold only if registered under the Act or pursuant to an exemption from
registration. Most of the 5,200,000 shares have been held in excess of 1 year
and may be sold in accordance with Rule 144. In connection with the Company
private placement offering in January 1998, the Company sold $450,000
Debentures, convertible into shares of Common Stock, presently it is estimated
that the number of shares issuable upon conversion shall be 562,500 shares,
though this may increase in accordance with the conversion provisions of the
Debentures. This registration statement registers the resale of the shares
issuable upon conversion of the Debentures as well as the shares underlying
options which were granted to the private placement investors. See
"Capitalization." Any such sales under Rule 144 or pursuant to this prospectus,
would, in all likelihood, have a depressive effect on the market price for the
Company's Common Stock.
19. Possible Future Dilution. The Company has authorized capital stock of
50,000,000 shares of Common Stock, par value $.001 per share. Inasmuch as the
Company may use authorized but unissued shares of Common Stock without
stockholder approval in order to acquire businesses, to obtain additional
financing or for other corporate purposes, there may be further dilution of the
stockholders' interests.
20. Possible delisting of Securities from NASDAQ System; Risks of Low
Priced Stocks. In August 1997 Nasdaq increased its maintenance requirements,
whereby in order to continue to be listed on Nasdaq, the Company is required to
maintain (i) net tangible assets of at least $1,000,000, (ii) a minimum bid
price of $1.00, (iii) two market makers, (v) 300 stockholders, (vi) at least
500,000 shares in the public float and (vii) a minimum market value for the
public float of $1,000,000. In the event the Company's Securities are delisted
from Nasdaq, trading, if any, in the Securities would thereafter be conducted on
the over-the-counter market on the OTC Bulletin Board. Consequently, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of the Company's Securities. Quotation on Nasdaq does not imply that a
meaningful, sustained market for the Company's Securities will develop or if
developed, that it will be sustained for any period of time.
<PAGE>
21. Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on Nasdaq provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in connection with the transaction, and monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules generally require that prior to a transaction in
a penny stock, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules. If the
Company's securities become subject to the penny stock rules, investors in this
Offering may find it more difficult to sell their securities.
DIVIDEND POLICY
The Company has not paid cash dividends and intends to retain earnings,
if any, in the foreseeable future for use in its activities. Payment of cash
dividends on the Company's Common Stock in the future will be wholly dependent
upon the Company's earnings, financial condition, capital requirements and other
factors deemed relevant by the Board of Directors. It is not likely that cash
dividends will be paid on the Company's Common Stock in the foreseeable future.
USE OF PROCEEDS
The maximum net proceeds to be received if all the Warrants are
exercised is $126,250. However, there can be no assurances that any or any
portion of the Warrants will be exercised and due to the current bid price of
the Common Stock the Company does not expect any of the Warrants to be exercised
at this time.
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information.
The Company's Common Stock began trading on the Nasdaq SmallCap Stock
Market on July 25, 1996. Prior to that, from August 25, 1994 to July 24, 1996,
the Company's Common Stock, $.001 par value per share, traded sporadically and
on a limited basis in the over-the-counter market on the OTC Bulletin Board. The
following table sets forth representative high and low closing bid prices for
the period the stock traded on the OTC Bulletin Board and the high and low sales
prices for the period the stock traded on the Nasdaq SmallCap Stock Market, by
calendar quarters, as reported by a market maker during the periods provided for
herein. The bid quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions. Sales
quotations represent prices between dealers, do not include resale mark-ups,
mark-downs, or other fees or commissions, and do not necessarily represent
actual transactions. Prior to August 25, 1994, there was no trading market for
the Company's Common Stock.
<TABLE>
<CAPTION>
Calendar Quarter Prices
Ended Low High
1996
<S> <C> <C> <C>
01/01/96 - 03/31/96 1 1/4 2
04/01/96 - 06/30/96 2 1/4 3
07/01/96 - 07/24/96(1) 1 3/4 3 1/4
07/25/96 - 09/30/96(1) 1 3/4 3 3/8
10/01/96 - 12/31/96 1 3
1997
01/01/97 - 03/31/97 1 2 3/8
04/01/97 - 06/30/97 1 2 1/8
07/01/97 - 09/30/97 15/16 1 5/8
10/01/97 - 12/31/97 15/16 1 5/8
1998
01/01/98 - 02/13/98 11/16 1 1/8
-------------------------------
</TABLE>
(1) As indicated above, the Company's Common Stock traded on the
over-the-counter market of the OTC Bulletin Board from August 25, 1994 to July
24, 1996. Since July 25, 1996, the Common Stock has traded on the Nasdaq
SmallCap Stock Market. Therefore, the amounts provided from January 1, 1996 to
July 24, 1996 represent bid quotations, and the amounts thereafter represent
sales price.
<PAGE>
As of December 31, 1997, there were 129 registered holders of record of
the Company's Common Stock, $.001 par value, which number, determined by the
Company's stockholder records, does not include beneficial owners of the Common
Stock whose shares are held in names of various security holders, dealers, and
clearing agencies. The Company believes there are in excess of 500 such
beneficial holders of the Common Stock.
The Company has paid no dividends for the last two fiscal years or in
the 1st quarter of fiscal 1998; nor does it have any present plan to pay such
dividends. Payment of future dividends will be determined from time to time by
the Company's Board of Directors based upon its future earnings, if any,
financial condition, capital requirements, and other factors. The Company is not
presently subject to any contractual or similar restriction on its present or
future ability to pay such dividends.
<PAGE>
BUSINESS
History
USABG Corp. ("the Company") was incorporated on September 12, 1988, in
the State of Delaware, as Colonial Capital Corp. In June 1991, the Company
amended its Certificate of Incorporation to effect a change in its name to U.S.
Bridge Corp. On January 14, 1998, the Company amended its Certificate of
Incorporation to change in its name to its current name, USABG Corp. The Company
currently owns 50.1% of the outstanding shares of USA Bridge Construction of
N.Y., Inc. ("NY") and 100% of the outstanding shares of common stock of
Worldwide Construction Limited ("Worldwide"). These two subsidiaries are the
only ones through which the Company operates. Two additional subsidiaries of the
Company (each a wholly owned subsidiary), One Carnegie Court Associates, Inc.
and U.S. Bridge Corp. (Maryland) ceased operations in August 1997 and November
1996, respectively, though neither company has formally dissolved.
Acquisitions
In April 1994 the Company consummated the acquisitions ("the
Acquisitions") of both U.S. Bridge of N.Y., Inc. ("NY") and One Carnegie Court
Associates, Inc. ("One Carnegie"), consummated on April 25, 1994, the Company
was a development stage company. Pursuant to the Acquisitions, the Company
issued an aggregate of 3,540,000 shares of its Common Stock, par value $.001 per
share ("the Common Stock"), to the stockholders of NY and One Carnegie -
2,820,000 to the stockholders of NY and 720,000 to the stockholders of One
Carnegie - in exchange for all of said stockholders' issued and outstanding
shares. Joseph M. Polito, the principal stockholder of NY and the sole
stockholder of One Carnegie, received, in exchange for his shares of NY and One
Carnegie common stock, 2,380,000 and 720,000 shares, respectively, of the
Company's Common Stock. The Acquisitions were accounted for as
"recapitalizations." Accordingly, both NY and One Carnegie became subsidiaries
of the Company.
In connection with the Acquisitions, the Company amended its
Certificate of Incorporation to (i) increase its authorized shares of Common
Stock from 10,000,000 to 50,000,000 shares; (ii) increase the par value of the
Common Stock from $.0001 to $.001 par value; and (iii) authorize 10,000,000
shares of Preferred Stock, which shares may be issued in classes and series,
pursuant to the rights, designations, and preferences as determined by the Board
of Directors. To date, the Company has not issued any Preferred Stock.
1998 Private Placement
The Company raised $450,000 for the Worldwide and Falcon Chad SA
operations, through the sale of the Debentures through VenGua Capital, a London,
England firm, as placement agent. The Debentures accrue interest at the rate of
8% per annum, which interest is payable in shares of Common Stock, upon
conversion of the Debentures in to shares of Common Stock. The Debentures are
convertible into shares of Common Stock. Holders of the Debentures are entitled
to convert the entire face amount of this Debenture, plus accrued interest, at
the lesser of (a) 100% of the 5-day average closing bid price, as reported by
Bloomberg, LP for the 5 trading days immediately preceding the closing date of
the offering (February 3, 1998) or (b) 75% of the 5-day average closing bid
price, as reported by Bloomberg, LP for the 5 trading days immediately preceding
the date of conversion. The Company agreed to file a Registration Statement,
covering the shares of Common Stock to be issued upon conversion of the
Debentures, and if not declared effective within 90 days following the closing
of the offering, then there shall be decreased of the conversion ratios by 2.5%
per 30 day period or portion thereof pro rata, until the Registration Statement
has been declared effective. In addition, the purchasers received Warrants to
purchase an aggregate of 100,000 shares of Common Stock, 50,000 shares at an
exercise price of $1.125 per share and 50,000 shares at $1.41 per share. The
funds are being loaned to Worldwide and Falcon Chad SA to purchase the trucks
and to set up offices and operations in Chad. See "Description of Securities."
<PAGE>
Recent Developments
In February 1998 the Company consummated a private offering of Debentures
aggregating $450,000. Each Debenture is convertible into shares of Common Stock
pursuant to the terms of the Debentures. In addition, the investors received
Warrants to purchase an aggregate of 100,000 shares of the Company's Common
Stock, 50,000 shares at an exercise price of $1.125 and $50,000 shares at $1.41.
The Company paid a 11% commission to the placement agent and paid the placement
agent's attorney's fee of $7,500.
In February 1998, the Company agreed to issue 192,000 shares of Common
Stock to R.S.J.J Realty Corp., in exchange for 106,667 shares of NY's Common
Stock. These issuances were made pursuant to an agreement between NY and
R.S.J.J. Realty Corp. to pay its annual lease payment of $240,000 by the
issuance of shares of NY's common stock. See "Certain Relationships and Related
Transactions."
By agreement executed March 10, 1997, One Carnegie entered into an
Agreement for Deed in Lieu of Foreclosure ("the Agreement") with Trinity
Industries, Inc. ("Trinity"). The transaction, which was not closed and
completed until August 1, 1997, was necessitated by One Carnegie's having
defaulted on (i) the $3,000,000 Note (of which Trinity was the holder), and (ii)
the Deed of Trust and Security Agreement which secured said Note for certain
property located in Waldorf, Maryland. Pursuant to the Agreement, in lieu of
foreclosing upon the property owned by One Carnegie, Trinity, through its
affiliate, Waldorf Properties, Inc. ("WPI"), accepted the deed to such property.
See Item 2 - Description of Property.
Business of WorldWide Construction Limited/ Falcon Chad S.A.
In December 1997 the Company formed Worldwide Construction Limited
("Worldwide"), a British Virgin Island corporation, as a wholly owned
subsidiary. This company was formed to own 80% of Falcon Chad SA, a company
formed in N'djamena TChad, a country within the African continent. Falcon Chad
SA was formed to operate as a full service transport company in N'djamena TChad.
Falcon Chad SA, shall offer transportation services including trucking, customs
clearance and warehousing. In January 1998 Falcon Chad SA purchased 16 transport
vehicles and a communications system. Initially, Falcon Chad SA has had
discussion with the Chad governmental authorities to transport cotton for the
government, though no agreement has been executed. Cotton is presently, the main
export of Chad. In addition, the Company has commenced discussions with several
large foreign corporations setting up to do business is Chad in order to provide
their trucking needs.
The Company raised $450,000 for the Worldwide and Falcon Chad SA
operations, through the sale of the Debentures. The funds are being used to
purchase the trucks and to set up offices and operations in N'djamena TChad.
Business of USA Bridge Construction of N.Y., Inc.
General
The Company commenced operations in or about June 1993 to serve
primarily as a general contractor for construction projects sponsored by
federal, state, and local government authorities in New York State and in the
New York City metropolitan area. Previously, through other entities, Joseph M.
Polito furnished and provided steel erection as a subcontractor for private and
governmental construction projects. Since its commencement of operations in June
1993, the Company has provided steel erection for building, roadway, and bridge
repair projects for general contractors who have been engaged by private and
municipal/governmental customers. As of December 31, 1997, NY has completed in
excess of nineteen projects with an aggregate project value of $34,329,756 and
is currently engaged in three projects with an aggregate value of approximately
$12,752,681. The Company plans to maintain its subcontractor presence in the
steel industry; however, now that it has obtained general contractor bonding, it
intends to focus on obtaining projects as a general contractor.
<PAGE>
Though formed to operate as a general contractor, the Company operated
initially only as a subcontractor. The Company's goals were to become a general
contractor for municipal projects; however, it needed financing to enable it to
obtain bonding, which is required for all municipal projects.
On June 15, 1993, the Company purchased, from Atlas Gem Erectors Co., Inc.
("Atlas Gem"), six then existing contracts to perform steel erection services
for the following projects: Stillwell Avenue, 39th Street Bridge Rehabilitation,
Honeywell Street Bridge, New England Thruway, Lemon Creek, and Kosciuszko
Bridge. Upon its sale of these contracts to the Company and its completion of
its final project in September 1994, Atlas Gem ceased operations. The Company
purchased Atlas Gem's contracts to add to its then backlog in order to avoid a
conflict of interest, as the two entities - which were controlled by Joseph M.
Polito as officer, director, and principal stockholder - were engaging in
similar, but different work.
Recent Developments
In June 1996, the Company entered a prime contracting agreement with
EklecCo., the owner of the Palisades Power Mall located in West Nyack, New York,
to perform structural steel erection services. The mall is estimated to be
approximately 3,900,000 square feet upon completion. The Company commenced work
in June 1996, however, the Company ceased work on the project in due to
EklecCo.'s failure to pay on a timely basis. NY filed as lien on the property
and EklecCo. Filed an action to vacate the lien. In February, 1998, EklecCo.
issued a bond in the amount of $14,254,730, of which $13,640,747 replace the
Company's lien. See "Business - Litigation."
In January 1997, the Company entered into a subcontracting agreement
with Humphreys & Harding, Inc. to perform certain structural steel erection work
for the Permanent Mission to the Republic of Korea, located in New York, New
York. The contract price is $1,500,000. As of December 31, 1997, work on the
project is 62% complete.
As of May 1997, the Company was in arrears in the amount of $480,000 in
payments due under its lease with R.S.J.J. Realty Corp. ("RSJJ"). This arrearage
was converted into equity as follows: on June 19, 1997, the Company issued
270,000 shares of common stock to Corp., for the cancellation of the debt owed
to RSJJ. Corp., in turn, issued 200,000 shares of its Common Stock to Joseph M.
Polito and 150,000 shares of its Common Stock to RSJJ. RSJJ then transferred all
of such shares to RSJJ's mortgagor, which agreed to accept said shares as
payment of RSJJ's outstanding mortgage. See "Item 12. Certain Relationships and
Related Transactions."
<PAGE>
The following table lists, as of December 31, 1997, (i) all companies
in which Joseph M. Polito is either an Officer, Director, or principal
shareholder; and (ii) the activities engaged in by such companies with the
Company or any of its subsidiaries:
<TABLE>
<CAPTION>
Year J. Polito's Activities with the Place of
Company Name(1) of Inc. Title Ownership(%) Company and NY Business
<S> <C> <C> <C> <C> <C>
U.S. Bridge Corp.(2) 1988 Pres./Director 5961% Parent Company Queens, NY
R.S.J.J. Realty Corp.(3) 1983 Pres./Director 100% Leases the office and Queens, NY
storage space to the
Company
Crown Crane, Inc.(3) 1988 -- 50% Supplies cranes to the Brooklyn,
Company for use in the NY
erection of steel
Atlas Gem Leasing, 1986 Pres./Director 100% Supplies welding Queens,
Inc. (3) machines and compressors NY
to the Company
Atlas Gem Erectors 1986 Pres./Director 100% Sold certain construction No office
Co., Inc. (3)(4) contracts to the Company;
ceased operations 9/94
USA Bridge of N.Y., 1990 Pres./Director 51% Provides steel erection Queens,
Inc. (4)(5) buildings, roadway, and NY
bridge repair projects
</TABLE>
(1) Except as disclosed hereunder, no company listed is beneficially owned
by another entity; nor does any company have any subsidiaries. No company listed
has conducted any business operations under any name except for its corporate
name, except for Corp. See "-History."
(2) Incorporated in the State of Delaware.
(3) Incorporated in the State of New York.
(4) Ceased operations in September 1994.
(5) Joseph M. Polito, through his ownership of approximately 61% of the
outstanding shares of the Corp., may be deemed the beneficial owner of the
shares of the Company owned by Corp.
<PAGE>
Schedule of Completed Projects. The following is a schedule of the
Company's completed projects.
<TABLE>
<CAPTION>
Schedule of Completed Contracts
Project Name Contract Amount Contract Date Type of Contract
- ------------ --------------- ------------- ----------------
<S> <C> <C>
Van Wyck $ 195,500 April 1992 Lump-Sum
39th Street Bridge 2,538,252 June 1993 Lump-Sum
39th Street (Demolition) 679,046 February 1993 Lump-Sum
New England Thruway 2,409,058 June 1993 Lump-Sum
Honeywell 1,100,000 June 1993 Joint Venture (1)
Kosciuszko Bridge 3,034,281 June 1993 Lump-Sum
Stillwell Avenue Bridge 8,084,655 June 1993 Lump-Sum
Cross Bronx Expressway 60,176 March 1994 Lump-Sum
Robert Moses Causeway 540,118 December 1994 Lump-Sum
4th Avenue Bridge 387,965 March 1995 Lump-Sum
201 East 80th Street 1,692,797 May 1995 Lump-Sum
Centereach 186,500 June 1995 Lump-Sum
Pro-Camera 50,275 August 1995 Lump-Sum
UDC 82,400 August 1995 Lump-Sum
Williamsburg Houses (2) 708,450 April 1996 Lump-Sum
South Avenue Plaza 274,045 May 1996 Lump-Sum
Hellgate Viaduct Structures 208,750 Oct. 1996 Lump-Sum
Indonesian Mission 348,000 Nov. 1996 Lump-Sum
Palasades 11,561,142 June 1996 Lump-Sum
Others(3) 188,346 N/A N/A
Total 34,329,756
</TABLE>
(1) Joint venture with John P. Picone, Inc. ("Picone"), whereby the Company
entered into a consulting agreement with Picone, who was awarded the project.
The agreement provided that for 50% of the profits of the project, the Company
would provide Picone with its expertise in steel erection, supply qualified
workers, and oversee the rehabilitation of the bridge. Picone put the Company's
employees on its payroll and incurred all the expenses of the project.
(2) This project, which bore an original contract price of $2,517,651, was
on hold for a considerable period of time pending a dispute not involving the
Company. The Company believes that it will not return to this project and thus
deems the project complete.
(3) Total estimated project value of a collection of smaller projects
completed.
Inasmuch as the Company purchased steel from Waldorf or leases
equipment from Crown Crane, Ltd. or Atlas Gem Leasing, Inc., the Company shall
check prices in the industry prior to engaging in any such transactions and will
transact business with such companies only on terms which may be considered
similar. The audit committee of the Board of Directors intends to exercise
reasonable judgment and take such steps as it deems necessary under all of the
circumstances to resolve any specific conflict of interest which may occur and
will determine what, if any, specific measures, such as retention of an
independent advisor, independent counsel, or special committee, may be necessary
appropriate. The fact that Joseph M. Polito is an officer, director, and
principal shareholder in other companies, including those that transact business
with the Company, opens the potential that there may be conflicts of interest in
decisions made by Joseph M. Polito, which may compromise his fiduciary duty to
the Company. Any remedy under state law, in the event such circumstances arise,
most likely would be prohibitively expensive and time consuming. See
"Business-Suppliers and Subcontractors."
<PAGE>
Industry Overview
1997 has brought about a resurrection in the construction industry in
the New York City metropolitan area. Major transportation arteries in New York
are under extensive construction programs to increase their ability to handle
the ever increasing volumes of traffic they carry. Work is in progress on the
major thruways, expressways, and parkways across New York State. The Company
currently is preparing subcontracting bids for some of the roadway projects in
the New York City metropolitan area.
These projects positively affect the availability of work in diverse
disciplines in the construction industry: landscaping, concrete, paving, steel,
etc. The Company has qualified as a bidder (and expects to place a bid by the
end of November 1997) for a project for the JFK Airport, international arrivals
building, Korean Air and Lufthansa terminals.
Apart from the infrastructure construction programs, there has been an
impressive increase in the restoration, alteration, and expansion of office
space, residential properties, and public facilities. This increase has resulted
in the Korean Mission subcontracting project. There also appears to be an
infusion of foreign investment capital into the depressed real estate market in
New York, prompting major renovations and alterations. This capital infusion
enhances the value of property and therefore increases the incentive for new
development.
Marketing
The Company obtains its projects primarily through the process of
competitive bidding. Accordingly, the Company's marketing efforts include the
following: (i) subscribing to bid reporting services; (ii) monitoring trade
journals including Engineering Record News, Dodge Report, and Brown's Letter,
Inc.; (iii) monitoring daily newspapers and real estate publications; (iv)
membership and networking in affiliated organizations including Allied Building
Trades; (v) maintaining contracts with developers and other general contractors;
and (vi) requesting notification from various government agencies as to bid
solicitations being requested.
The Contract Process; Bidding
In response to bid requests, the Company submits to the soliciting
entity a proposal detailing its qualifications, the services to be provided, and
the cost of its services. Based on its evaluation of the proposals submitted,
the soliciting entity awards the contract to the bidder it deems appropriate.
Generally, the contract for a project is awarded to the lowest bidder, although
other factors may be taken into consideration.
The Company submits its bids after management performs a detailed
review of the project specifications, an internal review of the Company's
capabilities and equipment availability, and an assessment of whether the
project is likely to attain targeted profit margins. In bidding on contracts,
there are two types of bid requests made by the soliciting entity: a unit cost
bid and a lump-sum bid. The unit cost bid is based upon a cost per unit basis; a
lump-sum bid obligates the Company to complete the project at a fixed price.
With a lump-sum bid, the risk of estimating the quantity of units required for a
particular project is on the Company, while with a unit cost bid, the Company
must estimate the per unit cost, not the number of units needed. Any increase in
the Company's unit cost over its unit bid price or cost over its lump-sum bid,
whether due to inefficiency, faulty estimates, weather, inflation, or other
factors, must be borne by the Company and may adversely affect its results of
operations.
Upon receipt by a New York City agency of notification that a bid submitted
for a project has been declared the low bid, the city's procurement policy
requires that the New York Finance Committee then approve all funds to be
allocated to such project. During this time, if the Company is the low bidder,
it must provide the New York City agency with such documents as are required -
<PAGE>
including a Payment and Performance Bond and a Labor and Material Bond - in
order to be approved to undertake the project. Once the New York City Finance
Committee has cleared the allocation of funds for a project and the agency has
cleared all the documentation required to be submitted by the contractor, a
starting date and time table is set up for the project.
Most government contracts provide for termination of the contract at the
election of the customer, although in such event, the Company is generally
entitled to receive a small cancellation fee. Many of the Company's contracts
are also subject to completion requirements with liquidated damages assessed
against it if schedules are not met.
While Joseph M. Polito has been in the construction business for many
years, the Company has only recently started bidding on projects as a general
contractor, and the Company may incur unanticipated expenses, problems, or
difficulties which may affect its bid prices and project profitability. Though
the Company has been the low bidder on several public sector and private sector
bids, it has not commenced any Company public or private sector projects as a
general contractor. It has, however, commenced two projects as prime contractor.
The Company expects to act as a general contractor on some of the
projects it will undertake in the near future and will need to hire
subcontractors to perform certain jobs such as electrical and mechanical work,
though it shall continue also to bid as a subcontractor at the request of other
general contractors. As general contractor, the Company will be responsible for
the performance of the entire contract, including work assigned to
subcontractors. Accordingly, the Company is subject to liability associated with
the failure of subcontractors to perform as required under the contract; thus,
the Company may require its subcontractors to furnish Performance Bonds.
Affirmative action regulations, however, require the Company to use its best
efforts to hire minority subcontractors for a portion of the project and some of
these minority subcontractors may not be able to obtain such surety bonds.
Insurance and Bonding
The Company maintains general liability and excess liability insurance,
insurance covering its construction equipment, and workers' compensation
insurance in amounts it believes are consistent with industry practices. The
Company carries liability insurance of $1,000,000 per occurrence which
management believes is adequate for its current operations.
Although the Company generally has not been required to provide
Performance Bonds to general contractors when acting as a subcontractor, it may
be required to furnish bonds guaranteeing its performance as a subcontractor in
the future. Currently, the Company is serving as a subcontractor on two
projects. For the EklecCo prime contracting project and the Grand Central
Terminal and Korean Mission subcontracting projects, the Company has been
required to provide, and has provided, Performance Bonds and Labor and Material
Bonds.
The Company expects to bid on both private and public sector projects
as a general contractor. Most of these projects, both public and private sector,
shall require Bid Bonds and Payment and Performance Bonds. A Bid Bond is a bond
issued by a bonding company which is usually in an amount equal to 10% of the
bid price and which guarantees that the contractor will be able to produce such
other additional documents and information required in order to commence the
project including the issuance of a Performance Bond. A Performance Bond is a
guarantee by a surety, customarily 100% of the value of the contract amount,
that the contractor will complete the project pursuant to the terms and
conditions of the contract. Most government contracts allow for termination of
the contract at the election of the customer, although in such event, the
Company is generally entitled to receive a small cancellation fee. Many of the
Company's contracts are also subject to completion requirements with liquidated
damages assessed against the Company if schedules are not met. In the past, the
Company has not been materially adversely affected by these provisions as a
subcontractor.
<PAGE>
The Company's ability to obtain bonding and its bonding capacity are
primarily determined by its net worth, liquid working capital (consisting of
cash and accounts receivable), past performance, management expertise, the
number and size of projects under construction, and various other factors. The
larger the project and/or the more projects in which the Company is engaged, the
greater the bonding, net worth, and liquid working capital requirements. Surety
companies consider such factors in light of the amount of the Company's surety
bonds then outstanding and the surety companies' current underwriting standards,
which standards may change periodically. Therefore, the Company may be required
to maintain certain levels of tangible net worth in connection with establishing
and maintaining bonding limits. As a practical matter, such levels may limit
dividends, if the Company, which might have been declared and which would limit
corporate funds available for other purposes.
In determining whether to issue a bond, surety companies perform credit
checks and other due diligence disclosure requirements and investigate the
Company's capitalization, working capital, past performance, management's
expertise, and such other factors, as are discussed above. The surety companies
require companies receiving bonding to maintain certain amounts of capital and
liquid assets and base the amount of bonding they will issue on a formula, which
is usually based on certain industry standards which take into account such
factors. The surety companies also require that the bonds be personally
guaranteed by Joseph M. Polito.
Bonding requirements vary depending upon the nature of the project to be
performed. The Company anticipates paying premiums of between 1 1/4% to 3 1/2%
of the total amount of the contracts to be performed. Since these premiums are
generally payable at the beginning of a project, the Company must maintain
sufficient working capital to satisfy the premium prior to receiving revenue
from the project. Bonding premiums are a line item in the submitted bid and are
included as part of the Company's billing to its client.
In December 1996, the Company obtained a commitment for a Surety Bond
Line of Credit ($10,000,000 single project limit) from United American Guarantee
Company, Ltd. ("UAGC") for its general contracting projects. This commitment
will allow the Company to pursue those general contracting projects in the
public and private sectors which require performance bonds. To date, it has also
allowed the Company to obtain Performance Bonds and Labor and Material Bonds for
the one prime contracting and two subcontracting projects which have required
same: the EklecCo, Grand Central Terminal, and Korean Mission projects.
Work in Progress; Backlog and Seasonality
Contracts as a subcontractor and general contractor often involve work
periods in excess of one year. Revenue on uncompleted fixed price contracts is
recorded under the percentage of completion method of accounting. NY begins to
recognize profit on its contracts when it first accrues direct costs. As is
standard construction industry practice, a portion of billings may be retained
by the customer until certain contractual obligations are fulfilled.
The following is a list, as of December 31, 1997, of those projects in
which the Company is currently engaged.
<TABLE>
<CAPTION>
Backlog
Contract Party/ Contract Amount at Type of % of job
Project Name Amount Contract Date 12/31/97 Contract Completed
<S> <C> <C> <C> <C> <C>
Lehrer McGovern, Bovis, Inc./
Grand Central Terminal $4,360,000 May 1996 347,928 Lump-sum 92%(2)
Tishman Construction Corp./
Louis Vuitton N.A.(1) $6,197,750 July 1996 2,045,258 Lump-sum 67%(2)
Humphreys & Harding, Inc./
Korean Mission $2,194,931 Jan. 1997 834,074 Lump-sum 62%(2)
---------- -----------------
Total Signed Contracts $12,752,681 $3,227,260
</TABLE>
<PAGE>
(1) The Company is prime contractor (similar to general contractor) on this
project.
(2) Completion percentage is as of December 31, 1997 and is based on the
percentage of costs incurred through that date to the estimated cost of the
project.
Though the Company does not believe its business is seasonal, its
operations slow during the winter months due to decreased productivity of
laborer caused by their inability to work in severe weather conditions. As a
result of the foregoing, the Company's costs are increased.
Suppliers; Subcontractors; Unions
For the year ended June 30, 1997, the Company received approximately 43% of
the fabricated steel it required from MD, a subsidiary of Corp. Queens County
Ironworks and New York Iron, Inc. provided the remainder of the steel. Neither
Queens County Ironworks nor New York Iron, Inc. is affiliated with the Company,
Corp., or any other Director or principal stockholder of either company. MD
provided the Company with fabricated steel until November 1996, at which time MD
ceased operating. The prices paid and the terms for the steel purchased from MD
were comparable to competitive prices and terms; therefore, the Company believes
it now will be able to acquire same through other suppliers at similar prices
and on similar terms.
The Company currently depends upon various vendors to supply spare
parts, cranes, and other heavy equipment, and its ability to hire skilled
workers depends upon its ability to comply with certain union agreements and
contracts. The Company rents cranes from Crown Crane, Ltd., a company of which
Joseph M. Polito is a 50% shareholder, and rents generators and other equipment
from Atlas Gem Leasing, Inc., a company which is wholly owned by Mr. Polito. The
Company believes that there are a sufficient number of vendors, so that in the
event any individual or group of vendors can no longer service the Company's
needs, the Company will be able to find other vendors at competitive prices.
As is standard practice in the construction industry, the Company's
employees, other than its office employees, are not salaried individuals. They
are union employees who are hired on an as-needed, or per project, basis and are
paid an hourly wage which is set by the unions with which they are associated.
The Company hires skilled steel workers represented by the International Union
of Structural Ironworkers local 40, 361, & 417 and International Operating
Engineers locals 14, 14B, 15, 15A, 15C, 15D, and 825 and Cement Masons local
472. The Company must comply with its agreements with the unions, which
agreements regulate all employment issues - including pay, overtime, working
conditions, vacations, benefits, etc. - between the Company and the union
employees. These agreements expire on June 30, 1999.
The Company believes that it has a good relationship with the Unions
and is in compliance with all union agreements. No assurance can be given that
the Company will continue to be in compliance with the Unions or successfully
negotiate extensions to the Company's agreements with such Unions. In the event
problems or conflicts with the Unions arise or there is a loss of skilled steel
and operating engineers, this would have a detrimental effect on the Company's
operations.
The Company's success as a general contractor, in part, will be
dependent upon its ability to hire workers and comply with union contracts and
agreements and its ability to oversee and retain qualified subcontractors to
perform certain work. Although the Company believes that it will be able to
attract subcontractors to bid on projects it bids as general contractor, there
can be no assurance that it will be able to do so. The Company will be
responsible for performance of the entire contract, including the work done by
subcontractors. Accordingly, the Company may be subject to substantial liability
if a subcontractor fails to perform as required. In addition, in hiring and
overseeing subcontractors, there may be difficulties of which the Company is not
aware.
<PAGE>
Competition
All aspects of the Company's business are, and will continue to be,
highly competitive. The Company is one of many subcontractors which erects and
furnishes steel for projects. Many of these subcontractors have substantially
greater financial resources and sales than those of the Company. When
contractors seek construction contracts, they request bids from numerous
subcontractors based on the various requirements of the project. These
subcontractors compete primarily as to price, name recognition, and prior
performance.
As a general contractor, the Company will be competing with many larger
and more experienced (and thus more established) contractors whose names are
more readily recognized and whose relationships with federal and state
municipalities and agencies, and those private companies who are bidding against
the Company, have been established. The Company is a subcontractor and a general
contractor specializing, but not exclusively, in bridge and roadway repair and
replacement as well and in furnishing and erecting steel structures for
buildings. The Company's competitors are numerous, and many have substantially
greater marketing, financial, bonding, and human resources.
Government Regulation
The Company must comply with the Occupational Safety and Health
Administration ("OSHA"), a federal agency which regulates and enforces the
safety rules and standards for the construction industry. In addition, the
Company must comply with a wide range of other state and local rules and
regulations applicable to its business, including regulations covering labor
relations, safety standards, affirmative action and the protection of the
environment including requirements in connection with water discharge, air
emissions and hazardous and toxic substance discharge. Continued compliance with
OSHA and the broad federal, state, and local regulatory network is essential and
costly. The failure to comply with such regulations or amendments to current
laws or regulations imposing more stringent requirements may have an adverse
effect on the Company's operations. The Company believes that it is in
substantial compliance with all applicable laws and regulations.
Employees
As of December 31, 1997, the Company had three executive officers, two
administrative assistants, one comptroller, one project estimator, and two
employees in the accounting department. The number of union employees the
Company utilizes depends on the number and size of projects in which the Company
is engaged and can range from 10-200 employees, some of whom are employed
full-time and others of whom are employed part-time. These union employees are
represented by the International Union of Structural Ironworkers locals 40, 361
and 417; International Operating Engineers locals 14, 14B, 15, 15A, 15C, 15D,
825; and Cement Masons local 472. The Company's contracts with these Unions,
which contracts regulate all employment issues between the Company and the union
employees - including pay, overtime, working conditions, vacations, benefits,
etc. - expire on June 30, 1999. The Company considers its relationships with the
unions and its employees to be good.
Description Of Property
The Company's office (located at 53-09 97th Place, Corona, New York
11368) consists of approximately 25,000 square feet of office space
(approximately 24,000 square feet of which is utilized for storage space) which
is leased from an affiliate company, RSJJ. RSJJ is owned by the Company's
President, Joseph M. Polito. The lease, pursuant to which the Company pays rent
of $20,000 per month to RSJJ, expires in March 1998. The Company also leases a
yard from an unrelated party for storage material pursuant to an oral agreement
which requires monthly payments of $3,500. The Company has extended the leases
through December 31, 1998. The Company believes that the terms of these leases
are comparable and competitive with that which would have been negotiated with
an unaffiliated landlord.
<PAGE>
On February 10, 1998, NY agreed to pay its lease payments for 1998 by
the issuance of 106,667 shares of its Common Stock. The per share price was $.14
above the closing price for NY's shares as reported by Nasdaq.
As of May 1997, the Company was in arrears in the amount of $480,000 in
payments due under its lease with RSJJ. This arrearage was converted into equity
as follows: the Company issued 270,000 shares of Common Stock to Corp., for the
cancellation of the debt owed to RSJJ. Corp., in turn, issued 200,000 shares of
its common stock to Joseph M. Polito and 150,000 shares of its common stock to
RSJJ. RSJJ then transferred all of such shares to RSJJ's mortgagor, which agreed
to accept said shares as payment of RSJJ's outstanding mortgage.
Legal Proceedings
The Company is not a party to any material litigation and is not aware
of any threatened litigation that would have a material adverse effect on its
business, except for the litigation matters discussed below. The Company
believes that the nature and number of these proceedings are typical for a
construction firm of its size and scope.
In April 1995, NY commenced an Article 78 proceeding in the Supreme Court
of the State of New York, County of New York, against the Commissioners of the
State Insurance Fund and the State Insurance Fund. This action is scheduled for
trial on March 17, 1998.
In December 1995, in the United States District Court, Southern District of
New York, the Commissioners of the State Insurance Fund for and on behalf of the
State Insurance Fund commenced suit against Joseph Polito, Ronald Polito, Steven
Polito, NY (f/k/a Metro Steel Structures, Ltd.), One Carnegie, and others. This
action is in the discovery phase.
On February 25, 1997, in New York State Supreme Court, Kings County, NY and
Metro Steel Structures, Ltd. commenced suit against Perini Corporation,
Metropolitan Transportation Authority, New York City Transportation Authority,
and Fidelity and Deposit Company of Maryland. This action is in the discovery
phase.
On February 26, 1997, in New York State Supreme Court, Queens County,
NY, Metro Steel Structures, Ltd., and McKay Enterprises, Inc. commenced suit
against Perini Corporation, Department of Transportation of the City of New
York, and Fidelity and Deposit Company of Maryland. This action is in the
discovery phase.
On February 7, 1997, in New York State Supreme Court, Kings County,
Perini Corporation commenced an action against NY and Metro Steel Structures,
Ltd. This action is in the discovery phase.
On or about May 13, 1997, in the New York Supreme Court, Suffolk
County, NY commenced suit against Kiska Construction, the State of New York,
acting through the New York State Comptroller, the New York State Department of
Transportation, and the Seaboard Surety Company. This action is in the discovery
phase.
In August 1997, the Company, NY, and MD entered into an agreement
settling the January 1997 trademark infringement claim made by The Ohio Bridge
Corporation. The Company agreed to change its name and on January 14, 1998
effected a name change to USABG Corp. NY agreed to change its name to NY
Construction of N.Y., Inc. This name change was effected on January 12, 1998. MD
agreed to change its name to NY Construction Corp. (Maryland). This name change
was effected on February 19, 1998.
On October 14, 1997, NY filed a mechanic's lien in the amount of
$13,640,767 against EklecCo (f/k/a Pyramid Company of Rockland). On October 16,
1997, in New York State Supreme Court, Rockland County, EklecCo commenced suit
against NY. On February 9, 1998, the plaintiff posted a bond in the amount of
$14,254,730 to secure payment of NY's $13,640,747 mechanic's lien, interest, and
court costs; accordingly, the court granted the plaintiff's motion to discharge
said lien. The court further ordered that discovery be expedited in this matter.
This action is in the discovery phase.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company amended its certificate of incorporation on January 14,
1998 to change in its name from U.S. Bridge Corp., to USABG Corp. The Company
currently owns 53.23% of the outstanding shares of NY and 100% of the
outstanding shares of common stock of Worldwide Construction Limited
("Worldwide"). These two subsidiaries are the only ones through which the
Company operates. Two additional subsidiaries of the Company (each wholly owned
subsidiary), One Carnegie court Associates, Inc., and U.S. Bridge Corp.
(Maryland) ceased operations in August 1997 and November 1996, respectively.
Worldwide was formed by the Company in December 1997 and is a British
Virgin Islands corporation. It was formed to own 80% of Falcon TChad SA
("Falcon"), a company formed in Ndjamena, Chad to operate as a full service
transportation, forwarding, warehousing, and development company. Falcon shall
offer transportation services including trucking, customs clearance and
warehousing. As of December 31, 1997, no activity commenced in Worldwide.
The following management's discussion and are primarily that of the
Company's subsidiary, NY, since the Company itself did not have any material
operations of its own.
NY, the primary operating entity, recognizes revenue and costs for all
contracts under the percentage of completion method. Cost of contract revenues
include all direct material and labor costs and those indirect costs related to
contract performance. General and administrative expenses are accounted for as
period costs and are, therefore, not included in the calculation of the
estimates to complete construction contracts in progress. Material project
losses are provided for in their entirety without reference to the percentage of
completion. As contracts can extend over one or more accounting periods,
revision in costs and earnings estimated during the course of the work are
reflected during the accounting period in which the facts become known. An
amount equal to the costs attributable to unapproved change orders and claims is
included in the total estimated revenue when realization is probable.
The current asset, "costs and estimated earnings in excess of billings
on uncompleted contracts", represents costs and estimated earnings in excess of
amounts billed on respective uncompleted contracts at the end of each period.
The current liability, "billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings which exceed costs and
estimated earnings on respective uncompleted contracts at the end of each
period.
The Company elected not to recognize any portion of the revenue associated
with any contract claims until the amounts recoverable can be accurately
estimated. Claims are amounts in excess of the agreed contract price which the
Company seeks to collect for customer caused delays, errors in specifications
and designs, contract terminations, change orders in dispute or unapproved.
NY's operations are substantially controlled by Mr. Polito since he owns a
majority of the outstanding shares of the Company which in turn is the parent
company of NY and may be considered the beneficial owner of NY. Mr. Polito is
also a 100% shareholder of R.S.J.J. Realty Corp. ("RSJJ"). RSJJ leases the
administrative office space to NY at a cost of $20,000 per month pursuant to a
signed lease agreement expiring on March 31, 1998, which has been extended
through December 31, 1998.
NY plans to continue to undertake projects as a subcontractor, but will
focus on obtaining projects as a general contractor in both the public and
private sectors. NY will be responsible for performance of the entire contract,
including the work done by subcontractors. Accordingly, NY may be subject to
substantial liability if a subcontractor fails to perform as required. Also
there may be unanticipated difficulties in hiring and overseeing subcontractors
that NY is currently not aware of. NY requires bonding from a New York licensed
bonding Company in order to bid on projects as a general contractor.
<PAGE>
Though NY does not believe its business is seasonal, its operations are
generally slow in the winter months due to the decrease in worker productivity
because of weather conditions. Accordingly, NY may experience a seasonal pattern
in its operating results with lower revenue in the third quarter of each fiscal
year. Interim results may also be affected by the timing of bid solicitation,
the stage of completion of major projects and revenue recognition policies.
In order to obtain bonding, in addition to credit checks and other due
diligence disclosure requirements bonding companies require NY receiving bonding
to have certain amounts of capital and liquid assets, which will base the amount
of bonding it will issue based on a formula, devised by each individual bonding
Company, which primarily takes into account NY's capital and liquid assets. In
order for NY to obtain and maintain bonding, it must adhere to the requirements
stipulated in the bonding agreements which vary with each bonding Company. The
bonding costs for each bond are incorporated in the contract price of each job.
These costs are carried as a line item in the requisition and paid by the
customer. Any monies taken from the working capital for this purpose will be
replaced as the monthly requisition payments are received from the customer.
Bonding requirements vary depending upon the nature of the projects to be
performed. NY anticipates paying a fee to bonding companies of between 1 1/4% to
3 1/2% of the amount of the contracts to be performed. Since these fees are
generally payable at the beginning of a project, NY must maintain sufficient
working capital to satisfy the fee prior to receiving from the project.
Six months ended December 31, 1997 as compared to the Six months ended December
31, 1996
Contract revenues for the six months ended December 31, 1997 and 1996
amounted to $12,269,286 and $5,806,441, respectively. This net increase
amounting to $6,462,845 or approximately 111% is a direct result of the
Company's backlog as of June 30, 1997 which amounted to approximately
$6,088,000. This backlog amount represents the contracts the Company had entered
into during the latter part of its June 30, 1997 fiscal year. During the six
months ended December 31, 1997, the Company has obtained no new contracts but
has obtained additional change orders to previous contracts amounting to
approximately $10,744,852. As of December 31, 1997, the Company's backlog
amounted to approximately $3,227,000. Backlog represents the amount of revenue
the company expects to realize from work to be performed on uncompleted
contracts in progress and from contractual agreements which work has not yet
begun.
The Company's gross profit for the six months ended December 31, 1997
and 1996 amounted to 18% to 29%. The decrease in gross profit represents
estimated cost adjustments on certain contracts and shut down costs on jobs
which have been halted or completed.
General and administrative expenses have increased by $82,811 or 6% to
$1,448,402 for the six months ended December 31, 1997 from $1,365,591 for the
six months ended December 31, 1996. The increase in general administration costs
are mainly attributable to an overall increase of the Company's administrative
salaries associated with the material amount increase in contract revenue and
general corporate overhead.
As of December 31, 1997, the Company's allowance for doubtful accounts
amounts to $2,159,000 against its contract receivable. In management's opinion,
the allowance for doubtful accounts at December 31, 1997, will be sufficient to
absorb any losses that may be sustained from settlements. For the six months
ended December 31, 1997 and 1996, the Company had one and three unrelated
customers respectively, which accounted for approximately 45% and 85% of total
revenues. As of December 31, 1997 approximately 75% of contracts and retainage
receivables are due from two customers.
For the three and six months ended December 31, 1997, the Company
recorded an estimated income tax expense of $85,610 and $212,768, respectively.
For the six months ended December 31, 1996, no income tax expense was recorded
by the Company as a result of its then net operating tax carryforward which was
subsequently utilized. The income tax expense for the three and six months ended
December 31, 1997 is primarily from the net income generated by NY.
<PAGE>
Year ended June 30, 1997 as compared to the year ended June 30, 1996
Contract revenues for the years ended June 30, 1997 and 1996 amounted
to $15,455,699 and $7,091,396, respectively. This net increase of $8,364,303, or
approximately 118%, is a direct result of the Company's $17,943,400 backlog as
of June 30, 1996. This backlog amount represents the contracts the Company
entered into during the latter part of its June 30, 1996 fiscal year. During the
year ended June 30, 1997, the Company obtained new contracts and change orders
to previous contracts aggregating to approximately $3,600,347. Included in
contract revenues are revenues from joint venture profit sharing agreements on
certain projects. Joint venture revenues for the year ended June 30, 1997
totaled $0 as compared to the year ended June 30, 1996 wherein same totaled
$200,000. Accordingly, revenues for the year ended June 30, 1997 from the
Company's core business, construction contracts, increased by approximately
$8,564,000 as compared to the year ended June 30, 1996. As of June 30, 1997, the
Company's backlog amounted to approximately $6,100,000. Backlog represents the
amount of revenue the Company expects to realize from work to be performed on
uncompleted contracts in progress and from contractual agreements for which work
has not yet commenced. The Company's gross profit for the years ended June 30,
1997 and 1996 has remained constant between 27% and 28%.
For the years ended June 30, 1997 and 1996, the Company purchased from
Waldorf approximately $0 and $180,333, respectively, of the materials and labor
necessary to perform fabrication services. Effective August 1, 1995, Waldorf
ceased operations. Waldorf is under the common control of the Company's majority
stockholder and President. Lastly, for the years ended June 30, 1997 and 1996,
the Company paid $371,321 and $622,050, respectively, to MD for materials and
labor necessary to perform steel erection services. MD is a wholly owned
subsidiary of Corp. In November 1996, MD ceased operations, and the Company
began purchasing material and labor from unrelated third party steel
fabricators. At June 30, 1997, the Company owed MD $62,606, principally for
advances in connection with the above services: such amounts are non-interest
bearing and are due on demand.
General and administrative expenses have increased by $221,302, or 10%, to
$2,342,309 for the year ended June 30, 1997, from $2,121,007 for the year ended
June 30, 1996. The increase in general administration costs is mainly
attributable to an overall increase in the Company's administrative salaries
associated with the material amount of increase in contract revenue and general
corporate overhead.
As of June 30, 1997, the Company increased its allowance for doubtful
accounts to $2,287,000 against its contract receivables. The bad debt expense
associated with the increase in allowance amounted to $1,287,000. The Company
increased its allowance for doubtful accounts based on a review of the factors
surrounding certain mechanic's liens filed for certain projects and an estimate
of the future income of other projects for which no mechanic's liens have been
filed. In management's opinion, the allowance for doubtful accounts at June 30,
1997 will be sufficient to absorb any losses which may be sustained from a
settlement with this and other customers. For the years ended June 30, 1997 and
1996, the Company had three unrelated customers, which accounted for
approximately 86% and 62%, respectively, of total revenues. As of June 30, 1997
and 1996, approximately 83% and 89%, respectively, of contracts and retainage
receivables are due from four and three customers respectively.
Liquidity and Capital Resources
At December 31, 1997, the Company's working capital amounted to
$7,445,671. Net cash provided by operating activities amounted to $863,743 for
the six months ended December 31, 1997. For the six months ended December 31,
1996, the net cash used for operating activities amounted to $146,475. With
regards to financing activities, the Company used $467,085 of cash for the six
months ended December 31, 1997. Such cash was used primarily for repayments and
advances to affiliates and related parties.
<PAGE>
As of December 31, 1997, the Company owes approximately $1,786,677 of
payroll taxes. Although, as of December 31, 1997, the Company has not entered
into any formal repayment agreements with the respective tax authorities, it has
been making payments based on oral agreements.
As of December 31, 1997, NY filed various mechanics liens on certain
projects totaling $16,919,542. In November 1997, the NY entered into an
agreement with the Iron Workers Local 40,361 and 417 Joint Security Funds "The
Union" in order to liquidate $1,750,000 owed relating to unpaid benefits. NY
agreed to pay $75,000 by January 1998 and at least $25,000 monthly commencing
March 1, 1998 with interest at 9.5% per annum. As collateral, NY assigned its
retainage receivable from a certain project as well as $1,750,000 of its related
mechanics lien. Upon any funds being released or paid under such mechanics lien,
The Union will be repaid any balance owed in full before NY may receive any
funds. NY will receive credit for any payments received by The Union related to
the assigned portion of the mechanics lien.
In February 5, 1998, NY agreed to issue 106,667 shares of its common
stock to the Company as consideration to the Company for issuing shares of its
own stock to RSJJ in consideration for payment in full of the rent due by NY to
RSJJ for the period from January 1, 1998 to December 31, 1998. The value of the
shares issued will be recorded at their estimated market value at the date of
issuance of $2.12 per share, with a 50% discount due to the restricted nature of
the stock.
During February 1998, the Company authorized the issuance of 250,000
shares of its common stock pursuant to its Senior Management Incentive Plan. Of
the 250,000 shares, 150,000 will be issued to the Company's President, 25,000
the Company's Secretary, and 25,000 to the Company's Treasurer. The remaining
50,000 shares will be issued to consultants to the Company. The Company also
authorized the filing of an amended Form S-8 Registration Statement filed during
February 1997 to reflect the increase to 2,000,000 shares which may be issued
under the plan and the registration of the above shares.
During January 1998, the Company raised a net of $450,000 after a 10%
commission, in connection with a private placement to fund the Worldwide and
Falcon Chad SA operations, from the sale of $500,000 of convertible debentures.
Such debentures are due January 30, 2000 with interest accruing at 8% per annum.
Holders of the debentures are entitled to convert the entire face of the
debentures plus accrued interest, at the lesser of a) 100% of the 5-day average
closing bid price, for the 5 trading days immediately preceding the closing date
of the offering (February 3, 1998) or b) 75% of the 5-day average closing bid
price for the 5 trading days immediately preceding the date of conversion. The
Company agreed to file a Registration Statement covering the shares of common
stock to be issued upon conversion of the debentures, and if not declared
effective within 90 days following the closing of the offering, then there shall
be a decrease of the conversion ratios by 2.5% per 30 day period or portion
thereof pro rata, until the Registration Statement has been declared effective.
In addition, the purchasers of the debentures received warrants to purchase an
aggregate of 100,000 shares of common stock, 50,000 shares at an exercise price
of $1.125 per share and 50,000 shares at $1.41 per share. The funds are being
loaned to Worldwide and Falcon Chad SA to commence operations in Chad.
<PAGE>
MANAGEMENT
Officers and Directors.
The names, ages, and positions of the Company's executive Officers and
Directors are as follows:
<TABLE>
<CAPTION>
Position with the
Name Age Company
<S> <C> <C>
Joseph M. Polito 63 President and Director
Ronald J. Polito 38 Secretary and Director
Steven J. Polito 35 Treasurer and Director
Ronald Murphy __ Director
Marvin Weinstein 66 Director
</TABLE>
All Directors hold office until the next annual meeting of stockholders
or until their successors are elected and qualify. Vacancies on the Board of
Directors may be filled by the remaining Directors. Officers are elected
annually by, and serve at the discretion of the Board of Directors. There are no
family relationships between or among any Officers or Directors of the
Corporation, except that Joseph M. Polito is the father of both Steven and
Ronald Polito. The Company has an audit committee and compensation committee,
both of which include the outside directors and Ronald Polito as the inside
director. Philip Neilson resigned as a director of both the Company and NY, as
of January 23, 1998 and February 10, 1998, respectively. The board appointed
Ronald Murphy as outside director.
Joseph M. Polito has been the President and a Director of the Company since
its inception in 1990 and prior to April 1994 was the sole shareholder of the
Company. Mr. Polito has been the president and Director of Corp. since April
1994. Mr. Polito oversees the running of all of the Company's operations. Since
December 1990, Mr. Polito has been the president and sole Director and
shareholder of One Carnegie Court Associates, Inc. ("One Carnegie"), a wholly
owned subsidiary of Corp. Since 1988, Mr. Polito has been a 50% shareholder of
Crown Crane, Ltd., a company which leases cranes for construction projects.
Since 1986, Mr. Polito has been the president and 100% shareholder of Atlas Gem
Leasing, Inc., a company which leases generators and other construction
equipment. Mr. Polito has also been the president and sole Director and
shareholder of Waldorf since 1990. Before it ceased operating in August 1995,
Waldorf fabricated steel and sold same to the Company. Since 1983, Mr. Polito
has been the president and 100% shareholder of RSJJ, a company which owns and
leases real property.
Since 1976, Mr. Polito has been a member of the Allied Building Metal
Industries, Inc. ("ABMII"), a trade association which has the authority to
negotiate with the unions in order to better the construction industry. He was
the president of same from 1992 until 1993. Since approximately 1987, Mr. Polito
has been the Chairman of the Steel Institute of New York, a trade association
similar to the ABMII. From the mid-1980's to the mid-1990's, Mr. Polito was a
member of the Building Trades Association Joint Safety Committee. Since the
mid-1970's, Mr. Polito has been a member of the of the International Union of
Structural Ironworkers, locals 40, 361, and 417. He has been Co-Chairman of this
organization since the early 1990's.
Ronald J. Polito has been the Secretary and a Director of the Company since
its inception in 1990. From its inception in 1990 until March 1995, he was also
the treasurer of the Company. He has been the secretary and a Director of Corp.
since April 1994. Mr. Polito oversees the daily progress on all projects and
analysis of the final costs and profits of jobs completed and the preparation
and bidding on new projects. Since 1985, Mr. Polito has been the secretary of
Gem Steel. Since December 1990, Mr. Polito has been the secretary of One
Carnegie and Waldorf. Since 1983, Mr. Polito has been the secretary of RSJJ. Mr.
Polito received a Bachelor of Science Degree in Civil Engineering from Brooklyn
Polytechnical Institute in 1981. He is the son of Mr. Joseph M. Polito.
<PAGE>
Steven J. Polito was elected Treasurer of the Company in March 1995. He had
previously been a Project Manager and has been a Director of the Company since
its inception in 1990. Mr. Polito oversees the daily operations for projects in
process and projects completed, including purchasing and leasing of materials
and machinery and the distribution of labor. Mr. Polito has been treasurer of
Corp. since March 1995 and a Director of Corp. since April 1994. Since 1988, Mr.
Polito has been the treasurer of Gem Steel. Since 1988, Mr. Polito has been the
treasurer of One Carnegie, Waldorf, and RSJJ. From 1988 until April 1994, Mr.
Polito worked as a Project Manager of Atlas Gem, a company which furnished and
erected steel structures. He is the son of Mr. Joseph M. Polito.
Marvin Weinstein was elected Director of the Company in June 1995. Mr.
Weinstein was the President and sole shareholder of M. Weinstein Associates from
1988 to 1996. This company provided consulting services to the companies in the
steel industry. Mr. Weinstein retired in 1996. The Company did not engage M.
Weinstein Associates to provide any consulting services to the Company.
Ronald Murphy was appointed by the board as a Director of the Company in
February 1998. Since 1997, Mr. Murphy has been a private investigator. From 1993
to 1996, Mr. Murphy was a field operations supervisor for The Steel Institute of
New York, where he investigated job sites in the New York Metropolitan Area,
ensuring compliance with construction and Occupational Safety and Health
Administration standards. From 1988 to 1993 Mr. Murphy was the office manager of
Crown Crane.
Significant Employees
Richard Miller is President, Chief Executive Officer, and a Director of
Falcon Chad SA, a corporation 80% owned by Worldwide Construction Limited, a
wholly owned subsidiary of the Company. Falcon Chad SA was formed in January
1998 to provide trucking services in Chad, a country in Africa. Commencing in
July 1997, and prior to joining Falcon Chad in November 1997, Mr. Miller was a
consultant to the Company regarding overseas business ventures. From 1992 until
1995, Mr. Miller was Director of Construction and Engineering for Z.E.C., Inc.
in Riyadh, Saudi Arabia, a engineering and construction management company which
oversees projects for the Saudi Arabian military. From 1982-1992, Mr. Miller was
President, Chief Executive Officer, and a Director of Management International
Services SA.
John G. Bauer has been the chief administrative officer (a non-executive
position) of the Company since February 1995. Since its inception in March 1992,
Mr. Bauer has been the President and a Director of Dynamic Construction
Consulting, Inc. ("Dynamic"), a company of which Mr. Bauer was the founder.
Dynamic provides construction management and consulting services to the Company
and other companies. From July 1988 to March 1992, Mr. Bauer was a Vice
President of Tishman Construction Corp. of N.Y., a construction company.
Michael Panayi has been a structural engineer for the Company since its
commencement of operations in June 1993. From 1987 to 1993, Mr. Panayi was a
structural engineer for Atlas Gem.
William J. Kubilus, a professional estimator in the field of general
contracting and subcontracting since 1966, joined the Company in 1996 to provide
estimating expertise for Corp.'s general contracting and subcontracting bids.
Prior to joining the Company, from 1993 to 1996, Mr. Kubilus was an estimator
for Lazzinarro General Contracting. From 1989 to 1993, he was an estimator for
NICO Construction.
As permitted under New York Corporation Law, the Company's certificate of
incorporation eliminates the personal liability of the Directors to the Company
or any of its shareholders for damages for breaches of their fiduciary duty as
Directors. As a result of the inclusion of such provision, stockholders may be
unable to recover damages against Directors for actions taken by them which
constitute negligence or gross negligence or that are in violation of their
fiduciary duties. The inclusion of this provision in the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
Directors and other types of shareholder litigation.
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, paid by NY, the Company's subsidiary, during the years ended June
30, 1997, 1996 and 1995.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
Name Restricted
and Principal Other Annual Stock Options/
Position Year Salary ($) Bonus ($) Compensation ($) Awards ($) (1) SARS (#)
- ------------------ ---- ---------- --------- ---------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Polito 1997 $330,000 - $ 68,642(2) $175,000 (2) 500,000 (3)
President and 1996 300,000 - 111,911(2) 93,750 (4)
Director 1995 378,000 - 68,200(2) - 25,000 (5)
Ronald Polito 1997 $118,800 - $ 17,194 (6) $4,375 (7) 100,000
Secretary and 1996 125,000 - 15,144 (6) - -
Director 1995 121,000 - 21,200 (6) - -
Steven Polito 1997 $86,580 - $ 8,572 (8) $4,375 (7) 75,000
Treasurer and 1996 94,000 - 8,275 (8) -
Director 1995 91,575 - 9,900 (8) - -
</TABLE>
(1) At the end of the fiscal year, Joseph M. Polito held 4,497,156 shares
of Restricted Stock valued at $5,059,301. Ronald Polito and Steven Polito each
held 2,500 shares of Restricted Stock valued at $2,812.50. Valuations are based
on the closing bid price of Common Stock ($1.125) on June 30, 1997, as reported
by a market maker.
(2) Includes (i) the payment of premiums on a life insurance policy of
$10,722, $54,362, and $46,000 for the years ended June 30, 1997, 1996, and 1995,
respectively; (ii) the payment of travel expenses of $50,000, $50,000, and
$22,200 for the years ended June 30, 1997, 1996, and 1995, respectively; and
(iii) the payment of an automobile lease of $7,920 and $7,549 for the years
ended June 30, 1997 and 1996. See "-Employment and Consulting Agreements."
(3) Represents (i) 100,000 shares of Common Stock issued as a bonus in
December 1996 under the Company's 1994 Senior Management Incentive Plan; (ii)
options to purchase 400,000 shares of Company Common stock under the Company's
Stock Option Plan, exercisable at $1.925 per share (which is 110% of the market
price of same on December 2, 1996); and (iii) options to purchase 125,000 shares
of common stock of NY at $1.10 per share, all of which options have been
exercised and 60,000 shares exercised which have been resold. See "-1994 Senior
Management Incentive Plan." Valuation on the 100,000 restricted shares is based
on the closing bid price of Common Stock ($1.75) on December 2, 1996, as
reported by a market maker.
(4) Based on the closing bid price of Common Stock ($.625) on August 15,
1995, as reported by a market maker. As a bonus upon completion of NY's initial
public offering, Mr. Polito was issued 150,000 shares of Common Stock subject to
a vesting whereby 50,000 shares vested upon issuance; 50,000 vested on August
15, 1996; and 50,000 vested on August 15, 1997. All of these shares have vested
and have been issued.
(5) In accordance with his employment agreement, Mr. Polito received
options to purchase 25,000 shares of common stock of NY at $5.50 per share.
These shares vested over a three year period. See "-Employment and Consulting
Agreements".
<PAGE>
(6) Includes (i) payments on the lease of an automobile of $5,416, $5,416,
and $8,000 for the years ended June 30, 1997, 1996, and 1995, respectively; (ii)
the payment of premiums on a term life insurance policy of $8,510, $4,684, and
$5,800 for the years ended June 30, 1997, 1996, and 1995, respectively; and
(iii) a travel allowance of $12,705, $2,971, and $7,400 for the years ended June
30, 1997, 1996, and 1995, respectively.
(7) Reflect the value of the ownership of 2,500 shares of Common Stock at
$1.125, the market price on June 30, 1997.
(8) Includes (i) the payment of an automobile lease of $5,304, $5,304, and
$6,700 for the years ended June 30, 1997, 1996, and 1995, respectively; and (ii)
a travel allowance of $3,268, $2,971, and $3,200 for the years ended June 30,
1997, 1996, and 1995, respectively.
Stock Options
The following table sets forth certain information concerning the grant of
stock options made during the year ended June 30, 1997 under the Company's 1994
Senior Management Incentive Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
====================================================================================================================================
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total Options/SAR's Granted to Employees in Fiscal Year
# of Securities underlying
Options/SARs Granted(1)
Exercise or Base Price ($/share)
Name Expiration Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph M. Polito 400,000 69.56% $1.925 December 1, 2001
Ronald J. Polito 100,000 17.39% $1.75 December 1, 2001
Steven J. Polito 75,000 13.04% $1.75 December 1, 2001
====================================================================================================================================
</TABLE>
(1) Represents incentive stock options granted under the Company's 1994
Senior Management Incentive Plan (the "Management Plan"). Options granted under
this Management Plan are intended to qualify as incentive stock options under
the Internal Revenue Code of 1986, as amended. Under the terms of the Management
Plan, options may be granted to Officers, key employees, Directors, and
consultants of the Company for a maximum term of 10 years. Options granted to
Directors who are not officers or employees, or to consultants, do not qualify
as incentive stock options. The option price per share may not be less than the
fair market value of the Company's shares on the date the option is granted.
However, options granted to persons owning more than 10% of the Company's Common
Stock may not have a term in excess of five years and may not have an option
price of less than 110% of the fair market value per share of the Company's
shares on the date the option is granted.
The following table contains information with respect to employees of
the Company concerning options held as of June 30, 1997:
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
==================================================================================================================================
(a) (b) (c) (d) (e)
- ----------------------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Unexercised In-The-Money Options/
Options/SAR's at FY-End SAR's at FY-End($)
Exercisable/Unexercisable Exercisable/
Unexercisable
Value
Shares Acquired on Exercise Realized($) (1)
Name
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph M. Polito 125,000 $ 0 275,000/0 0/0 (2)
Ronald J. Polito 0 0 100,000/0 0/0 (3)
Steven J. Polito 0 0 75,000/0 0/0 (3)
==================================================================================================================================
</TABLE>
(1) Based upon the average bid and asked prices for such Common Stock on
June 30, 1997 ($1.125), as reported by a market maker.
(2) Since the options are exercisable at $1.925, there is no value to such
options as of June 30, 1997.
(3) Since the options registered to Ronald and Steven Polito under the
February 1997 S-8 are exercisable at $1.75, there is no value to such options as
of June 30, 1997.
Employment and Consulting Agreements
Joseph M. Polito entered into an employment agreement with NY on April 4,
1995, wherein Mr. Polito agreed to devote 80% of his business time to the
affairs of NY. The agreement is for a term of approximately three years and
expires June 30, 1998. Pursuant to the terms of the agreement, Mr. Polito is to
receive a salary of $300,000 per annum until June 30, 1996, with 10% yearly
escalations subject to adjustment by the Board of Directors. Mr. Polito is also
to receive a yearly non-accountable expense allowance of $50,000. Under NY's
1994 Senior Management Incentive Plan, Mr. Polito received stock options to
purchase 25,000 shares of Common Stock at $5.50 per share, vesting at the rate
of 7,500 in each of April 1996 and 1997 and 10,000 in April 1998. Mr. Polito
also has the right to receive a yearly bonus equal to five percent (5%) of the
first $1,000,000, upon reaching $1,000,000 and five percent (5%) of the next
$500,000, upon reaching $1,500,000 and five percent (5%) after $1,500,000, of
all the pre-tax profits of NY. NY shall pay to Mr. Polito a monthly draw of
$10,000 against the bonus. Pursuant to the agreement, NY also shall pay the
premiums on a $3,500,000 life insurance policy for the benefit of individuals as
directed by Mr. Polito. The estimated yearly premium for same is $80,000. The
agreement restricts Mr. Polito from competing with NY for a period of one year
after the termination of his employment. The agreement provides for severance
compensation to be paid to Mr. Polito if his employment with NY is terminated or
if there is a decrease in responsibilities or duties following a change in
control of NY. The severance compensation shall be made in one payment equal to
three times the aggregate annual compensation paid to Mr. Polito during the
preceding calendar year.
<PAGE>
In June 1995, the Company issued Marlowe & Company ("Marlowe") 500,000
shares of Common Stock pursuant to the terms of a consulting agreement. 250,000
of such shares were issued immediately, and 250,000 were held in escrow by Alan
Berkun, counsel for Marlowe, a National Association of Securities Dealers, Inc.
member broker-dealer of which Alan Berkun is the president and principal
stockholder, pending the Company's securities being quoted on the Nasdaq
SmallCap Stock Market. The sale of the 500,000 shares was registered pursuant to
a Registration Statement on Form S-8 filed by the Company on June 11, 1995. In
addition to the shares issued, the consulting agreement provided for the payment
of a consulting fee of $4,000 per month for six months commencing June 1995 as
additional compensation. This monthly fee was not paid. Pursuant to the terms of
the consulting agreement, in addition to consulting services, Marlowe was
required to utilize its best efforts to raise a minimum of $750,000 for the
Company upon the Company's securities being quoted on Nasdaq. No funds were
raised by Marlowe for the Company. All 500,000 shares were resold pursuant to
the S-8 registration statement filed by Alan Berkun on behalf of the Company. On
August 1, 1996, the Company amended its June 1995 agreement with Marlowe and
agreed to issue an additional 250,000 shares of Common Stock to Marlowe: these
shares were issued on October 10, 1996 and resold pursuant to Regulation S under
the Act. Alan Berkun acted as special counsel for the Company regarding these
transactions.
Steven and Ronald Polito receive annual salary compensations of $94,000 and
$125,000, respectively, from NY: these compensation levels commenced in March
1995 and April 1994, respectively. Both individuals also receive a car allowance
equal to the monthly lease payments on their automobiles and the payment of
premiums on life insurance policies for which they choose their beneficiaries.
Neither individual has entered into an employment agreement with NY or the
Company.
In December 1996, the Company entered into a Consulting Agreement with
Bernard Tapie, a Paris based consultant. Mr. Tapie agreed to offer his services
in the development of business relations for the Company in Asia, the Middle
East, Europe, and Africa. The Company agreed to pay a monthly retainer of
$12,000. The Company subsequently assigned the Agreement, as provided for in the
Agreement, to Philip Hababav, and is no longer bound under said agreement.
1994 Senior Management Incentive Plan
In December 1994, the Board of Directors adopted the 1994 Senior
Management Incentive Plan (the "Management Plan"). This plan was adopted by
shareholder consent also. The Management Plan provides for the issuance of up to
2,000,000 shares of the Company's Common Stock in connection with the issuance
of stock options and other stock purchase rights to executive Officers and other
key employees of the Company. In December 1996, the Company issued 575,000 stock
options to Messrs. Joseph, Ronald, and Steven Polito as follows: Mr. Polito
received an option to purchase 400,000 shares of Common Stock (he exercised the
option and purchased 125,000 shares in March 1997 and shortly thereafter sold
60,000 of said shares); Steven Polito received an option to purchase 100,000
shares of Common Stock; and Ronald Polito received an option to purchase 75,000
shares of Common Stock. In February 1998, the Company issued bonuses of 100,000
shares of Common Stock to Joseph M. Polito and 25,000 shares to each of Ronald
Polito, Steven Polito, Richard Miller and a consultant.
The adoption of the Management Plan was prompted by the Company's desire
(i) to attract and retain qualified personnel, whose performance is expected to
have a substantial impact on the Company's long-term profit and growth
potential, by encouraging those persons to acquire equity in the Company; and
(ii) to provide the Board with sufficient flexibility regarding the forms of
incentive compensation which the Company will have at its disposal in rewarding
executive Officers, key employees, and consultants without unnecessarily
depleting the Company's cash reserves. The Management Plan is designed to
augment the Company's existing compensation programs and is intended to enable
the Company to offer executives, key employees, and consultants a personal
interest in the Company's growth and success through the grant of stock options
and/or other rights pursuant to the Management Plan. It is contemplated that
only those executive management employees (generally the Chairman of the Board,
Vice Chairman, Chief Executive Officer, Chief Operating Officer, President, and
Vice President of the Company), key employees, and consultants who perform
services of special importance to the Company will be eligible to receive
compensation under the Management Plan. A total of 2,000,000 shares of Common
Stock are reserved for issuance under the Management Plan.
<PAGE>
Unless otherwise indicated, the Management Plan is to be administered
by the Board of Directors or a committee of the Board, if such a committee is
appointed for this purpose (the Board or such committee, as the case may be,
shall be referred to in the following description as "the Administrator").
Subject to the specific provisions of the Management Plan, the Administrator
will have the discretion to determine (i) the recipients of the awards; (ii) the
nature of the awards to be granted; (iii) the dates such awards will be granted;
(iv) the terms and conditions of the awards; and (v) the interpretation of the
Management Plan, except that any award granted to any employee of the Company
who is also a Director of the Company shall also be subject - in the event the
persons serving as members of the Administrator of the Management Plan at the
time such award is proposed to be granted do not satisfy the requirements
regarding the participation of "disinterested persons" set forth in Rule 16b-3
(" Rule 16b-3") promulgated under the Exchange Act - to the approval of an
auxiliary committee consisting of not less than two individuals who are
considered "disinterested persons" as defined under Rule 16b-3. As of the date
hereof, the Company has not yet determined who will serve on such auxiliary
committee, if one is required.
The Management Plan generally provides that, unless the Administrator
determines otherwise, each option or right granted shall become exercisable in
full upon certain "change of control" events as described in the Management
Plan, or subject to any right or option granted under the Management Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure, or otherwise), the Administrator will make appropriate adjustments to
such plans and the classes, number of shares, and price per share of stock
subject to outstanding rights or options. Generally, the Management Plan may be
amended by action of the Board of Directors, except that any amendment which (i)
would increase the total number of shares subject to such plan; (ii) extend the
duration of such plan; (iii) materially increase the benefits accruing to
participants under such plan; or (iv) change the category of persons who can be
eligible for awards under such plan, must be approved by the affirmative vote of
a majority of the shareholders entitled to vote. The Management Plan permits
awards to be made thereunder until November 2004.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: stock options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights), and
restricted stock purchase agreements (as described below).
Stock Options. Options granted under the Management Plan may be either
incentive stock options ("ISOs") or options which do not qualify as ISOs
("non-ISOs"). ISOs may be granted at an option price of not less than 100% of
the fair market value of the Common Stock on the date of grant, except that an
ISO granted to any person who owns capital stock representing more than 10% of
the total combined voting power of all classes of Common Stock of the Company
("10% stockholder") must be granted at an exercise price of at least 110% for
the fair market value of the Common Stock on the date of the grant. The exercise
price of the non-ISOs may not be less than 85% of the fair market value of the
Common Stock on the date of grant. Unless the Administrator determines
otherwise, no ISO or non-ISO may be exercisable earlier than one year from the
date of grant. ISOs may not be granted to persons who are not employees of the
Company. ISOs granted to persons other than 10% stockholders may be exercisable
for a period of up to ten (10) years from the date of grant; ISOs granted to 10%
stockholders may be exercisable for a period of up to five years from the date
of grant. No individual may be granted ISOs that become exercisable in any
calendar year for Common Stock having a fair market value at the time of grant
in excess of $100,000. Non-ISOs may be exercisable for a period of up to
thirteen (13) years from the date of grant.
<PAGE>
Payment for shares of Common Stock purchases pursuant to exercise of stock
options shall be paid in full in (i) cash, (ii) by certified check, or, (iii) at
the discretion of the Administrator by shares of Common Stock having a fair
market value equal to the total exercise price or (iv) by a combination of the
above. The provision that permits the delivery of already owned shares of stocks
as payment for the exercise of an option may permit "pyramiding." In general,
pyramiding enables a holder to start with as little as one share of common stock
and, by using the shares of common stock acquired in successive, simultaneous
exercises of the option, to exercise the entire option, regardless of the number
of shares covered thereby, with no additional cash or investment other than the
original share of common stock used to exercise the option.
Upon termination of employment or consulting services, an optionee will be
entitled to exercise the vested portion of an option for a period of up to three
months after the date of termination, except that if the reason for termination
was a discharge for cause, the option shall expire immediately, and if the
reason for termination was for death or permanent disability of the optionee,
the vested portion of the option shall remain exercisable for a period of twelve
(12) months thereafter.
Incentive Stock Rights. Incentive stock rights consist of incentive stock
units equivalent to one share of Common Stock in consideration for services
performed for the Company. Each incentive stock unit shall entitle the holder
thereof to receive, without payment of cash or property to the Company, one
share of Common Stock in consideration for services performed for the Company or
any subsidiary by the employee, subject to the lapse of the incentive periods,
whereby the Company shall issue such number of shares upon the completion of
each specified period. If the employment or consulting services of the holder
with the Company terminate prior to the end of the incentive period relating to
the units awarded, the rights shall thereupon be null and void, except that if
termination is caused by death or permanent disability, the holder or his/her
heirs, as the case may be, shall be entitled to receive a pro rata portion of
the shares represented by the units, based upon that portion of the incentive
period which shall have elapsed prior to the holder's death or disability.
Stock Appreciation Rights (SARs). SARs may be granted to recipients of
options under the Management Plan. SARs may be granted simultaneously with, or
subsequent to, the grant of a related option and may be exercised to the extent
that the related option is exercisable, except that no general SAR (as
hereinafter defined) may be exercised within a period of six months of the date
of grant of such SAR, and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise price of the ISO. A holder may be granted general SARs ("General
SARs") or limited SARs ("Limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock, or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to General SARs, except
that, unless the Administrator determines otherwise, they may be exercised only
during a prescribed period following the occurrence of one or more of the
following "Change of Control" transaction: (i) the approval of the Board of
Directors of consolidation or merger in which the Company is not the surviving
corporation, the sale of all of substantially all the assets of the Company, or
the liquidation or dissolution of the Company; (ii) the commencement of a tender
or exchange offer for the Company's Common Stock (or securities convertible into
Common Stock) without the prior consent of the Board; (iii) the acquisition of
beneficial ownership by any person or other entity (other than the Company or
any employee benefit plan sponsored by the Company) of securities of the Company
representing 25% or more of the voting power of the Company's outstanding
securities; or (iv) if during any period of two years or less, individuals who
at the beginning of such period constitute the entire Board cease to constitute
a majority of the Board, unless the election, or the nomination for election, of
each new director is approved by at least a majority of the directors then still
in office.
<PAGE>
The exercise of any portion of either the related option or the tandem SARs
will cause a corresponding reduction in the number of shares remaining subject
to the option or the tandem SARs, thus maintaining a balance between outstanding
options and SARs.
Restricted Stock Purchase Agreements. Restricted Stock purchase agreements
provide for the sale by the Company of shares of Common Stock at prices to be
determined by the Board, which shares shall be subject to restrictions on
disposition for a stated period during which the purchaser must continue
employment with the Company in order to retain the shares. Payment must be made
in cash. If termination of employment occurs for any reason within six months
after the date of purchase, or for any reason other than death or by retirement
with the consent of the Company of the Company after the six-month period but
prior to the time that the restrictions on disposition lapse, the Company shall
have the option to reacquire the shares at the original purchase price.
Restricted shares awarded under the Management Plan will be subject to a
period of time designated by the Administrator (the "restricted period") during
which the recipient must continue to render services to the Company before the
restricted shares will become vested. The Administrator may also impose other
restrictions, terms and conditions that must be fulfilled before the restricted
shares may vest.
Upon the grant of restricted shares, stock certificates registered in the
name of the recipient will be issued and such shares will constitute issued and
outstanding shares of Common Stock for all corporate purposes. The holder will
have the right to vote the restricted shares and to receive all regular cash
dividends (and such other distributions as the Administrator may designate), if
any, which are paid or distributed on the restricted shares and, generally, to
exercise all other rights as a holder of Common Stock, except that, until the
end of the restricted period; (i) the holder will not be entitled to take
possession of the stock certificates representing the restricted shares and (ii)
the holder will not be entitled to sell, transfer or otherwise dispose of the
restricted shares. A breach of any restrictions, terms, or conditions
established by the Administrator with respect to any restricted shares will
cause a forfeiture of such restricted shares.
Upon expiration of the applicable restriction period and the satisfaction
of any other applicable conditions, all or part of the restricted shares and any
dividends or other distributions not distributed to the holder (the "retained
distributions") thereon will become vested. Any restricted shares and any
retained distributions thereon which do not so vest will be forfeited to the
Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability (in each case as
defined in the Management Plan), or dies, then, unless otherwise determined by
the Administrator at the time of the grant, the restricted period applicable to
each award of restricted shares will thereupon be deemed to have expired. Unless
the Administrator determines otherwise, if a holder's employment terminates
prior to the expiration of the applicable restricted period for any reason other
than as set forth above, all restricted shares and any retained distributions
thereon will be forfeited.
Accelerating of the vesting of the restricted shares shall occur, under the
provisions of the Management Plan, on the first day following the occurrence of
any of the following: (a) the approval by the stockholders of the Company of an
"Approved Transaction"; (b) a "Control Purchase"; or (c) a "Board Change."
An "Approved Transaction" is defined as (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of Common Stock will be converted into cash,
securities, or other property other than a merger of the Company in which the
holders of the Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger; or (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company; or (C) the adoption of any plan or proposal for
the liquidation or dissolution of the Company.
<PAGE>
A "Control Purchase" is defined as circumstances in which any person (as
such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation, or other entity (other than the Company or any employee benefit
plan sponsored by the Company) (A) shall purchase any Common Stock of the
Company (or securities convertible into the Company's Common Stock) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Board of Directors, or (B) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the
case of rights to acquire the Company's securities).
A "Board Change" is defined as circumstances in which, during any period of
two consecutive years or less, individuals who at the beginning of such period
constitute the entire Board shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the company's
stockholders, of each new director was approved by a vote of at least a majority
of the directors then still in office.
1994 Employee Stock Option Plan
In December 1994, the Board of Directors adopted the 1994 Senior
Employee Incentive Plan (the "Employee Plan"). This plan was adopted by
shareholder consent also. The Employee Plan provides for the issuance of up to
2,000,000 shares of the Company's Common Stock in connection with the issuance
of stock options to key employees of the Company.
The adoption of the Employee Plan was prompted by the Company's desire (i)
to attract and retain qualified personnel, whose performance is expected to have
a substantial impact on the Company's long-term profit and growth potential, by
encouraging those persons to acquire equity in the Company; and (ii) to provide
the Board with sufficient flexibility regarding the forms of incentive
compensation which the Company will have at its disposal in rewarding key
employees, advisors, and independent consultants without unnecessarily depleting
the Company's cash reserves. The Employee Plan is designed to augment the
Company's existing compensation programs and is intended to enable the Company
to offer employees a personal interest in the Company's growth and success
through the grant of stock options. A total of 2,000,000 shares of Common Stock
are reserved for issuance under the Employee Plan.
Under the Employee Plan, options to purchase an aggregate of not more than
2,000,000 shares of Common Stock may be granted from time to time to key
employees, advisors and independent consultants to the Company and its
subsidiaries. It is anticipated that awards made under the Employee Plan will be
subject to vesting periods, although the vesting periods are subject to the
discretion of the Board of Directors or Administrator of the plan. If approved,
awards under the Employee Plan may be made until January 1, 2004 when the
Employee Plan terminates.
The Employee Plan is to be administered by the Board of Directors.
Subject to the specific provisions of the Employee Plan, the Administrator is
generally empowered to (i) interpret the plan; (ii) prescribe rules and
regulations pertaining thereto; (iii) determine the terms of the option
agreements; (iv) amend them with the consent of the optionee; (v) determine the
employees to whom options are to be granted; and (vi) determine the number of
shares subject to each option and the exercise price thereof. The per share
exercise price for incentive stock options ("ISOs") will not be less than 100%
of the fair market value of a share of the Common Stock on the date the option
is granted (110% of fair market value on the date of grant of an ISO if the
optionee owns more than 10% of the Common Stock of the Company).
<PAGE>
Options will be exercisable for a term determined by the Board which will
not be less than one year. Options may be exercised only while the original
grantee has a relationship with the Company or a subsidiary of the Company which
confers eligibility to be granted options or up to ninety (90) days after
termination at the sole discretion of the Board. In the event of termination due
to retirement, the Optionee, with the consent of the Board, shall have the right
to exercise his option at any time during the twelve (12) month period after
such retirement. Options may be exercised up to twelve (12) months after death
or total and permanent disability. In the event of certain basic changes in the
Company, including a change in control of the Company (as defined in the
Employee Plan) in the discretion of the Board, each option may become fully and
immediately exercisable. ISOs are not transferable other than by will or the
laws of descent and distribution. Options may be exercised during the holder's
lifetime only by the holder or his or her guardian or legal representative.
Options granted pursuant to the Employee Plan may be designated as
ISOs, with the attendant tax benefits provided under Section 421 and 422A of the
Internal Revenue Code of 1986. Accordingly, the Employee Plan provides that the
aggregate fair market value (determined at the time an ISO is granted) of the
Common Stock subject to ISOs exercisable for the first time by an employee
during any calendar year (under all plans of the Company and its subsidiaries)
may not exceed $100,000. The Board may modify, suspend, or terminate the
Employee Plan, provided, however, that certain material modifications affecting
the Plan must be approved by the shareholders, and any change in the Employee
Plan that may adversely affect an optionee's rights under an option previously
granted under the Employee Plan requires the consent of the optionee.
<PAGE>
PRINCIPAL SECURITYHOLDERS
The following table sets forth information as of February 25, 1998 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended), known by the Company to be the
owner of more than 5% of the outstanding shares of Common Stock; (ii) each
Director; and (iii) all Officers and Directors as a group. Except to the extent
indicated in the footnotes to the following table, each of the individuals
listed below possesses sole voting power with respect to the shares of Common
Stock listed opposite his name.
<TABLE>
<CAPTION>
Percent of
Common
Number of Stock
Name Shares Owned (1)
<S> <C> <C>
Joseph M. Polito (1)(2) 4,962,156 64.8%
c\o USABG Corp.
53-09 97th Place
Corona, New York 11368
Steven Polito (3) 152,500 2.0%
c\o USABG Corp.
53-09 97th Place
Corona, New York 11368
Ronald Polito (4) 179,500 2.3%
c\o USABG Corp.
53-09 97th Place
Corona, New York 11368
Marvin Weinstein -- --
c\o USABG Corp.
53-09 97th Place
Corona, New York 11368
Ronald Murphy -- --
c\o USABG Corp.
53-09 97th Place
Corona, New York 11368
All Officers and Directors
as a group (5 persons)(1)-(4) 5,142,156 65.3%
----------------------------------
</TABLE>
(1) Includes 192,000 shares of Common Stock issued in Febraury 1998 in
exchange for 106,667 shares of NY's common stock. See "Business - Properties"
and Certain Relationships and Related Transactions."
(2) Includes 275,000 shares issuable upon the exercise of options which are
presently vested and exercisable. Does not include (i) 10,000 shares issuable to
Joseph M. Polito upon the exercise of options not presently vested; and (ii) an
aggregate of 251,000 shares gifted by Joseph M. Polito, of which 81,000 shares
were gifted to members of Joseph M. Polito's family (including 50,000 each to
Ronald and Steven Polito) and 70,000 shares were gifted to employees of the
Company, as of January 23,
1995. Joseph M. Polito disclaims beneficial ownership of all shares
transferred to his family members.
<PAGE>
(3 Includes 75,000 shares issuable to Steven Polito pursuant to options
which have vested.
(4 Includes 100,000 shares issuable to Ronald Polito pursuant to options
which have vested.
SELLING STOCKHOLDERS
The following table sets forth certain information at February
10, 1998 and as adjusted to reflect the sale of the shares of Common Stock by
the Selling Stockholders.
<TABLE>
<CAPTION>
Shares of
Common Stock Shares Percentage of
Name & Address of Owned Prior Shares Owned After Shares Owned
Stockholder to the Offering Offered Offering After Offering (1)
- ----------------- ---------------- -------- ------------ ------------------
<S> <C> <C> <C> <C>
FT Trading (1) 362,500 362,500 0 0
c\o Augustine Capital
Management, Inc.
141 W. Jackson Boulevard
Suite 2182, Chicago, IL 60604
Black Sea Investments Ltd. (2) 290,000 290,000 0 0
c\o Dempsey & co.
Cockburn House, Cockburn Town
Turks & Caicos BWI
- -----------------------
</TABLE>
(1) Includes an estimated 306,944 shares upon conversion of the Debentures,
subject to adjustment, based upon the conversion price of the Debenture and
55,556 shares issuable upon the exercise of the Warrants. See "Business - 1998
Private Placement," "Description of Securities - 8% Convertible Debentures" and
"- Warrants."
(2) Includes an estimated 245,556 shares upon conversion of the Debentures,
subject to adjustment, based upon the conversion price of the Debenture and
44,444 shares issuable upon the exercise of the Warrants. See "Business - 1998
Private Placement," "Description of Securities - 8% Convertible Debentures" and
"- Warrants."
Plan of Distribution for the Securities of the Selling Securityholders
This Prospectus covers the offering of 652,500 shares of Common Stock, an
estimated 562,500 issuable upon the conversion of the Debentures, subject to
adjustment and 100,000 issuable upon exercise of the owned by the Selling
Stockholders. See "Selling Stockholders." This Prospectus shall be delivered by
said Selling Securityholders upon the sale of any securities by said holders.
The shares of Common Stock and the shares of Common Stock issuable upon the
exercise of such Warrants, may be sold, from time to time by the Selling
Securityholders. Sales of such securities or even the potential of such sales at
any time may have an adverse effect on the market prices of the Securities
offered hereby. See "Risk Factors."
The sale of the securities by the Selling Securityholders may be effected
from time to time in negotiated transactions, at fixed prices which may be
changed, and at market prices prevailing at the time of sale, or a combination
thereof. The Selling Securityholders may effect such transactions by selling
directly to purchasers or to or through broker-dealers which may act as agents
or principals, including in a block trade transaction in which the broker or
dealer will attempt to sell the securities as agent but may position and resell
a portion of the block as principal to facilitate the transactions or purchases
by a broker or dealer as principal and resale by such broker or dealer for its
own account pursuant to this Prospectus, or in ordinary brokerage transactions
and transactions in which the broker solicits purchasers. In effecting sales,
<PAGE>
brokers or dealers engaged by the Selling Securityholders may arrange for other
brokers or dealers to participate. Such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the Selling
Securityholders and/or the purchasers of the securities, as applicable, for
which such broker-dealers may act as agents or to whom they sell as principal,
or both (which compensation as to a particular broker-dealer might be in excess
of customary commissions). The Selling Securityholders and any broker-dealers
that act in connection with the sale of the shares of Common Stock and/or by the
Selling Securityholders might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Act. In that connection, the Company has agreed to
indemnify the Selling Securityholders and the Selling Securityholders has agreed
to indemnify the Company, against certain civil liabilities including
liabilities under the Act.
At the time a particular offer of its securities is made by or on
behalf of the Selling Securityholders, to the extent required, a prospectus
supplement will be distributed which will set forth the number of shares of
Common Stock being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for shares purchased from the Selling Securityholders and any
discounts, commission or concessions allowed or re-allowed or paid to dealers,
and the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder, any person engaged in a
distribution of Company's Securities offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such Company
securities during the applicable "cooling off" period (nine days) prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and rules and regulations thereunder, including without
limitation, Rules 10b-6 and 10b-7, in connection with transactions in such
securities, which provisions may limit the timing of purchases and sales of
Company securities by the Selling Securityholders.
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 50,000,000 shares of
Common Stock, par value $.001 per share. The following summary description of
the Common Stock and Preferred Stock are qualified in their entirety by
reference to the Company's Articles of Incorporation.
Common Stock
Each share of Common Stock entitles its holder to one non-cumulative vote
per share and, subject to the preferential rights of the Preferred Stockholders,
the holders of more than fifty percent (50%) of the shares voting for the
election of directors can elect all the directors if they choose to do so, and
in such event the holders of the remaining shares will not be able to elect a
single director. Holders of shares of Common Stock are entitled to receive such
dividends as the board of directors may, from time to time, declare out of
Company funds legally available for the payment of dividends. The Company has
not paid cash dividends on its common stock and intends to retain earnings, if
any, for use in its activities. Payment of cash dividends in the future will be
wholly dependent upon the Company's earnings, financial condition, capital
requirements and other factors deemed relevant by the board of directors. It is
not likely that cash dividends will be paid in the foreseeable future. Upon any
liquidation, dissolution or winding up of the Company, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to shareholders after the satisfaction of the
liquidation preference of the preferred stockholders. See "Dividend Policy."
Shareholders do not have any preemptive rights to subscribe for or
purchase any stock, warrants or other securities of the Company. The Common
Stock is not convertible or redeemable. Neither the Company's Certificate of
Incorporation nor its By-Laws provide for preemptive rights.
8% Convertible Debenture
On February 3, 1998, the Company consummated the sale in a private
offering of $450,000 of 8% Convertible Debentures. Holders of the debentures are
entitled to convert the entire face of the debentures plus accrued interest, at
the lesser of a) 100% of the 5-day average closing bid price, for the 5 trading
days immediately preceding the closing date of the offering (February 3, 1998)
or b) 75% of the 5-day average closing bid price for the 5 trading days
immediately preceding the date of conversion. With each conversion the Company
shall issue shares for the conversion and pay accrued interest in cash or shares
at the Company's option. If paid in Common Stock, the number of shares of the
Company's Common Stock to be received shall be determined by dividing the dollar
amount of the interest by the then applicable conversion rate. The Debentures
are subject to automatic conversion at the end of two years from the date of
issuance at which time all debentures outstanding will be automatically
converted
The Company agreed to file a Registration Statement covering the shares
of common stock to be issued upon conversion of the debentures, and if not
declared effective within 90 days following the closing of the offering, then
there shall be a decrease of the conversion ratios by 2.5% per 30 day period or
portion thereof pro rata, until the Registration Statement has been declared
effective.
<PAGE>
Warrants
In addition, the purchasers of the debentures referenced above,
received warrants to purchase an aggregate of 100,000 shares of common stock.
The Warrants entitle the holders thereof to purchase an aggregate of 100,000
shares of Common Stock as follows: 50,000 shares at an exercise price of $1.125
and 50,000 shares at an exercise price of $1.41, commencing March 31, 1998 and
expiring March 31, 2001
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of each Warrant are subject to adjustment in certain events,
including the issuance of a stock dividend to holders of Common Stock, or a
combination, subdivision or reclassification of Common Stock. No fractional
shares will be issued upon exercise of Warrants, but the Company will pay the
cash value of the fractional shares otherwise issuable.
Notwithstanding the foregoing, in case of any consolidation, merger,
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety, the holder of each outstanding Warrant shall
continue to have the right to exercise the Warrant for the kind and amount of
shares and other securities and property (including cash) receivable by a holder
of the number of shares of Common Stock for which such Warrants were exercisable
immediately prior thereto.
Holders of Warrants are not entitled, by virtue of being such holders,
to receive dividends or to consent or to receive notice as shareholders in
respect of any meeting of shareholders for the election of directors of the
Company or any other mater, or to vote at any such meeting, or to exercise any
rights whatsoever as shareholders of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 1, 1995, in conjunction with NY's public offering
underwriter's exercise of its over-allotment option to purchase 91,850
additional shares of NY's common stock, the Company exercised its Special
Warrant and purchased 5,665 shares of NY's common stock at $2.50 per share.
On October 11, 1995, NY paid One Carnegie $50,000 on behalf of MD for
fabrication services performed by MD. Such payment was treated as a payment on
account by NY to MD. From July 1995 to October 1995, NY paid MD approximately
$183,000 for the labor associated with the fabrication of steel.
On May 13, 1996, Joseph M. Polito, the Company's President, entered
into a memorandum of understanding with an individual, Lubov Ulianova, whereby
Mr. Polito borrowed $300,000 from Mr. Ulianova. The loan was secured by 550,000
shares of the Company's Common Stock owned by Mr. Polito, which shares were put
into an escrow account with Alan Berkun as the escrow agent. The funds were then
loaned by Mr. Polito to the Company. The loan provided that upon the Company's
listing of its Common Stock on the Nasdaq SmallCap Stock market (Nasdaq),
400,000 shares of Common Stock would be issued to Mr. Ulianova as repayment of
the loan. This transaction was an exempt transaction, in accordance with
Regulation S under the Securities Act of 1933, as amended. In addition, Mr.
Polito granted Mr. Ulianova an option to purchase 600,000 shares of Company
Common Stock at an exercise price of $1.50. The option could only be exercised
if the bid price for the Company's Common Stock was at least $3.00. The
Company's Common Stock was approved for listing on Nasdaq on July 25, 1996, at
which time the loan was repaid. The option expired unexercised. These matters
were reviewed for the Company by its special counsel Alan Berkun, Esq.
In December 1996, the Company issued bonuses of 100,000 shares of
Common Stock to Joseph M. Polito and 2,500 shares to each of Ronald Polito and
Steven Polito pursuant to the Management Plan. In addition 313 shares were
issued to Joseph M. Polito's wife. In connection with the 114,617 shares issued
to NY's employees and consultants, the Company recorded compensation expense
amounting to $107,453, which is based on upon 50% of the average closing bid
price for the month of December 1996.
<PAGE>
In February 1997, pursuant to a Form S-8 Registration Statement filed with
the Securities and Exchange Commission, the Company registered for sale a total
of 686,617 shares of Common Stock, 575,000 of which are shares underlying
options granted pursuant to the Company's Senior Management Incentive Plan. The
options are exercisable at $1.75 and $1.925 per share.
On March 13, 1997, the Company issued 125,000 shares of Common Stock to
Joseph M. Polito upon exercise of options granted pursuant to the above
mentioned Management Plan. In February 1997, these shares were registered for
resale pursuant to a Form S-8 Registration Statement. Mr. Polito executed a
promissory note for the exercise price.
During the year ended June 30, 1996, NY purchased approximately $180,333 of
fabricated steel from Waldorf. Such amount paid to Waldorf represented
approximately 18% of the steel purchased by NY for the year ended June 30, 1996.
Waldorf is wholly owned by Joseph M. Polito.
During the years ended June 1997 and 1996, NY paid $371,321 and $802,383,
respectively, to MD for certain materials and labor necessary to perform steel
erection services. MD is a wholly owned subsidiary of the Company.
During the years ended June 30, 1997 and 1996, NY paid $214,000 and
$163,000, respectively, to Crown Crane, Ltd. for leasing cranes necessary to
perform steel erection services. Joseph M. Polito owns 50% of Crown Crane, Ltd.
During the year ended June 30, 1997, NY paid $35,000 to Atlas Gem Leasing,
Inc. for certain machinery necessary to perform steel erection services. Atlas
Gem Leasing, Inc. is wholly owned by Joseph M. Polito.
As of May 1997, the Company was in arrears in the amount of $480,000 in
payments due under its lease with RSJJ. This arrearage was converted into equity
as follows: the Company issued 270,000 shares of Common Stock to Corp., for the
cancellation of the debt owed to RSJJ. Corp., in turn, issued 200,000 shares of
its common stock to Joseph M. Polito and 150,000 shares of its common stock to
RSJJ. RSJJ then transferred all of such shares to RSJJ's mortgagor, which agreed
to accept said shares as payment of RSJJ's outstanding mortgage.
In February 1998, the Company issued bonuses of 100,000 shares of Common
Stock to Joseph M. Polito and 25,000 shares to each of Ronald Polito and Steven
Polito pursuant to the Management Plan.
On February 10, 1998, NY agreed to pay its lease payments for 1998 by the
issuance of 106,667 shares of its Common Stock. The per share price was $.14
above the closing price for NY's shares as reported by Nasdaq.
See "Executive Compensation-Employment and Consulting Agreements" for
information regarding management's compensation.
LEGAL OPINIONS
Legal matters relating to the shares of Common Stock and Warrants will be
passed on for the Company by its counsel, Klarman & Associates, New York, New
York.
EXPERTS
The financial statements of the Company as of and for the years ended June
30, 1997 and 1996 have been audited by Scarano & Tomaro, P.C., Independent
Certified Public Accountants, to the extent and for the period set forth in
their report appearing elsewhere herein and are included in reliance upon such
report given upon the authority of that firm as experts in giving said reports.
In July 1997, Scarano & Tomaro, P.C. was formed and is considered a successor
firm of Scarano & Lipton, P.C. for auditing purposes, which firm has executed
the report referenced above and consent annexed hereto.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, with respect to the shares of Common Stock and Warrants to
which this Prospectus relates. As permitted by the rules and regulations of the
Commission, its Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Shares and Warrants offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, which may be copied and
inspected at the Public Reference Section of the Commission at its principal
office at 450 Fifth Street, N.W., Washington, D.C., 20549.
<PAGE>
USABG CORP. AND SUBSIDIARIES
(FORMERLY U.S. BRIDGE CORP., & SUBSIDIARIES)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Independent auditors' report F-1
Consolidated balance sheets at December 31, 1997 (unaudited)
and June 30, 1997 F-2
Consolidated statements of operations for the six months ended
December 31, 1997 and 1996 (unaudited) and for the years
ended June 30, 1997 and 1996 F-3
Consolidated statement of stockholders' equity for the six months
ended December 31, 1997 (unaudited) and for the years
ended June 30, 1997 and 1996 F-4
Consolidated statements of cash flows for the six months ended December 31,
1997 and 1996 (unaudited) and for the years
ended June 30, 1997 and 1996 F-5 - F-6
Notes to consolidated financial statements F-7 - F-20
</TABLE>
<PAGE>
INDEPENDENT AUDITORS= REPORT
To the Board of Directors and Stockholders of
USABG Corp. and subsidiaries (Formerly U.S. Bridge Corp. & subsidiaries)
We have audited the accompanying consolidated balance sheet of USABG Corp.
and subsidiaries (formerly U.S. Bridge Corp., & subsidiaries) (the "Company") as
of June 30, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended June 30, 1997 and 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of June 30, 1997, and the consolidated
results of its operations and cash flows for the years ended June 30, 1997 and
1996, in conformity with generally accepted accounting principles.
Scarano & Tomaro, P.C.
Syosset, New York
October 4, 1997
<PAGE>
USABG CORP. AND SUBSIDIARIES
(FORMERLY U.S. BRIDGE CORP. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
December June
31, 1997 30, 1997
Current assets:
<S> <C> <C>
Cash ..................................................................... $ 943,216 $ 555,435
Cash - restricted ........................................................ 219,199 214,001
Contracts and retainage receivable, net .................................. 10,145,153 8,962,297
Costs and estimated earnings in excess of billings
on uncompleted contracts ................................................ 1,437,547 2,225,723
Due from related parties ................................................. 255,526 --
Deferred tax asset ....................................................... 336,200 304,225
Other current assets ..................................................... 235,462 186,499
------------ ------------
Total current assets ................................................. 13,572,303 12,448,180
Assets of discontinued operations ............................................. -- 2,889,999
Deferred tax asset - non current .............................................. 30,200 74,575
Other assets .................................................................. 80,426 87,500
------------ ------------
Total assets .................................................................. $ 13,682,929 $ 15,500,254
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including cash overdrafts of $121,934 and
$149,290, respectively .................................................. $ 1,291,340 $ 3,495,492
Accrued expenses ......................................................... 1,325,105 964,236
Current portion of long-term payables .................................... 325,000 --
Payroll taxes payable .................................................... 1,786,677 1,441,589
Note payable ............................................................. 145,358 145,358
Billings in excess of costs and estimated earnings
on uncompleted contracts ................................................ 380,408 126,455
Due to related parties ................................................... -- 166,540
Income taxes payable ..................................................... 722,744 522,379
Liabilities of discontinued operations ................................... 150,000 3,039,999
------------ ------------
Total current liabilities ............................................ 6,126,632 9,902,048
------------ ------------
Long-term payable ............................................................. 1,425,000 --
------------ ------------
Minority interest ............................................................. 3,121,389 2,828,301
------------ ------------
Commitments and contingencies (Note 11) ....................................... -- --
Stockholders' equity:
Preferred stock, authorized 10,000,000, issued
and outstanding -0- shares .............................................. -- --
Common stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding 7,402,148 ................................ 7,006 7,006
Additional paid-in capital ............................................... 3,756,589 3,756,589
Accumulated deficit ...................................................... (513,062) (753,065)
------------ ------------
Sub-total stockholders= equity ....................................... 3,250,533 3,010,530
Less: Stock subscription receivable .................................. (240,625) (240,625)
------------ ------------
Total stockholders' equity ........................................... 3,009,908 2,769,905
------------ ------------
Total liabilities and stockholders' equity .................................... $ 13,682,929 $ 15,500,254
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
USABG CORP. AND SUBSIDIARIES
(FORMERLY U.S. BRIDGE CORP., & SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
For the six months ended For the Year ended
December 31, June 30,
1997 1996 1997 1996
------------- ------------ ------------- ---------
Revenue:
<S> <C> <C> <C> <C>
Contract revenue ................................ $ 12,269,286 $ 5,806,441 $ 15,494,447 $ 7,401,433
------------ ------------ ------------ ----------------
Costs and expenses:
Cost of contract revenues ....................... 10,072,469 4,125,763 11,137,325 5,031,216
General and administrative expenses ............. 1,448,402 1,364,591 2,934,916 2,493,399
Bad debt expense ................................ -- -- 1,287,000 1,019,127
------------ ------------ ------------ ----------------
Total costs and expenses ................. 11,520,871 5,491,354 15,359,241 8,543,742
------------ ------------ ------------ ----------------
Income (loss) from operations before other
income (expense), minority interest and (benefit)
provision for income taxes ......................... 748,418 315,087 135,206 (1,142,309)
Other income (expenses):
Interest expense and financing costs ............ (7,758) (9,145) (158,577) (35,141)
Unusual item (Note 8b) .......................... -- -- -- (441,863)
Gain on sale/acquisition of subsidiary's stock .. -- -- 17,500 832,571
Gain on issuance of stock for accounts payable .. -- -- 243,750 --
Interest income ................................. 5,199 1,000 10,425 27,766
------------ ------------ ------------ ----------------
Total other (expenses) income ............ (2,559) (8,145) 113,098 383,333
------------ ------------ ------------ ----------------
(Income) loss before minority interest and
(benefit) provision for income taxes ............... 745,859 306,942 248,304 (758,976)
Minority interest in net (income) loss .............. (293,088) (279,765) (281,773) 342,802
------------ ------------ ------------ ----------------
Loss before provision (benefit) for income taxes .... 452,771 27,177 (33,469) (416,174)
Provision (benefit) for income taxes ................ 212,768 -- 142,875 (860,960)
------------ ------------ ------------ ----------------
Net income before loss from discontinued operations . 240,003 27,177 (176,344) 444,786
Loss from discontinued operations ................... -- 235,853 280,911 404,217
Loss on disposal of assets of discontinued operations -- -- 83,621 --
------------ ------------ ------------ ----------------
Net income (loss) ................................... $ 240,003 $ (208,676) $ (540,876) $ 40,569
============ ============ ============ ================
Net income (loss) per common equivalent share:
Income (loss) from operations before other
income (expense), minority interest and
(benefit) provision for income taxes ........... $ .10 $ .05 $ .02 $ (.19)
============ ============ ============ ================
Income (loss) before minority interest and
(benefit) provision for income taxes ........... $ .10 $ .05 $ 04 $ (.12)
============ ============ ============ ================
Provision (benefit) for income taxes ............ $ .03 $ -- $ .02 $ (.14)
============ ============ ============
Net income (loss) ............................... $ .03 $ (.03) $ (.08) $ Nil
============ ============ ============ ================
Weighted average number of common
shares outstanding ................................. 7,402,148 6,450,736 6,854,390 6,137,530
============ ============ ============ ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
USABG CORP. AND SUBSIDIARIES
(FORMERLY U.S. BRIDGE CORP., & SUBSIDIARIES)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED) AND
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Common
stock
Additional Total
paid-in Accumulated Stockholders'
Shas Amount capital Deficit equity
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1995 6,012,531 $ 5,616 $ 2,591,652 $ (252,758) $ 2,344,510
Issuance of common stock in consideration
for services pursuant to senior management
incentive plan 150,000 150 49,350 - 49,500
Net income for the year ended
June 30, 1996 - - - 40,569 40,569
-------------- --------- -------------- ------------ --------------
Balances at June 30, 1996 6,162,531 5,766 2,641,002 (212,189) 2,434,579
Issuance of common stock in lieu of
repayment of loan 400,000 400 399,600 - 400,000
Issuance of common stock as
consideration for services
provided to the Company 250,000 250 149,750 - 150,000
Issuance of common stock pursuant
to the 1995 Senior Management
Incentive Plan as consideration for
services provided to the Company 114,617 115 107,337 - 107,452
Issuance of common stock in connection
with the exercise of options 125,000 125 240,500 - 240,625
Issuance of common stock in connection
with settlement of subsidiary=s related
party debt 350,000 350 218,400 - 218,750
Net loss for the year ended
June 30, 1997 - - - (540,876) (540,876)
Stock subscription receivable - - - - (240,625)
-------- --------- -------- --------- ----------
Balances at June 30, 1997 7,402,148 7,006 3,756,589 (753,065) 2,769,905
Net income for the six months
ended December 31, 1997 - - - 240,003 240,003
-------------- --------- -------------- ------------ --------------
Balances at December 31, 1997 7,402,148 $ 7,006 $ 3,756,589 $ (513,062) $ 3,009,908
============== =========== =============== =========== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
USABG CORP. AND SUBSIDIARIES
(FORMERLY U.S. BRIDGE CORP., & SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
For the Six months ended For the Year ended
December 31, June 30,
1997 1996 1997 1996
------------- ------------- ------------- ----------
Operating activities:
<S> <C> <C> <C> <C>
Net income (loss) ...................................... $ 240,003 $ (101,223) $ (540,876) $ 40,569
Adjustments to reconcile net (loss) income to net
cash (used for) provided by operating activities:
Depreciation and amortization ........................ 11,298 242,327 453,583 882,549
Amortization and consulting costs .................... 37,500 22,000 -- --
Minority interest in net income (loss) ............... 293,088 279,765 281,773 (342,802)
Bad debt expense ..................................... -- -- 1,287,000 1,019,127
Deferred income tax benefit .......................... 51,449 -- (396,300) --
Issuance of common stock for services ................ -- -- 107,453 --
Gain on sale of subsidiary's stock ................... -- -- -- (832,571)
Gain on issuance of stock for debt ................... -- -- (143,750) --
Contingent loss on disposal of property .............. -- -- 92,121 --
Decrease (increase) in:
Contracts and retainage receivable ................... (1,182,856) (3,266,998) (6,752,882) (1,711,424)
Prepaid expenses ..................................... -- (10,996) -- --
Costs and estimated earnings in excess of
billings on uncompleted contracts ................... 788,176 1,361,524 207,801 (607,395)
Other current assets ............................... (48,963) 47,934 (7,382) (18,750)
Increase (decrease) in:
Accounts payable ..................................... (454,152) 971,631 3,519,175 489,597
Accrued expenses ..................................... 360,869 160,989 778,853 (189,545)
Payroll taxes payable ................................ 345,088 155,429 1,060,660 62,570
Billings in excess of costs and estimated
earnings on uncompleted contracts ................... 253,953 (8,857) 109,888 16,567
Income taxes payable ................................. 200,365 -- 521,675 (864,263)
----------- ----------- ----------- -----------
Net cash provided by (used for) operating activities 863,843 (146,475) 578,792 (2,055,771)
----------- ----------- ----------- -----------
Investing activities:
Fixed asset acquisitions ............................... (3,779) (5,677) -- --
Other assets ........................................... -- -- (8,156) --
----------- ----------- ----------- -----------
Net cash (used for) investing activities ........... (3,779) (5,677) (8,156) --
----------- ----------- ----------- -----------
Financing activities:
Principal payments on mortgage ......................... -- -- -- (164,992)
Financing costs incurred ............................... -- -- (35,000) --
Principal payments of notes payable .................... -- -- (479) (1,071,649)
Advances from officers and related parties ............. -- 129,532 211,341 358,779
Repayments to officers and related parties ............. (467,085) -- (376,714) (80,767)
Proceeds from issuance of Subsidiary's
common stock and warrants, net of costs ............... -- -- -- 3,207,806
----------- ----------- ----------- -----------
Net cash (used for) provided by financing activities (467,085) 129,532 (200,852) 2,249,177
----------- ----------- ----------- -----------
Net increase in cash ...................................... 392,979 (22,620) 369,784 193,406
Cash, beginning ........................................... 769,436 399,652 399,652 206,246
----------- ----------- ----------- -----------
Cash, ending .............................................. $ 1,162,415 $ 377,032 $ 769,436 $ 399,652
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTE 1 - ORGANIZATION
USABG, Corp. (Athe Company@) amended its certificate
of incorporation on January 14, 1998 to change in its name
from U.S. Bridge Corp., to USABG Corp. The Company currently
owns 53.23% of the outstanding shares of U.S.A Bridge
Construction of N.Y., Inc. ("USA Bridge") (formerly known as
U.S. Bridge of N.Y., Inc.), 100% of the outstanding shares of
common stock of Worldwide Construction Limited (AWorldwide@).
These two subsidiaries are the only ones through which the
Company operates. Two additional subsidiaries of the Company
(each wholly owned subsidiary), One Carnegie court Associates,
Inc., and U.S. Bridge Corp of Maryland (AMaryland@) ceased
operations in August 1997 and November 1996, respectively.
Worldwide was formed by the Company in December 1997
and is a British Virgin Islands corporation. It was formed
to own 80% of Falcon TChad SA (AFalcon@), a company formed
in N=djamena, Chad to operate as a full service
transportation, forwarding, warehousing, and development
company. Falcon shall offer transportation services
including trucking, customs clearance and warehousing. As of
December 31, 1997, no activity commenced in Worldwide.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation - six months ended December 31, 1997 and 1996
The unaudited interim financial statements included
herein have been prepared by the Company, without audit pursuant to the rules
and regulations of the Securities and Exchange Commission and in the opinion of
management include all adjustments necessary in order to make the financial
statements not misleading. The results of operations for the six months ended
are not necessarily indicative of the results to be expected for the full year.
b) Consolidated statements
The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiary, USA Bridge and its wholly-owned
subsidiaries, One Carnegie, Maryland and Worldwide after elimination of all
significant intercompany transactions and accounts.
c) Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of six months or
less to be cash equivalents. USA Bridge at June 30, 1997 maintains its cash
deposits in accounts which are in excess of federal deposit insurance
corporation limits by $244,625.
As of December 31, 1997 and June 30, 1997, the
Company maintains $219,199 and $214,001, respectively of restricted cash
securing a credit line from a financial institution.
d) Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts 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 revenue and expenses during the reporting
period. The most significant estimates with regard to these financial statements
relate to the estimating of final construction contract profits in accordance
with accounting for long-term contracts and estimating potential liabilities in
conjunction with certain contingencies and commitments. Actual results could
differ from these estimates.
<PAGE>
e) Balance sheet classifications
The Company includes in current assets and liabilities amounts receivable
and payable under construction contracts which may extend beyond one year. A
one-year time period is used as the basis for classifying all other current
assets and liabilities.
f) Contracts and retainage receivables
Contracts and retainage receivables represent amounts billed but
uncollected on completed construction contracts and construction contracts in
progress and unbilled retainage on construction contracts completed and in
progress.
The Company utilizes the allowance method for recognizing the
collectibility of its contracts receivable. The allowance method recognizes bad
debt expense based on a review of the individual accounts outstanding based on
the surrounding facts and estimates made by management.
g) Property and equipment
Property and equipment which has been classified as assets of discontinued
operations are recorded at cost. Depreciation was provided using the
straight-line method over the estimated useful lives of the related assets which
range from 10 to 40 years.
h) Deferred compensation
Deferred compensation which has been included as other assets consists of
stock issued to an officer relating to the initial public offering of USABG
Corp. Deferred compensation has been charged to general and administrative costs
over the vesting period of the stock issued.
i) Deferred consulting costs
Deferred consulting costs which have been classified as other assets
consist of consulting fees in the form of additional common stock issued to a
broker-dealer. The deferred consulting costs are being amortized over the two
year period.
j) Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's taxable income for Federal, State and City income tax reporting purposes.
k) Revenue recognition
The Company recognizes revenue and costs for all contracts under the
percentage of completion method. Cost of contract revenues include all direct
material and labor costs and those indirect costs related to contract
performance. General and administrative expenses are accounted for as period
costs and are, therefore, not included in the calculation of the estimates to
complete construction contracts in progress. Material project losses are
provided for in their entirety without reference to the percentage of
completion. As contracts can extend over one or more accounting periods,
revision in costs and earnings estimated during the course of the work are
reflected during the accounting period in which the facts become known. An
amount equal to the costs attributable to unapproved change orders and claims is
included in the total estimated revenue when realization is probable.
<PAGE>
The current asset, "costs and estimated earnings in excess of billings on
uncompleted contracts", represents costs and estimated earnings in excess of
amounts billed on respective uncompleted contracts at the end of each period.
The current liability, "billings in excess of costs and estimated earnings
on uncompleted contracts," represents billings which exceed costs and estimated
earnings on respective uncompleted contracts at the end of each period.
l) Net income (loss) per share
Net income (loss) per share for the respective periods presented are based
upon the weighted average number of common shares outstanding during the
respective periods.
m) Impact of recently issued accounting standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted Statement 121 during the year
ended June 30, 1996.
n) Accounting for stock-based compensation
During 1995, SFAS No. 123, AAccounting for Stock-based Compensation@ was
issued. The statement requires the fair value of stock options and other
stock-based compensation issued to employees to be either included as
compensation expense in the income statement, or the pro-forma effect on net
income and earnings per share to be disclosed in the footnotes to the financial
statements commencing in 1996. The Company has elected to adopt SFAS No. 123
effective July 1, 1995.
o) Fair value disclosure as of June 30, 1997
The carrying value of cash, accounts receivable, accounts payable and
accrued expenses and short-term debt are a reasonable estimate of their fair
value. The carrying value of the long-term debt approximates fair value based
upon the interest factors for the debt being based upon the prime rate which
reflects market value.
p) Reclassifications
Certain reclassifications have been made to the June 30, 1996 consolidated
financial statements in order to conform to the June 30, 1997 presentation.
NOTE 3 - CONTRACT AND RETAINAGE RECEIVABLE
Contract and retainage receivable consist of the following at:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
<S> <C> <C>
Contracts in progress $ 392,716 $ 5,087,169
Completed contracts 9,931,206 4,939,284
Retainage 1,980,231 1,222,844
---------------- --------------
12,304,153 11,249,297
Less: allowance for doubtful accounts 2,159,000 2,287,000
----------- --------------
$ 10,145,153 $ 8,962,297
================ ==============
</TABLE>
<PAGE>
NOTE 4 - CONTRACTS IN PROGRESS
Costs and estimated earnings in excess of billings and
billings in excess of costs and estimated earnings on uncompleted contracts
consist of the following at:
<TABLE>
<CAPTION>
December 31, June 30,
<S> <C> <C>
1997 1997
Costs incurred on uncompleted contracts $ 6,634,341 $ 14,025,808
Profits earned to date 2,884,977 4,190,473
---------------- --------------
9,519,318 18,216,281
Less: billings to date 8,462,179 16,117,013
---------------- --------------
$ 1,057,139 $ 2,099,268
================ ==============
</TABLE>
Included in the accompanying balance sheet under the
following captions at:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 1,437,547 $ 2,225,723
Billings in excess of costs and estimated
earnings on uncompleted contracts (380,408) (126,455)
-------------- ----------------
$ 1,057,139 $ 2,099,268
================ ==============
</TABLE>
NOTE 5 - BACKLOG
The following schedule summarizes changes in backlog on contracts during
the year ended June 30, 1997 and the six months ended December 31, 1997. Backlog
represents the amount of revenue the Company expects to realize from work to be
performed on uncompleted contracts in progress and from contractual agreements
on which work has not yet begun.
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
<S> <C> <C>
Backlog balance at beginning of period $ 6,049,300 $17,943,400
Change orders to contracts in progress
during the period 9,446,986 2,486,885
New contracts during the period - 1,113,462
------ -----------
15,496,286 21,543,747
Less:
Contract revenue earned during
the period (12,269,286) (15,494,447)
---------------- --------------
Backlog balance at end of the period $ 3,227,000 $ 6,049,300
============ ==================
</TABLE>
<PAGE>
NOTE 6 - ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses consist of the following at:
December 31, June 30,
1997 1997
<S> <C> <C>
Wages and related union benefits $ 406,034 $ 307,934
Professional fees 15,000 40,000
Insurance expense 737,655 421,885
State franchise taxes 1,218 1,392
Interest and penalties on payroll taxes 165,198 193,025
-------------- ---------------
$ 1,325,105 $ 964,236
================ ==============
</TABLE>
NOTE 7 - INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes". Income taxes are provided for the tax
effects of transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes related primarily to differences between
the financial and tax basis of assets and liabilities. The deferred tax assets
and liabilities represent the future tax return consequences of these temporary
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. The Company's only such significant items
relate to its allowance for doubtful accounts and Section 144 stock issuances..
For income tax purposes, the Company reports using a year end of December
31. The Company and its subsidiaries file returns separately for federal and
state purposes. The reconciliation of income tax computed at the federal
statutory tax rate to income tax expense is as follows for the years ended June
30:
<TABLE>
<CAPTION>
1997 1996
------------ ---------
<S> <C> <C>
Tax computed at the federal statutory income tax rate ........ $ (11,379) $ (141,500)
Increase (reductions) resulting from state and local
taxes net of federal benefit ............................... (4,331) (18,395)
Tax expense on subsidiary income, deferred income tax
benefit, and other miscellaneous permanent differences ...... 158,585 --
Reversal of prior year accruals .............................. -- (701,065)
----------- -----------
Income tax expenses (benefit) ................................ $ 142,875 $ (860,960)
=========== ===========
The tax effects of significant item comprising the Company's
net deferred tax assets as of June 30, 1997 is as follows:
Allowance for doubtful accounts .............................. $ 1,073,500
Section 144 stock (IRC Section 83) ........................... 441,700
Less: Valuation allowance .................................... (1,136,400)
-----------
Deferred tax asset ........................................... $ 378,800
===========
Current portion of deferred tax asset .................... $ 304,225
===========
Non-current portion of deferred tax asset .................... 74,575
-----------
$ 378,800
</TABLE>
<PAGE>
The Company has recorded a deferred tax asset with an estimated valuation
allowance of 75% as of June 30, 1997 based on the estimated deductibility of the
above items expense in the future.
NOTE 8 - NOTES PAYABLE
a) Line of credit
During August 1994, the Company secured a $250,000 credit line with a bank
at an interest rate of one and one half percent (11/2%) above the prime rate.
The security for the line of credit is in the form of a certificate of deposit
in the amount of $200,000 provided by the Company. Interest is payable on the
first day of each month which commenced October 1, 1994. The credit line is
payable on demand. At December 31, 1997 and June 30, 1997 the balance was
$145,358.
b) Promissory Notes
On January 16, 1995 an Underwriter commenced and privately offered on a
best-efforts basis, sixteen (16) units of USA Bridge=s securities at a price of
$55,000 per unit. Each unit consisted of a promissory note in the principal
amount of $45,000 bearing interest at 12% per annum, and 10,000 shares of common
stock at $1.00 per share. The 160,000 shares sold in this offering were assigned
a value of 100% of the initial public offering price of $5.00 per share. In
relation to the common stock sold in the offering, USA Bridge recorded deferred
financing costs of $640,000 (160,000 shares at $5.00 per share less original
costs of $1.00 per share). Deferred financing costs were amortized on a monthly
basis until the earlier of March 1996, the due date of the related promissory
notes or the initial public offering of USA Bridge. As a result, for the years
ended June 30, 1997 and 1996 USA Bridge recorded amortization expense of $0 and
$441,863, respectively. The offering was completed on March 9, 1995 resulting in
all sixteen (16) units being sold netting proceeds to USA Bridge of
approximately $696,851.
NOTE 9 - MINORITY INTEREST
In connection with USA Bridge=s private placement on March 9, 1995 and its
Initial Public Offering (AIPO@), the Company's interest in USA Bridge was
reduced to 49.95% before its exercise of the special warrant. On September 9,
1995 the Company purchased at $2.50 per share, 5,665 shares of common stock of
USA Bridge,by exercising its right pursuant to the terms of a special warrant
issued only to the Company. As a result, the Company increased its ownership in
USA Bridge to 50.1% from 49.95%. During the year ended June 30, 1997 stock
transactions of NY resulted in an increase in the Company=s ownership of USA
Bridge to 53.23%. As of December 31, and June 30, 1997, the minority interest
balance amounting to $3,121,389 and $2,828,301, respectively is a result of all
of the above transactions and the proportionate share of income and losses
attributable to the minority stockholders.
Lastly, in connection with USA Bridge=s IPO, the Company generated net
proceeds of $3,104,880 and recorded a gain of $832,571 during the year ended
June 30, 1996 as a result of the sale of a portion of its previous sole
ownership interest in USA Bridge.
NOTE 10 - STOCKHOLDERS' EQUITY
a) Issuance of shares
(i)On August 15, 1995, the Company issued 150,000 shares of common stock to
its President pursuant to the terms of the Company's Senior Management Incentive
Plan. Such shares were issued as compensation for the President's efforts with
the Company and USABG Corp. in the consummation of USABG Corp.'s initial public
offering on August 14, 1995. Of the total 150,000 shares issued to the
President, 50,000 shares are immediately vested without restrictions and the
remaining 100,000 shares vest pursuant to the restricted periods, whereby 50,000
shares vest on each August 15, 1996 and 1997. The value of these shares is being
amortized over the vesting period.
<PAGE>
(ii)On June 16, 1995 pursuant to Form S-8 Registration Statement filed with
Securities and Exchange Commission the Company registered and issued 500,000
shares to a broker- dealer as consideration for a two year consulting agreement.
During August 1996, the Board of Directors amended the consulting agreement to
increase the additional number of shares to be issued to such broker dealer to
250,000. Accordingly during August 1996, the Company issued an additional
250,000 restricted shares to such consultant.
(iii) Shares issued to employees
During December 1996, the Company issued an aggregate of 114,617 shares to its
employees. In connection with the 114,617 shares issued, the Company recorded
compensation expense amounting to $107,453 which is based on upon 50% of the
average closing bid price for the month of December 1996.
(iv) Issuance of shares for settlement of accounts payable
During June 1997, in conjunction with USA Bridge=s capitalization of
accounts payable, the Company issued 350,000 shares of common stock to RSJJ in
exchange for the 270,000 shares of common stock in USA Bridge issued to RSJJ in
forgiveness of USA Bridge=s accounts payable to RSJJ. The shares issued to RSJJ
in exchange of USA Bridge=s shares have been valued at 50% of the average
closing bid market value 30 days prior to issuance as a result of their
restriction. Accordingly, the Company has recorded a gain on the exchange of
shares of approximately $17,500.
(v) Senior Management Incentive Plan
During February 1997, pursuant to a Form S-8 Registration Statement filed
with the Securities and Exchange Commission, the Company registered a total of
686,617 common shares, of which, 575,000 shares are underlying options pursuant
to the Company=s Senior Management Incentive Plan. The options are exercisable
at various prices ranging from $1.750 each to $1.925 each. As of June 30, 1997,
the Company=s president exercised the option to purchase 125,000 shares at
$1.925 each. The Company received a promissory note in the amount of $240,625 as
consideration for such shares.
(vi) Due to officer
On May 13, 1996, an unrelated party loaned the Company's President $300,000
pursuant to a memorandum of understanding. The loan bears interest at 1% above
prime, and it was due 90 days from receipt of funds. Simultaneously therewith,
the Company's President loaned the Company the $300,000. As collateral for the
loan, 550,000 shares of the Company's common stock owned by the President were
put in an escrow account. Upon the Company being listed on NASDAQ, the Company
liquidated such loan by issuing 400,000 shares to such unrelated party pursuant
to regulation AS@ under the securities act of 1933, as amended. The shares
issued as consideration for the repayment of such loan were valued at the
average closing bid price on the date the transaction was commenced.
Accordingly, the Company has recorded a financing expense amounting to $100,000.
b) Equity transactions of USA Bridge
i) Initial public offering
On August 14, 1995 USA Bridge successfully completed its public offering.
As a result, USA Bridge sold 791,850. In connection with the initial public
offering of USA Bridge, the Company's ownership percentage in USA Bridge was
reduced to 49.95% before the exercise of the Company=s special warrant. (See
Note 9 for additional information).
<PAGE>
(ii) Senior Management Incentive Plan
During February 1997, pursuant to a Form S-8 Registration Statement filed
with the Securities and Exchange Commission, USABG Corp. registered 125,000
common shares underlying options of USABG Corp. to USABG Corp.'s President
pursuant to USABG Corp.=s Senior Management Incentive Plan. The options are
exercisable at $1.10 per share (110% of the bid price on November 27, 1996) and
expire on November 27, 2001. These options were exercised on March 25, 1997
resulting in USABG Corp. issuing 125,000 shares of common stock.
NOTE 11 - COMMITMENT AND CONTINGENCIES
a) Disclosure of significant estimates - revenue recognition
USA Bridge construction revenue is recognized on the percentage of
completion basis. Consequently, construction revenue and gross margin for each
reporting period is determined on a contract by contract basis by reference to
estimates by the USA Bridge=s management and engineers of expected costs to be
incurred to complete each project. These estimates include provisions for known
and anticipated cost overruns, if any exist or are expected to occur. These
estimated may be subject to revision in the normal course of business.
b) Leases
USA Bridge leases its administrative offices pursuant to a signed lease
agreement with RSJJ Realty Corp. (ARSJJ@) an entity wholly-owned by the
Company=s President which requires monthly payments of $20,000. Such lease
expires on March 31, 1998. Under such lease agreement, USA Bridge is required to
make future minimum lease payments as follows:
Year Ending
June 30,
1998 $ 60,000
===============
Total $ 60,000
===============
Accordingly, included in selling, general and administrative
expenses is rent expense which amounted to $120,000 for the
six months ended December 31, 1997 and 1996, respectively and
$240,000 for each of the years ended June 30, 1997 and 1996.
USA Bridge also leases a yard for storage material pursuant to
a oral agreement which requires monthly payments of $3,500. As
of December 31, 1997 and June 30, 1997, $87,500 and $66,500,
respectively of yard rent remains unpaid and is included in
accounts payable. (See Note 14a(i) for additional
information).
c) Significant customers and vendors
For the six months ended December 31, 1997 and 1996, USA Bridge had one and
three unrelated customers respectively, which accounted for approximately 45 %
and 85% of total revenues. As of December 31, 1997 approximately 75% of
contracts and retainage receivables are due from two customers.
For the years ended June 30, 1997 and 1996, the Company had three unrelated
customers respectively, which accounted for approximately 86% and 62%,
respectively, of total revenues. As of June 30, 1997 approximately 83% of
contracts and retainage receivables are due from four customers.
d) Seasonality
USA Bridge operates in an industry which may be seasonal, generally due to
inclement weather occurring during the winter months. Accordingly, USA Bridge
may experience a seasonal pattern in its operating results with lower revenue in
the third quarter of each fiscal year. Quarterly results may also be affected by
the timing of bid solicitations by governmental authorities or the stage of
completion of major projects.
<PAGE>
e) Bonding requirements
USA Bridge is required to provide bid and/or performance bonds in
connection with governmental construction projects. To date, USA Bridge has been
able to sufficiently obtain bonding for its private projects. USA Bridge is
continuously pursuing obtaining bonding for its governmental construction
projects. In addition, new or proposed legislation in various jurisdictions may
require the posting of substantial additional bonds or require other financial
assurances for particular projects.
f) Mechanics liens
As of December 31, 1997 and June 30, 1997, USA Bridge filed various
mechanics liens on certain projects totaling $16,919,542 and $3,278,775,
respectively.
g) Payroll taxes
As of December 31, 1997 and June 30, 1997, the Company owes approximately
$1,786,677 and $1,441,589 of payroll taxes respectively. Although as of December
31, 1997, the Company has not entered into any formal repayment agreements with
the respective tax authorities, it has been making payments based on oral
agreements.
h) Legal proceedings
The Company=s subsidiaries are parties to various claims and legal
proceedings incidental to its business. In management=s opinion, the outcome of
these claims and proceedings will not have a material adverse effect on the
financial statements of the Company taken as a whole.
i) Claims
The Company elected not to recognize any portion of the revenue associated
with any contract claims until the amounts recoverable can be accurately
estimated. Claims are amounts in excess of the agreed contract price which the
Company seeks to collect for customer caused delays, errors in specifications
and designs, contract terminations, change orders in dispute or unapproved.
j) Accounts payable
In November 1997, USA Bridge entered into an agreement with the Iron
Workers Local 40,361 and 417 Joint Security Funds AThe Union@ in order to
liquidate $1,750,000 owed relating to unpaid union dues. USA Bridge agreed to
pay $75,000 by January 1998 and at least $25,000 monthly commencing March 1,
1998 with interest at 9.5% per annum. As collateral, USA Bridge assigned its
retainage receivable from a certain project as well as $1,750,000 of its related
mechanics lien. Upon any funds being released or paid under such mechanics lien,
The Union will be repaid any balance owed in full before USA Bridge may receive
any funds. USA Bridge will receive credit for any payments received by The Union
related to the assigned portion of the mechanics lien.
NOTE 12 - RELATED PARTY TRANSACTIONS
a) Due to related parties
As of June 30, 1997, the total due to officer and related parties amounting
to $166,540 represents advances made by the President of the Company and
affiliated entities which bear no interest and are due on demand.
b) Due from related parties
As of December 31, 1997, the Company has advanced funds to its President
and certain affiliates. These advances are non-interest bearing and are due on
demand. As of December 31, 1997 such advances amounted to $255,526.
<PAGE>
c) Rental expense
Included in general and administrative expenses is rent expense paid by USA
Bridge pursuant to a signed lease agreement with a company (RSJJ) owned by the
Company's President. The lease expires March 31, 1998. (See Note 14a(i) for
additional information). Rent expensed for the six months ended December 31,1
997 and 1996 amounted to $120,000, respectively and for the years ended June 30,
1997 and 1996 amounted to $240,000 and $240,000, respectively.
d) Purchase of material and labor
For the years ended June 30, 1997 and 1996 USA Bridge purchased from
Waldorf approximately $0 and $180,333, respectively, of the materials and labor
necessary to perform steel erection services. Effective August 1, 1995, Waldorf
ceased operations. Said vendor is under the common control of the President of
the Company. Lastly, for the years ended June 30, 1997 and 1996, USA Bridge paid
$371,321 and $622,050, respectively, to Maryland for certain materials and labor
necessary to perform steel erection services. Maryland is a wholly-owned
subsidiary of the Company. Effective September 1996, Maryland ceased operations.
e) Employment agreement
On April 4, 1995 USA Bridge entered into an employment agreement with its
President for a term of approximately three (3) years expiring on June 30, 1998.
The employment agreement provides for an annual salary of $300,000 with a 10%
annual escalation. In addition, the President was be granted options to purchase
25,000 shares of USA Bridge=s common stock, all of which options shall vest
through April 1998. The exercise price of the options shall be equal to the 110%
of the stock price in the initial public offering. The foregoing options are
intended to qualify as incentive stock options.
NOTE 13 - DISCONTINUED OPERATIONS
a) Agreement for Deed in Lieu of Foreclosure
On March 10, 1997, One Carnegie executed an agreement with its mortgage
holder, whereby the property secured by the mortgage and owned by One Carnegie
and rented to Maryland, would be transferred to the mortgage holder. As
additional consideration, One Carnegie executed a promissory note in the amount
of $150,000 naming the mortgage holder as payee. Accordingly, the property and
related accumulated depreciation, accrued interest and mortgage payable have
been recorded as assets and liabilities of discontinued operations. The
transaction was completed in August 1997, resulting in a loss on disposal of
$83,621.
NOTE 14 - SUBSEQUENT EVENTS
a) Issuance of common stock
i) On February 5, 1998, USA Bridge agreed to issue 106,667 shares of its
common stock to the Company as consideration to the Company for issuing shares
of its own common stock to RSJJ in consideration for payment in full of the rent
due by USA Bridge to RSJJ for the period from January 1, 1998 to December 31,
1998. The value of the shares issued will be recorded at their estimated market
value at the date of issuance of $2.12 per share, with a 50% discount due to the
restricted nature of the stock.
ii) During February 1998, the Company authorized the issuance of 250,000
shares of its common stock pursuant to its Senior Management Incentive Plan. Of
the 250,000 shares, 150,000 will be issued to the Company=s President, and
25,000 each to the Company=s Secretary and Treasurer. The remaining 50,000
shares will be issued to consultants to the Company. The Company also authorized
the filing of an amended Form S-8 Registration Statement filed during February
1997 to reflect the increase to 2,000,000 shares which may be issued under the
plan and the registration of the above shares.
<PAGE>
iii) During February 1998, USA Bridge authorized the issuance of 250,000
shares of its common stock pursuant to its Senior Management Incentive Plan. Of
the 250,000 shares, 100,000 will be issued to the Company=s President, 50,000 to
USA Bridge=s Secretary, and 50,000 to USA Bridge=s Treasurer. The remaining
50,000 shares will be issued to employees and consultants of USA Bridge. USA
Bridge also authorized the filing of an amended Form S-8 Registration Statement
to increase to 1,000,000 shares the shares which may be issued under the plan
and the registration of the above shares.
b) Private placement
During January 1998, the Company raised a net of $450,000 after a 10%
commission, in connection with a private placement to fund the Worldwide and
Falcon Chad SA operations, from the sale of $500,000 of convertible debentures.
Such debentures are due January 30, 2000 with interest accruing at 8% per annum.
Holders of the debentures are entitled to convert the entire face of the
debentures plus accrued interest, at the lesser of a) 100% of the 5-day average
closing bid price, for the 5 trading days immediately preceding the closing date
of the offering (February 3, 1998) or b) 75% of the 5-day average closing bid
price for the 5 trading days immediately preceding the date of conversion. The
Company agreed to file a Registration Statement covering the shares of common
stock to be issued upon conversion of the debentures, and if not declared
effective within 90 days following the closing of the offering, then there shall
be a decrease of the conversion ratios by 2.5% per 30 day period or portion
thereof pro rata, until the Registration Statement has been declared effective.
In addition, the purchasers of the debentures received warrants to purchase an
aggregate of 100,000 shares of common stock, 50,000 shares at an exercise price
of $1.125 per share and 50,000 shares at $1.41 per share. The funds are being
loaned to Worldwide and Falcon Chad SA to commence operations in Chad.
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY
RISK FACTORS
DIVIDEND POLICY
USE OF PROCEEDS
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MANAGEMENTS DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT
BUSINESS
PRINCIPAL SECURITYHOLDERS
SELLING SECURITYHOLDERS
DESCRIPTION OF
SECURITIES
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEGAL OPINIONS
EXPERTS
AVAILABLE INFORMATION
INDEX TO FINANCIAL STATEMENTS F-0
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
As permitted under the Delaware Corporation Law, the Company's Certificate
of Incorporation and By-laws provide for indemnification of a director or
officer under certain circumstances against reasonable expenses, including
attorneys fees, actually and necessarily incurred in connection with the defense
of an action brought against him by reason of his being a director or officer.
In addition, the Company's charter documents provide for the elimination of
directors' liability to the Company or its shareholders for monetary damages
except in certain instances of bad faith, intentional misconduct, a knowing
violation of law or illegal personal gain.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to any charter, provision, by-law, contract, arrangement,
statute or otherwise, the Company 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 of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer, or controlling person of the Company in the successful
defense of any such action, suit or proceeding) is asserted by such director,
officer or controlling person of the Company in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution.
Registration Fee ..... $ 273.66
Printing and Engraving $ 5,000
Legal Fees ........... $ 25,000 (1)
Accounting ........... $ 7,500 (1)
Nasdaq Filing Fees ... $ 6,500 (1)
Miscellaneous ........ $ 5,726.34(1)
Total ................ $ 50,000 (1)
(1) Estimated.
Item 26. Recent Sales of Unregistered Securities.
On May 13, 1996, Joseph M. Polito, the Company's President, entered into a
memorandum of understanding with an individual, Lubov Ulianova, whereby Mr.
Polito borrowed $300,000 from Mr. Ulianova. The loan was secured by 550,000
shares of the Company's Common Stock owned by Mr. Polito, which shares were put
into an escrow account with Alan Berkun as the escrow agent. The funds were then
loaned by Mr. Polito to the Company. The loan provided that upon the Company's
listing of its Common Stock on the Nasdaq SmallCap Stock market (Nasdaq),
400,000 shares of Common Stock would be issued to Mr. Ulianova as repayment of
the loan. This transaction was an exempt transaction, in accordance with
Regulation S under the Securities Act of 1933, as amended. In addition, Mr.
Polito granted Mr. Ulianova an option to purchase 600,000 shares of Company
Common Stock at an exercise price of $1.50. The option could only be exercised
if the bid price for the Company's Common Stock was at least $3.00. The
Company's Common Stock was approved for listing on Nasdaq on July 25, 1996, at
which time the loan was repaid. The option expired unexercised. These matters
were reviewed for the Company by its special counsel Alan Berkun, Esq.
<PAGE>
In December 1996, the Company issued bonuses of 100,000 shares of Common
Stock to Joseph M. Polito and 2,500 shares to each of Ronald Polito and Steven
Polito pursuant to the Management Plan. In addition 313 shares were issued to
Joseph M. Polito's wife. In connection with the 114,617 shares issued to NY's
employees and consultants, the Company recorded compensation expense amounting
to $107,453, which is based on upon 50% of the average closing bid price for the
month of December 1996.
On March 13, 1997, the Company issued 125,000 shares of Common Stock to
Joseph M. Polito upon exercise of options granted pursuant to the above
mentioned Management Plan. In February 1997, these shares were registered for
resale pursuant to a Form S-8 Registration Statement. Mr. Polito executed a
promissory note for the exercise price.
As of May 1997, the Company was in arrears in the amount of $480,000 in
payments due under its lease with RSJJ. This arrearage was converted into equity
as follows: the Company issued 270,000 shares of Common Stock to Corp., for the
cancellation of the debt owed to RSJJ. Corp., in turn, issued 200,000 shares of
its common stock to Joseph M. Polito and 150,000 shares of its common stock to
RSJJ. RSJJ then transferred all of such shares to RSJJ's mortgagor, which agreed
to accept said shares as payment of RSJJ's outstanding mortgage.
In January 1998, the Company sold $450,000 of 8% Convertible Debentures in
a private placement offering.
In February 1998, the Company issued bonuses of 100,000 shares of Common
Stock to Joseph M. Polito and 25,000 shares to each of Ronald Polito and Steven
Polito pursuant to the Management Plan.
On February 10, 1998, NY agreed to pay its lease payments for 1998 by the
issuance of 106,667 shares of its Common Stock. The per share price was $.14
above the closing price for NY's shares as reported by Nasdaq.
<PAGE>
Item 27. Exhibits.
All exhibits, except those designated with an asterisk (*), which shall be
filed herewith, previously have been filed with the Commission in connection
with such documents as are incorporated by reference herein. Exhibits marked
(**) shall be filed by amendment.
<TABLE>
<CAPTION>
<S> <C> <C>
2.1 -- Agreement and Plan of Reorganization dated effective as of April 25,
1994 (incorporated by reference herein to Form 10-K filed with the
Commission for the fiscal year ended June 30, 1994).
3.1 -- Certificate of Incorporation of the Company filed June 15, 1994.
3.2 -- By-Laws of the Company (incorporated herein by reference to Form 8-
K, dated April 25, 1994).
-- Form of Special Warrant (incorporated herein by reference to Form 10-
KSB for the fiscal year ended June 30, 1995).
4.2 -- Form of Restricted Stock agreement issued to Joseph M. Polito
(incorporated herein by reference to Form 10-KSB for the fiscal year
ended June 30, 1995).
4.3* -- Form of 8% Convertible Debenture issued in 1998 Private Placement.
4.4* - Form of Common Stock purchase warrant issued in 1998 Private Placement.
5.0** -- Opinion of Counsel
10.1 -- Lease Agreement between One Carnegie Court Associates and Waldorf
Steel Fabrications, Inc., dated March 27, 1990 (incorporated herein by
reference to Form 8-K, dated April 25, 1994).
10.2 -- Promissory note from the Company to Trinity Industries, Inc.
10.3 -- Forbearance Agreement between the Company and Trinity Industries,
Inc., dated October 14, 1993 (incorporated herein by reference to Form
8-K, dated April 25, 1994). 10.4 - Lease Agreement between R.S.J.J.
Realty Corp. and NY, dated June 30, 1993 (incorporated herein by
reference to Form 8-K, dated April 25, 1994).
10.5 - Employment Agreement of Joseph M. Polito (incorporated herein by
reference to Form 10-KSB for the fiscal year ended June 30, 1995).
10.6 - The Company's Senior Management Incentive Plan (incorporated herein by
reference to the Company's proxy statement dated December 2, 1996).
10.7 - The Company's Employee Stock Option Plan (incorporated herein by
reference to the Company's proxy statement dated December 2, 1996).
10.8 - Agreement between Iron Workers Local Union 40 and NY (incorporated
herein by reference to Form 10-KSB for the fiscal year ended June 30,
1995).
10.9 - Agreement between Local Union 14, 14B, 15, 15A, 15C, 15D,
International Union of Operating Engineers, AFL-CIO and NY
(incorporated herein by reference to Form 10-KSB for the fiscal year
ended June 30, 1995).
10.10 - Agreement between Local 780 and NY (incorporated herein
by reference to Form 10-KSB for the fiscal year ended June 30, 1995).
10.11 - Agreement to capitalize the $400,000 of debt (incorporated herein by
reference to Form 10-KSB for the fiscal year ended June 30, 1995).
10.12 - Consulting Agreement with Marlowe and Company (incorporated by
reference herein to Form S-8, dated June 4, 1995).
10.13 - Lease surrender agreement between One Carnegie and Waldorf dated
August 1, 1995 (incorporated herein by reference to Form 10-KSB/A for
the fiscal year ended June 30, 1995).
10.14 - Lease Agreement between One Carnegie and U.S. Bridge Corp. (Maryland)
, dated August 1, 1995 (incorporated herein by reference to Form
10-KSB/A for the fiscal year ended June 30, 1995).
23.01* - Consent of Scarano & Tomaro, P.C.
23.02** - Consent of Klarman & Associates, as annexed to Exhibit 5.0.
</TABLE>
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
Post-Effective Amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent Post-Effective
Amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement, including but
not limited to any addition or deletion of a managing Underwriter.
(2) That, for the purpose of determining any liability under the Act, each
such Post-Effective Amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of Post-Effective Amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining any liability under the Act, each
such Post-Effective Amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company,
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue by such court. See Item 24.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Corona, New York on the 25th day of February, 1998.
USABG CORP.
By: \s\ Joseph M. Polito
Joseph M. Polito,
President
Pursuant to the requirements of the Securities Act of 1933 as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
\s\ Joseph M. Polito President and Director 02/26/98
Joseph M. Polito (Chief Executive Officer) Date
\s\ Ronald J. Polito Secretary and Director 02/26/98
Ronald J. Polito Date
\s\ Steven J. Polito Treasurer and Director 02/26/98
Steven J. Polito Date
\s\ Ronald J. Polito Director 02/26/98
Ronald Murphy Date
\s\ Marvin Weinstein Director 02/26/98
Marvin Weinstein Date
</TABLE>
Exhibit 4.3
Form of 8% Convertible Debenture issued in 1998 Private Placement.
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS.
THE SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CONVERTIBLE DEBENTURE DUE January 30, 2000
January 30, 1998
$
Number
FOR VALUE RECEIVED, U.S. BRIDGE CORP., a Delaware corporation (the
"Company"), hereby promises to pay to or registered assigns (the "Holder") on
January 30, 2000, (the "Maturity Date"), the principal amount of
______________________DOLLARS ($_______) U.S., and to pay interest on the
principal amount hereof, in such amounts, at such times and on such terms and
conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the rate of Eight Percent (8.0%) per year,
payable at the time of each conversion until the principal amount hereof is paid
in full or has been converted. Interest shall be computed on the basis of a 360
day year of 12, 30 day months. Each payment shall be paid in cash or in freely
trading Common Stock of the Company, at the Company's option. If paid in Common
Stock, the number of shares of the Company's Common Stock to be received shall
be determined by dividing the dollar amount of the interest by the then
applicable Market Price as of the interest payment date. "Market Price" shall
mean the lesser of (a) 100% of the average of the 5-day closing bid prices, as
reported by Bloomberg, LP for the five trading days immediately preceding the
Closing Date, as that term is defined below or (b) 75% of the average of the
5-day closing bid prices, as reported by Bloomberg, LP for the five trading days
immediately preceding the Conversion Date, as that term is defined below in
Section 3.2(b) hereof. If the interest is to be paid in cash, the Company shall
make such payment within five business days of the of Conversion Date. If the
interest is to be paid in Common Stock, said Common Stock shall be delivered to
the Holder, or per Holder's instructions, within 5 business days of the date of
conversion. The Debentures are subject to automatic conversion at the end of two
years from the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 3.2. The
closing shall be deemed to have occurred on the date the funds are received by
the Company or its Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the Holder
to receive payment of the principal amount hereof. The Company shall have the
option of paying the interest on this Debenture in United States dollars or in
common stock upon conversion pursuant to Article 1 hereof. The Company may draw
a check for the payment of interest to the order of the Holder of this Debenture
and mail it to the Holder's address as shown on the Register (as defined in
Section 7.2 below). Interest and principal payments shall be subject to
withholding under applicable United States Federal Internal Revenue Service
Regulations.
<PAGE>
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option, to
convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time which is before the close of business on
the Maturity Date, except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result to the nearest whole
share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains outstanding
on the second anniversary of the date hereof, the unconverted portion of such
Debenture will automatically be converted into shares of Common Stock on such
date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon the Company's receipt of a facsimile or original of
Holder's signed Notice of Conversion and the original Debenture to be converted,
the Company shall instruct its transfer agent to issue one or more Certificates
representing that number of shares of Common Stock into which the Debenture, or
portion thereof is convertible in accordance with the provisions regarding
conversion set forth in the conversion notice. The Company's transfer agent or
attorney shall act as Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture.
(b) Conversion Date. The face amount of this Debenture, plus acccrued
interest, may be converted anytime 60 days after the Closing Date. Such
conversion shall be effectuated by surrendering to the Company, or its attorney,
this Debenture to be converted together with a facsimile or original of the
signed Notice of Conversion which evidences Purchaser's intention to convert the
Debenture indicated. The date on which the Notice of Conversion is effective
("Conversion Date") shall be deemed to be the date on which the Holder has
delivered to the Company a facsimile or original of the signed Notice of
Conversion, as long as the original Debentures to be converted are received by
the Company or its designated attorney within 5 business days thereafter. As
long as the Debentures to be converted are received by the Company or its
designated attorney within 5 business days after it receives a facsimile or
original of the signed Notice of Conversion, the Company shall deliver to the
Holder, or per the Holder's instructions, the shares of Common Stock, without
restrictive legend or stop transfer instructions, within 5 business days of
receipt of the facsimile Conversion Notice.
(c) Issuance of Common Stock. Upon the conversion of any Debentures and
upon receipt by the Company or its attorney of a facsimile or original of
Holder's signed conversion notice Company shall instruct Company's transfer
agent to issue Stock Certificates with restrictive legend or stop transfer
instructions in the name of Holder (or its nominee) and in such denominations to
be specified at conversion representing the number of shares of Common Stock
issuable upon such conversion, as applicable. Company warrants that no
instructions, other than these instructions, have been given or will be given to
the transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Company.
<PAGE>
(d) Conversion Rate. Purchaser is entitled to convert the entire face
amount of this Debenture, plus accrued interest, at the lesser of (a) 100% of
the 5-day average closing bid price, as reported by Bloomberg, LP for the 5
trading days immediately preceding the applicable Closing Date or (b) 75% of the
5-day average closing bid price, as reported by Bloomberg, LP for the 5 trading
days immediately preceding the applicable Conversion Date (the "Conversion
Price"). If the Registration Statement, covering the shares of Common Stock to
be issued upon conversion of the Debentures, has not been declared effective
within 90 days following the Closing Date then the 100% referred to in (a) of
this paragraph shall be decreased to 97.5% and the 75% referred to in (b) of
this paragraph shall be increased to 72.5%, per 30 day period or portion thereof
pro rata, until the Registration Statement has been declared effective or;
alternatively, if the Registration Statement has not been declared effective
within said 90-day period then, at the Investor's sole option, which option must
be exercised by written notice to the Company, the Debentures shall convert to
having been issued pursuant to Regulation S for qualifying investors, with
immediate availability to convert the Debentures. No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded up or down, as the case may be, to the nearest
whole share.
The Debentures are subject to a mandatory, 24 month conversion
feature at the end of which all Debentures outstanding will be automatically
converted, upon the terms set forth in this section ("Mandatory Conversion
Date").
(e) Nothing contained in this Debenture shall be deemed to establish or
require the payment of interest to the Company at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of interest
required to be paid exceeds the maximum rate permitted by governing law, the
rate of interest required to be paid thereunder shall be automatically reduced
to the maximum rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all necessary actions
and to bear all such costs to issue the Certificate of Common Stock as provided
herein, including the responsibility and cost for delivery of an opinion letter
to the transfer agent, if so required. The person in whose name the certificate
of Common Stock is to be registered shall be treated as a shareholder of record
on and after the conversion date. Upon surrender of any Debentures that are to
be converted in part, the Company shall issue to the Holder a new Debenture
equal to the unconverted amount, if so requested in writing by Holder.
(g) Within the time period referred to above in Section 3.2(b), the Company
shall deliver a certificate, without stop transfer instructions, for the number
of shares of Common Stock issuable upon the conversion. It shall be the
Company's responsibility to take all necessary actions and to bear all such
costs to issue the Common Stock as provided herein, including the cost for
delivery of an opinion letter to the transfer agent, if so required. The person
in whose name the certificate of Common Stock is to be registered shall be
treated as a shareholder of record on and after the Conversion Date. Upon
surrender of any Debentures that are to be converted in part, the Company shall
issue to the Holder a new Debenture equal to the unconverted amount, if so
requested in writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 5 business days after the Conversion Date, then in
such event the Company shall pay to Holder an amount, in cash in accordance with
the following schedule, wherein "No. Business Days Late" is defined as the
number of business days beyond the 5 business days delivery period.
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1,000
>10 $1,000 + $200 for each Business Day Beyond 10
<PAGE>
The Company acknowledges that its failure to deliver the Common Stock
within 5 business days after the Conversion Date will cause the Holder to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to qualify such damages are reasonable and will not constitute a penalty.
The payment of liquidated damages shall not relieve the Company from its
obligations to deliver the Common Stock pursuant to the terms of this Debenture.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply.
The Company shall pay any amounts incurred under this Section 3.2(g) in
immediately available funds within five (5) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a Holder's
right to pursue actual damages or cancel the conversion for the Company's
failure to issue and deliver Common Stock to the Holder within 10 business days
after the Conversion Date.
(h) The Company shall at all times reserve and have available all Common
Stock necessary to meet conversion of the Debentures by all Holders of the
entire amount of Debentures then outstanding. If, at any time Holder submits a
Notice of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock available to effect, in full, a conversion of
the Debentures (a "Conversion Default", the date of such default being referred
to herein as the "Conversion Default Date"), the Company shall issue to the
Holder all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion Default ("Notice of
Conversion Default") to all existing Holders of outstanding Debentures, by
facsimile, within three (3) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures payments
for a Conversion Default ("Conversion Default Payments") in the amount of
(N/365) x (.24) x the initial issuance price of the outstanding and/or tendered
but not converted Debentures held by each Holder where N = the number of days
from the Conversion Default Date to the date (the "Authorization Date") that the
Company authorizes a sufficient number of shares of Common Stock to effect
conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Debentures by the fifth day of the following
calendar month, or (ii) in the event Holder elects to take such payment in
stock, the Holder may convert such payment amount into Common Stock at the
conversion rate set forth in Section 3.2(d) at anytime after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory 24 month conversion period. The
Company acknowledges that its failure to maintain a sufficient number of
authorized but unissued shares of Common Stock to effect in full a conversion of
the Debentures will cause the Holder to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Debenture a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
<PAGE>
section represents the parties' good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Debenture. Nothing herein shall limit the Holder's
right to pursue actual damages or cancel the conversion for the Company's
failure to maintain a sufficient number of authorized shares of Common Stock.
(i) The Company shall furnish to Holder such number of prospectuses and
other documents incidental to the registration of the shares of Common Stock
underlying the Debentures, including any amendment of or supplements thereto.
(j) The Holder is limited in the amount of this Debenture it may convert
and own. Other than the Mandatory Conversion provisions contained in this
Debenture which are not limited by the following, in no other event shall the
Holder be entitled to convert any amount of Debentures in excess of that amount
upon conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture, and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to which the
determination of this provision is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock of the Company. For purposes of this provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such provision.
(k) Nothing contained in the Debenture shall be deemed to establish or
require the payment of interest to the Purchaser at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of interest
required to be paid under the Debenture exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing and any
amounts collected in excess of the permissible amount shall be deemed a payment
of principal. To the extent that such excess amount exceeds the aggregate
principal amount of the Debenture, such excess shall be returned with reasonable
promptness by the holder to the Company.
(l) Investment Intent. The Holder of this Debenture by acceptance hereof,
agrees that this Debenture is being acquired for investment and that such Holder
will not offer, sell or otherwise dispose of this Debenture or the shares of
Common Stock issuable upon conversion thereof except under circumstances which
will not result in violation of the 1933 Act or any applicable state Blue Sky
law or similar laws relating to the sale of securities.
(m) Adjustment. In case any provision of this Debenture is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
and the validity and enforceability of the remaining provisions of this
Debenture will not in any way be affected or impaired thereby.
(n) Redemption Terms. The Company shall have the right to redeem the
unconverted portion of the Debentures in whole or in part, at any time as
follows: Up to and including the 90th day following the Closing Date, the
Company shall have the right to redeem any or all of the Debentures for 120% of
the face amount of the Debentures being redeemed, plus all accrued interest
thereon.
<PAGE>
Redemption by the Company shall be effected by the Company notifying the
Purchaser by facsimile at the number listed in this Agreement as to the
Company's intention to exercise its right of redemption. The Company shall state
in such notice the amount of Debentures it intends to redeem, the amount that it
will pay to effectuate such redemption and the date by which the Purchaser must
deliver the original Debentures to be redeemed to the Escrow Agent. The Company
shall give the Purchaser at least 5 business day's advance notice of the above
information. On or before the date by which the Purchaser is to deliver the
original Debentures to the Escrow Agent, the Company shall wire to the Escrow
Agent that amount necessary to effect the redemption. Once the Escrow Agent is
in receipt of the original Debentures being redeemed and those funds necessary
to effect the redemption the Escrow Agent shall wire those funds to the
Purchaser and deliver the original Debentures via overnight courier to the
Company. With respect to that portion of the Debentures being redeemed, provided
sufficient funds are on deposit with the Escrow Agent on the redemption date as
herein described, then in such event, after the date of redemption, interest
shall cease to accrue on those Debentures being redeemed and the Purchaser shall
have no further rights as to those Debentures being redeemed other than the
right to receive payments on the redemption date.
Section 3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up or down, as
the case may be, to the nearest whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than its
name.
Section 3.5. Company to Reserve Stock. The Company shall reserve the number
of shares of Common Stock required pursuant to and upon the terms set forth in
Section 3(a) of the Subscription Agreement dated July of 1997, to permit the
conversion of this Debenture. All shares of Common Stock which may be issued
upon the conversion hereof shall upon issuance be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.
<PAGE>
Article 4. Mergers and Adjustments
Section 4.1 Mergers. The Company shall not consolidate or merge into, or
transfer all or substantially all of its assets to, any person, unless such
person assume in writing the obligations of the Company under this Debenture and
immediately after such transaction no Event of Default exists. Any reference
herein to the Company shall refer to such surviving or transferee corporation
and the obligations of the Company shall terminate upon such written assumption.
Section 4.2 Adjustments. The number of shares of Common Stock purchasable
upon the conversion of this Debenture shall be subject to adjustments as
follows:
(a) In case the Company shall (i) pay a dividend on Common Stock in Common
Stock or securities convertible into, exchangeable for or otherwise entitling a
holder thereof to receive Common Stock, (ii) declare a dividend payable in cash
on its Common Stock and at substantially the same time offer its shareholders a
right to purchase new Common Stock (or securities convertible into, exchangeable
for or other entitling a holder thereof to receive Common Stock) from the
proceeds of such dividend (all Common Stock so issued shall be deemed to have
been issued as a stock dividend), (iii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iv) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (v) issue by reclassification, reorganization or recapitalization of
its Common Stock any shares of Common Stock or other securities of the Company,
the number of shares of Common Stock issuable upon conversion of this Debenture
immediately prior thereto shall be adjusted so that the Holder of this Debenture
shall be entitled to receive after the happening of any of the events described
above that number and kind of shares as the Holder would have received had this
Debenture been converted immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this
subdivision shall become effective immediately after the close of business on
the record date in the case of a stock dividend and shall become effective
immediately after the close of business on the effective date in the case of a
stock split, subdivision, combination or reclassification.
(b) In case the Company shall distribute, without receiving consideration
therefor, to all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends other than as described in Section 4.2(a)), or
rights, options or warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock, then in such
case, the number of shares of Common Stock thereafter issuable upon conversion
of this Debenture shall be determined by multiplying the number of shares of
Common Stock theretofore issuable upon conversion of this Debenture, by a
fraction, of which the numerator shall be the closing bid price per share of
Common Stock on the record date for such distribution, and of which the
denominator shall be the closing bid price of the Common Stock less the then
fair value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights, options or warrants,
or of such convertible or exchangeable securities applicable to one share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock issuable
hereunder otherwise required to be made by this Section 4.2 will not have to be
adjusted if such adjustment would not require an increase or decrease in one
percent (1%) or more in the number of shares of Common Stock issuable upon
conversion of this Debenture. No adjustment in the number of shares of Common
Stock issuable upon conversion of this Debenture will be made for the issuance
of shares of capital stock to directors, employees or independent contractors
pursuant to the Company's or any of its subsidiaries' stock option, for the
purpose of the Company's Common Stock warrants issued, isuable or to be issued
for services rendered by others to the Company, stock ownership or other benefit
plans or arrangements or trusts related thereto or for issuance of any shares of
Common Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under such plan.
<PAGE>
Article 5. Reports
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment, other than a payment of principal, for a period
of 5 business days thereafter, (c) the Company fails to comply with any of its
other agreements in this Debenture and such failure continues for the period and
after the notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors or (v) a court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Company in an involuntary case; (B) appoints
a Custodian of the Company or for all or substantially all of its property or
(C) orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for 60 days, (e) the Company's Common Stock is no longer
listed on any recognized exchange including electronic over-the-counter bulletin
board. As used in this Section 6.1, the term "Bankruptcy Law" means Title 11 of
the United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. A default under clause (c) above
is not an Event of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures outstanding notify the Company of such
default and the Company does not cure it within five (5) business days after the
receipt of such notice, which must specify the default, demand that it be
remedied and state that it is a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is continuing,
the Holder hereof by notice to the Company, may declare the remaining principal
amount of this Debenture to be due and payable. Upon such declaration, the
remaining principal amount shall be due and payable immediately
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order to
comply with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in whole
multiples of $5,000. Section 7.2. Record Ownership. The Company, or its
attorney, shall maintain a register of the holders of the Debentures (the
"Register") showing their names and addresses and the serial numbers and
principal amounts of Debentures issued to or transferred of record by them from
time to time. The Register may be maintained in electronic, magnetic or other
computerized form. The Company may treat the person named as the Holder of this
Debenture in the Register as the sole owner of this Debenture. The Holder of
this Debenture is the person exclusively entitled to receive payments of
interest on this Debenture, receive notifications with respect to this
Debenture, convert it into Common Stock and otherwise exercise all of the rights
and powers as the absolute owner hereof.
<PAGE>
Section 7.3. Registration of Transfer. Transfers of this Debenture may be
registered on the books of the Company maintained for such purpose pursuant to
Section 7.2 above (i.e., the Register). Transfers shall be registered when this
Debenture is presented to the Company with a request to register the transfer
hereof and the Debenture is duly endorsed by the appropriate person, reasonable
assurances are given that the endorsements are genuine and effective, and the
Company has received evidence satisfactory to it that such transfer is rightful
and in compliance with all applicable laws, including tax laws and state and
federal securities laws. When this Debenture is presented for transfer and duly
transferred hereunder, it shall be canceled and a new Debenture showing the name
of the transferee as the record holder thereof shall be issued in lieu hereof.
When this Debenture is presented to the Company with a reasonable request to
exchange it for an equal principal amount of Debentures of other denominations,
the Company shall make such exchange and shall cancel this Debenture and issue
in lieu thereof Debentures having a total principal amount equal to this
Debenture in such denominations as agreed to by the Company and Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices, with a copy by fax at 53-09 97th Place, Corona,
NY 11368. The time when such notice is sent shall be the time of the giving of
the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
Article 10. Waivers
The holders of a majority in principal amount of the Debentures may waive a
default or rescind the declaration of an Event of Default and its consequences
except for a default in the payment of principal or conversion into Common
Stock. Article 11. Rules of Construction
<PAGE>
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of the State of Delaware applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of Delaware.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the state of Delaware without reference to its conflicts of laws
rules or principles. The Company hereby expressly and irrevocably submits to the
jurisdiction of the state and federal Courts of the state of Delaware for the
purpose of any such litigation as set forth above and irrevocably agrees to be
bound by any final judgment rendered thereby in connection with such litigation.
The Company further irrevocably consents to the service of process by registered
mail, postage prepaid, or by personal service within or without the State of
Delaware. The Company hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court referred
to above and any claim that any such litigation has been brought in any
inconvenient forum. To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property. The Company
hereby irrevocably waives such immunity in respect of its obligations under this
agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction. Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the Delaware and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
U.S. BRIDGE CORP.
By ____________________________
Name:
Title:
<PAGE>
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_ to
convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of U.S. BRIDGE CORP.(the "Company") according to the conditions set
forth in the Subscription Agreement dated January ____, 1998.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
- ------------------------------------------------------------
Phone______________________ Fax___________________________
<PAGE>
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
(name, address and SSN or EIN of assignee)
Dollars ($ )
- --------------------------------------------------------------------------------
(principal amount of Debenture, $10,000 or integral multiples of $10,000) of
principal amount of this Debenture together with all accrued and unpaid interest
hereon.
Date: Signed:
(Signature must conform in all
respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
Exhibit 4.4
Form of Common Stock purchase warrant issued in 1998 Private Placement.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED STATES
FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE CORPORATION, WITHOUT REGISTRATION
OF SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL SECURITIES LAWS OR
COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE AT THE OPTION
OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF STOCKHOLDER'S COUNSEL, IN
FORM ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION
PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
WARRANT TO PURCHASE 27,778 SHARES OF
COMMON STOCK OF U. S. BRIDGE CORP.
Exercisable Commencing March 31, 1998;
Void after March 31, 2001
THIS CERTIFIES that, for value received, FT TRADING an Irish corporation
with an office located at c/o Augustine Capital Management, Inc. 141 W. Jackson
Boulevard, Suite 2182, Chicago, IL 60604 or registered assigns (the
"Warrantholder") is entitled, subject to the terms and conditions set forth in
this Warrant, to purchase from U. S. BRIDGE CORP., a Delaware corporation (the
"Company"), 27,778 fully paid, duly authorized and nonassessable shares (the
"Shares"), of Common Stock, $.0001 par value per share, of the Company (the
"Common Stock"), at any time commencing March 31, 1998 and continuing up to 5:00
p.m. New York City time on March 31, 2001 at an exercise price of 120% of
closing bid price as reported by Bloomberg, LP on January 30, 1998, subject to
adjustment pursuant to Section 8 hereof.
This Warrant is subject to the following provisions, terms and
conditions:
Section 1. Transferability.
1.1 Registration. The Warrants shall be issued only in registered form and
Shares issuable upon exercise of the Warrants shall be registered by the Company
pursuant to the terms of a Registration Rights Agreement.
1.2 Transfer. This Warrant shall be transferable only on the books of the
Company maintained at its principal executive offices upon surrender thereof for
registration of transfer duly endorsed by the Warrantholder or by its duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new Warrant or Warrants in
appropriate denominations to the person or persons entitled thereto.
1.3 Legend on Warrant Shares. Each certificate for Shares initially issued
upon exercise of a Warrant, unless at time of exercise such Shares are
registered under the Securities Act of 1933, as amended (the "Securities Act"),
shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED
STATES FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR
INDIRECTLY, NOR MAY THE SECURITIES BE TRANSFERRED ON THE BOOKS OF THE
CORPORATION, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE
UNITED STATES FEDERAL SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE
EXEMPTION THEREFROM, SUCH COMPLIANCE AT THE OPTION OF THE CORPORATION, TO
BE EVIDENCED BY AN OPINION OF STOCKHOLDER'S COUNSEL, IN FORM ACCEPTABLE
TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
<PAGE>
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of the securities represented thereby) shall also bear the above
legend unless the Company receives an opinion of counsel acceptable to the
Company that registration or qualification of the securities represented thereby
under the laws referred to therein is not required.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate may be
exchanged for another certificate or certificates of like tenor entitling the
Warrantholder to purchase a like aggregate number of Shares as the certificate
or certificates surrendered then entitle such Warrantholder to purchase. Any
Warrantholder desiring to exchange a warrant certificate shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Warrant to be so exchanged. Thereupon, the Company
shall execute and deliver to the person entitled thereto a new Warrant
certificate as so requested.
Section 3. Terms of Warrants: Exercise of Warrants.
(a) Subject to the terms of this Warrant, the Warrantholder shall have the
right, at any time after March 31, 1998, but before 5:00 p.m., New York City
time on March 31, 2001 (the "Expiration Time"), to purchase from the Company up
to the number of Shares which the Warrantholder may at the time be entitled to
purchase pursuant to the terms of this Warrant, upon surrender to the Company at
its principal executive office, of the certificate evidencing this Warrant to be
exercised, together with the attached Election to Exercise form duly filled in
and signed, and upon payment to the Company of the Warrant Price (as defined in
and determined in accordance with the provisions of Section 7 and 8 hereof) for
the number of Shares with respect to which such Warrant is then exercised.
Payment of the aggregate Warrant Price shall be made in cash, wire transfer or
by cashier's check or any combination thereof.
(b) Subject to the terms of this Warrant, upon such surrender of this
Warrant and payment of such Warrant Price as aforesaid, the Company shall
promptly issue and cause to be delivered to the Warrantholder or to such person
or persons as the Warrantholder may designate in writing, a certificate or
certificates (in such name or names as the Warrantholder may designate in
writing) for the number of duly authorized, fully paid and non-assessable whole
Shares to be purchased upon the exercise of this Warrant, and shall deliver to
the Warrantholder Common Stock or cash, to the extent provided in Section 9
hereof, with respect to any fractional Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of such Shares as of the close of business on the date of the surrender
of this Warrant and payment of the Warrant Price, notwithstanding that the
certificates representing such Shares shall not actually have been delivered or
that the Share and Warrant transfer books of the Company shall then be closed.
This Warrant shall be exercisable, at the sole election of the Warrantholder,
either in full or from time to time in part and, in the event that any
certificate evidencing this Warrant (or any portion thereof) is exercised prior
to the Termination Date with respect to less than all of the Shares specified
therein at any time prior to the Termination Date, a new certificate of like
tenor evidencing the remaining portion of this Warrant shall be issued by the
Company, if so requested by the Warrantholder.
(c) Upon the Company's receipt of a facsimile or original of
Warrantholder's signed Election to Exercise, the Company shall instruct its
transfer agent to issue one or more stock Certificates representing that number
of shares of Common Stock which the Warrantholder is entitled to purchase in
accordance with the terms and conditions of this Warrant and the Election to
Exercise attached hereto. The Company's transfer agent or attorney shall act as
Registrar and shall maintain an appropriate ledger containing the necessary
information with respect to each Warrant.
<PAGE>
(d) Such exercise shall be effectuated by surrendering to the Company, or
its attorney, the Warrants to be converted together with a facsimile or original
of the signed Election to Exercise which evidences Warrantholder's intention to
exercise those Warrants indicated. The date on which the Election to Exercise is
effective ("Exercise Date") shall be deemed to be the date on which the
Warrantholder has delivered to the Company a facsimile or original of the signed
Election to Exercise, as long as the original Warrants to be exercised are
received by the Company or its designated attorney within 5 business days
thereafter. As long as the Warrants to be exercised are received by the Company
within five business days after it receives a facsimile or original of the
signed Election to Exercise, the Company shall deliver to the Warrantholder, or
per the Warrantholder's instructions, the shares of Common Stock, without
restrictive legend or stop transfer instructions, within 3 business days of
receipt of the Warrants to be converted.
(e) Nothing contained in this Warrant shall be deemed to establish or
require the payment of interest to the Warrantholder at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of interest
required to be paid exceeds the maximum rate permitted by governing law, the
rate of interest required to be paid thereunder shall be automatically reduced
to the maximum rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Warrantholder to the Company.
(f) It shall be the Company's responsibility to take all necessary actions
and to bear all such costs to issue the Certificate of Common Stock as provided
herein, including the responsibility and cost for delivery of an opinion letter
to the transfer agent, if so required. The person in whose name the certificate
of Common Stock is to be registered shall be treated as a shareholder of record
on and after the exercise date. Upon surrender of any Warrants that are to be
converted in part, the Company shall issue to the Warrantholder new Warrants
equal to the unconverted amount, if so requested by Warrantholder.
(g) In the event the Common Stock is not delivered per the written
instructions of the Warrantholder, within the time set forth in Section 3(d)
above, then in such event the Company shall pay to Warrantholder one percent
(1%) in cash of the dollar value of the Warrants being converted per each day
after the fifth business day following the Exercise Date that the Common Stock
is not delivered. To the extent that the failure of the Company to issue the
Common Stock pursuant to this Section 3 is due to the unavailability of
authorized but unissued shares of Common Stock, the provisions of this Section
3(g) shall not apply but instead the provisions of Section 3(h) shall apply.
The Company shall make any payments incurred under this Section 3(g) in
immediately available funds within three (3) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a
Warrantholder's right to pursue actual damages for the Company's failure to
issue and deliver Common Stock to the Warrantholder within the time set forth in
Section 3(d) above
(h) The Company shall at all times reserve and have available all Common
Stock necessary to meet exercise of the Warrants by all Warrantholders of the
entire amount of Warrants then outstanding. If, at any time Warrantholder
submits a Election to Exercise and the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect, in full, a
exercise of the Warrants (a "Exercise Default", the date of such default being
referred to herein as the "Exercise Default Date"), the Company shall issue to
the Warrantholder all of the shares of Common Stock which are available, and the
Election to Exercise as to any Warrants requested to be converted but not
converted (the "Unconverted Warrants"), upon Warrantholder's sole option, may be
deemed null and void. The Company shall provide notice of such Exercise Default
("Notice of Exercise Default") to all existing Warrantholders of outstanding
Warrants, by facsimile, within one (1) business day of such default (with the
original delivered by overnight or two day courier), and the Warrantholder shall
give notice to the Company by facsimile within 5 business days of receipt of the
original Notice of Exercise Default (with the original delivered by overnight or
two day courier) of its election to either nullify or confirm the Election to
Exercise.
<PAGE>
The Company agrees to pay to all Warrantholders of outstanding Warrants
payments for a Exercise Default ("Exercise Default Payments") in the amount of
(N/365) x (.24) x the initial exercise price of the outstanding and/or tendered
but not converted Warrants held by each Warrantholder where N = the number of
days from the Exercise Default Date to the date (the "Authorization Date") that
the Company authorizes a sufficient number of shares of Common Stock to effect
exercise of all remaining Warrants. The Company shall send notice
("Authorization Notice") to each Warrantholder of outstanding Warrants that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Warrantholder's accrued Exercise Default Payments. The accrued
Exercise Default shall be paid in cash or shall be convertible into Common Stock
at the Exercise Rate, at the Warrantholder's option, payable as follows: (i) in
the event Warrantholder elects to take such payment in cash, cash payments shall
be made to such Warrantholder of outstanding Warrants by the fifth day of the
following calendar month, or (ii) in the event Warrantholder elects to take such
payment in stock, the Warrantholder may convert such payment amount into Common
Stock at the exercise rate set forth in Section 7 at anytime after the 5th day
of the calendar month following the month in which the Authorization Notice was
received, until the expiration of the Warrant.
Nothing herein shall limit the Warrantholder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock.
(i) The Company shall furnish to Warrantholder such number of prospectuses
and other documents incidental to the registration of the Common Stock
underlying the Warrants, including any amendment of or supplements thereto.
(j) Each person in whose name any certificate for shares of Common Stock
shall be issued shall for all purposes be deemed to have become the holder of
record of the Common Stock represented thereby on the date on which the Warrant
was surrendered and payment of the purchase price and any applicable taxes was
made, irrespective of date of issue or delivery of such certificate, except that
if the date of such surrender and payment is a date when the Shares transfer
books of the Company are closed, such person shall be deemed to have become the
holder of such Shares on the next succeeding date on which such Share transfer
books are open. The Company shall not close such Share transfer books at any one
time for a period longer than seven days.
Section 4. Payment of Taxes. The Company shall pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Shares; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable, (i) with respect to any secondary transfer of this Warrant or
the Shares or (ii) as a result of the issuance of the Shares to any person other
than the Warrantholder, and the Company shall not be required to issue or
deliver any certificate for any Shares unless and until the person requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have produced evidence that such tax has been paid to the appropriate
taxing authority.
Section 5. Mutilated or Missing Warrant. In case the certificate or
certificates evidencing this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and of a bond of indemnity, if requested, also
satisfactory to the Company in form and amount, and issued at the applicant's
cost. Applicants for such substitute Warrant certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
<PAGE>
Section 6. Reservation of Shares. The Company has duly and validly
reserved, and shall at all times so long as this Warrant remains outstanding,
keep reserved, out of its authorized and unissued capital stock, sufficient
shares of Common Stock as shall be subject to purchase under this Warrant (the
"Reserved Shares"). The issuance, sale and delivery of the Warrants and Reserved
Shares have been duly authorized by all required corporate action on the part of
the Company and when issued, sold and delivered in accordance with the terms
hereof and thereof for the consideration expressed herein and therein, will be
duly and validly issued, fully paid, and non-assessable and enforceable in
accordance with their terms, subject to the laws of bankruptcy and creditors'
rights generally. The Company shall pay all taxes in respect of the issue
thereof. As a condition precedent to the taking of any action that would result
in the effective purchase price per share of Common Stock upon the exercise of
this Warrant being less than the par value per share (if such shares of Common
Stock then have a par value), the Company will take such corporate action as
may, in the opinion of its counsel, be necessary in order that the Company may
comply with all its obligations under this Agreement with regard to the exercise
of this Warrant.
Prior to exercise of all the Warrants, if at anytime the conversion of
all the Shares and exercise of all the Warrants outstanding results in an
insufficient number of Reserved Shares being available to cover all the
conversions and exercises, then in such event, the Company will move to call and
hold a shareholder's meeting within 45 days of such event for the purpose of
authorizing additional Shares to facilitate the conversions. In such an event
the Company shall: (1) recommend to its current or future officers, directors
and other control people to vote their shares in favor of increasing the
authorized number of shares of Common Stock and (2) recommend to all
shareholders to vote their shares in favor of increasing the authorized number
of shares of Common Stock . As for any shareholders who do not vote on the issue
of increasing the authorized number of shares of Common Stock, such failure to
vote shall automatically be taken as a vote in favor of increasing the
authorized number of shares of Common Stock. The proxy sent out by the Company
to all shareholders shall provide that if no vote is received a consent to
action will be executed on behalf of those shares of Common Stock for which no
vote was received, in favor of increasing the authorized number of shares of
Common Stock of the Company. Company represents and warrants that under no
circumstances will it deny or prevent Warrantholder from exercising the Warrants
as permitted under the terms of the Subscription Agreement, the Warrants or the
Registration Rights Agreement.
Section 7. Warrant Price. From March 31, 1998 through 5:00 p.m. New York
City time on March 31, 2001, the price per Share (the "Warrant price") at which
Shares shall be purchasable upon the exercise of this Warrant shall be 120% of
closing bid price as reported by Bloomberg, LP on January 30, 1998, subject to
adjustment pursuant to Section 8 hereof.
Section 8. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time after the date hereof
upon the happening of certain events, as follows:
8.1 Adjustments. The number of Shares purchasable upon the exercise of this
Warrant shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on Common Stock in
Common Stock or securities convertible into, exchangeable for or otherwise
entitling a holder thereof to receive Common Stock, (ii) declare a dividend
payable in cash on its Common Stock and at substantially the same time offer its
shareholders a right to purchase new Common Stock (or securities convertible
into, exchangeable for or other entitling a holder thereof to receive Common
Stock) from the proceeds of such dividend (all Common Stock so issued shall be
deemed to have been issued as a stock dividend), (iii) subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, (iv)
<PAGE>
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (v) issue by reclassification of its Common Stock any shares
of Common Stock of the Company, the number of shares of Common Stock issuable
upon exercise of the Warrants immediately prior thereto shall be adjusted so
that the holders of the Warrants shall be entitled to receive after the
happening of any of the events described above that number and kind of shares as
the holders would have received had such Warrants be converted immediately prior
to the happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this subdivision shall become effective immediately
after the close of business on the record date in the case of a stock dividend
and shall become effective immediately after the close of business on the
effective date in the case of a stock split, subdivision, combination or
reclassification.
(b) In case the Company shall distribute, without receiving
consideration therefor, to all holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends other than as described in
Section (8)(a)(ii)), then in such case, the number of shares of Common Stock
thereafter issuable upon exercise of the Warrants shall be determined by
multiplying the number of shares of Common Stock theretofore issuable upon
exercise of the Warrants, by a fraction, of which the numerator shall be the
closing bid price per share of Common Stock on the record date for such
distribution, and of which the denominator shall be the closing bid price of the
Common Stock less the then fair value (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed per share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock issuable
hereunder otherwise required to be made by this Section 8 will not have to be
adjusted if such adjustment would not require an increase or decrease in one
percent (1%) or more in the number of shares of Common Stock issuable upon
exercise of the Warrant. No adjustment in the number of Shares purchasable upon
exercise of this Warrant will be made for the issuance of shares of capital
stock to directors, employees or independent contractors pursuant to the
Company's or any of its subsidiaries' stock option, stock ownership or other
benefit plans or arrangements or trusts related thereto or for issuance of any
shares of Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under such plan.
(d) Whenever the number of shares of Common Stock issuable upon the
exercise of the Warrants is adjusted, as herein provided the Warrant Price shall
be adjusted (to the nearest cent) by multiplying such Warrant Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of shares of Common Stock issuable upon the exercise of each share of the
Warrants immediately prior to such adjustment, and of which the denominator
shall be the number of shares of Common Stock issuable immediately thereafter.
(e) The Company from time to time by action of its Board of Directors
may decrease the Warrant Price by any amount for any period of time if the
period is at least 20 days, the decrease is irrevocable during the period and
the Board of Directors of the Company in its sole discretion shall have made a
determination that such decrease would be in the best interest of the Company,
which determination shall be conclusive. Whenever the Warrant Price is decreased
pursuant to the preceding sentence, the Company shall mail to holders of record
of the Warrants a notice of the decrease at least 15 days prior to the date the
decreased Warrant Price takes effect, and such notice shall state the decreased
Warrant Price and the period it will be in effect.
<PAGE>
8.2 Mergers. Etc. In the case of any (i) consolidation or merger of the
Company into any entity (other than a consolidation or merger that does not
result in any reclassification, exercise, exchange or cancellation of
outstanding shares of Common Stock of the Company), (ii) sale, transfer, lease
or conveyance of all or substantially all of the assets of the Company as an
entirety or substantially as an entirety, or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a change in par
value, or from par value to no par value), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
holder of Warrants then outstanding shall have the right thereafter to exercise
such Warrant only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale, transfer, capital
reorganization or reclassification by a holder of the number of shares of Common
Stock of the Company into which such Warrants would have been converted
immediately prior to such consolidation, merger, sale, transfer, capital
reorganization or reclassification, assuming such holder of Common Stock of the
Company (A) is not an entity with which the Company consolidated or into which
the Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent entity"), or an affiliate of
a constituent entity, and (B) failed to exercise his or her rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock of the Company held immediately prior to such consolidation, merger, sale
or transfer by other than a constituent entity or an affiliate thereof and in
respect of which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section 8.2 the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). If necessary, appropriate adjustment shall be made in the
application of the provision set forth herein with respect to the rights and
interests thereafter of the holder of Warrants, to the end that the provisions
set forth herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of the Warrants. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, capital reorganizations and reclassifications. The Company shall not
effect any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor company or entity (if
other than the Company) resulting from such consolidation, merger, sale or
transfer assumes, by written instrument, the obligation to deliver to the holder
of Warrants such shares of stock, securities or assets as, in accordance with
the foregoing provision, such holder may be entitled to receive under this
Section 8.2.
8.3 Statement of Warrants. Irrespective of any adjustments in the Warrant
Price of the number or kind of shares purchasable upon the exercise of this
Warrant, this Warrant certificate or certificates hereafter issued may continue
to express the same price and number and kind of shares as are stated in this
Warrant.
Section 9. Fractional Shares. Any fractional shares of Common Stock
issuable upon exercise of the Warrants shall be rounded to the nearest whole
share or, at the election of the Company, the Company shall pay the holder
thereof an amount in cash equal to the closing bid price thereof. Whether or not
fractional shares are issuable upon exercise shall be determined on the basis of
the total number of Warrants the holder is at the time exercising and the number
of shares of Common Stock issuable upon such exercise.
Section 10. No Rights as Stockholders: Notices to Warrantholders. Nothing
contained in this Warrant shall be construed as conferring upon the
Warrantholder or its transferees any rights as a stockholder of the Company,
including the right to vote, receive dividends, consent or receive notices as a
stockholder with respect to any meeting of stockholders for the election of
directors of the Company or any other matter. If, however, at any time prior to
5:00 p.m., New York City time, on March 31, 2001, (the "Expiration Time") and
prior to the exercise of this Warrant, any of the following events shall occur:
<PAGE>
(a) any action which would require an adjustment pursuant to Section 8.1;
or
(b) a dissolution, liquidation or winding up of the Company or any
consolidation, merger or sale of its property, assets and business as an
entirety; then in any one or more of said events, the Company shall give notice
in writing of such event to the Warrantholder at least 10 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights, or other rights or for the effective date of
any dissolution, liquidation of winding up or any merger, consolidation, or sale
of substantially all assets, but failure to mail or receive such notice or any
defect therein or in the mailing thereof shall not affect the validity of any
such action taken. Such notice shall specify such record date or the effective
date, as the case may be.
Section 11. Successors. All the covenants and provisions of this Warrant by
or for the benefit of the Company or the Warrantholder shall bind and inure to
the benefit of their respective successors and permitted assigns hereunder.
Section 12. Applicable Law. This Warrant shall be construed and enforced in
accordance with and the rights of the parties shall be governed by the laws of
the State of Delaware. ---------------
Section 13. Benefits of this Agreement. Nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Warrantholder any legal or equitable right, remedy or claim under this Warrant,
and this Warrant shall be for the sole and exclusive benefit of the Company and
the Warrantholder.
Section 14. Piggy-back Registration Rights. If at any time the Company
shall propose to prepare on its own behalf or on behalf of any of its
stockholders (other than Warrantholder) a registration statement in connection
with an underwritten public offering of any equity securities of the Company,
the Company shall give Warrantholder written notice at least 20 days before the
anticipated filing date of such registration statement. Should Warrantholder
desire to have any of the Shares included in such registration statement
Warrantholder shall so advise the Company in writing no later than 15 days after
the Company's notice is given, setting forth the number or amount of Shares
which Warrantholder requests to be included in the registration statement, and
the Company shall include the securities specified in such request in such
registration statement and keep such registration statement in effect and
maintain compliance with each federal and state law and regulation as set forth
herein. The Company may, at its option, require that the amount of Shares
offered for sale by Warrantholder pursuant to this Section 14 be decreased if,
in the opinion of the Company's investment banking firm, such reduction is
necessary in order to permit the orderly distribution and sale of the securities
being offered. If the Company shall require such a reduction, Warrantholder
shall have the right to withdraw from the offering.
Section 15. Definitions.
"Common Stock" shall mean (i) Common Stock, $.0001 par value per share, of
the Company and (ii) any other security purchasable upon the exercise of this
Warrant upon the happening of certain events.
IN WITNESS WHEREOF, the parties have caused this Warrant to be duly
executed, all as of the day and year first above written.
U. S. BRIDGE CORP.
By:_________________________________
, CEO
Attest.
- ------------------------
Secretary
<PAGE>
U. S. BRIDGE CORP.
ELECTION TO EXERCISE
U. S. BRIDGE CORP.
53-09 97th Place
Corona, NY 11368
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder, _______shares
of Common Stock (the "Share") provided for therein, and requests that
certificates for the Shares be issued in the name of:*
Name:___________________________________________________________
Address:_________________________________________________________
Social Security No.________________________________________________
or Tax ID Number:_________________________________________________
and, if such number of Shares shall not be all of the Shares purchasable under
the Warrant, that a new Warrant certificate for the balance of the Shares
purchasable under the within Warrant be registered in the name of the
undersigned warrantholder or his Assignee* as indicated below and delivered to
the address stated below:
Dated:________, 19___
Name of Warrantholder of
Assignee (Please Print)_____________________________________________
Address:_________________________________________________________
Signature:________________________________________________________
Signature Guaranteed:______________________________________________
Signature of Guarantor
- --------------------
* The Warrant contains restrictions on sale, assignment or transfer.
** Note: The above signature must correspond with the name as written on
the face of this Warrant certificate in every particular, without alteration or
enlargement or any change whatever, unless this warrant has been assigned.
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon assignment of Warrant)*
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(Name and Address of Assignee must be Printed or Typewritten)
the within Warrant, hereby irrevocably constituting and appointing
_________Attorney to transfer said Warrant on the books of the Company, with
full power of substitution in the premises.
Dated:______________, 19____
________________________________**
Signature of Registered Holder
Signature Guaranteed: ________________________________
Signature of Guarantor
-------------------- * The Warrant contains restrictions on sale,
assignment or transfer.
** Note: The signature of this assignment must correspond with the name as
it appears upon the face of the Warrant certificate in every particular, without
alteration or enlargement or any change whatever.
Exhibit 23.01 Consent of Scarano & Tomaro, P.C.
February 26, 1998
USABG Corp.
(Formerly U.S. Bridge Corp.)
53-09 97th Place
Corona, NY 11368
We hereby consent to the use of our name "as experts", in the "Summary Financial
Data" section and the use of our opinion dated October 4, 1997 for USABG Corp.
to be included in the Form SB-2 Registration Statement being filed for USABG
Corp.
Very truly yours,
Scarano & Tomaro, P.C.
