As filed with the Securities and Exchange Commission on April 23, 1998
Registration No. ____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO 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.)
</TABLE>
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, Esq.
Klarman & Associates
2303 Camino Ramon, Suite 200
San Ramon, California 94583
(925) 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)
- - - ------------------------------------------------------------------------------------------------------------------------------
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Common Stock,
$.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
- - - ------------------------------------------------------------------------------------------------------------------------------
50,000 $1.41 $ 70,500 $ 24.31
- - - ------------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.001 par value (3) 50,000 $1.41 $ 70,500 $ 24.31
- - - ------------------------------------------------------------------------------------------------------------------------------
$237.66
Totals........... $689,250
==============================================================================================================================
- - - ----------------------------
</TABLE>
(1) Represents an estimate of the shares of Common Stock issuable on
conversion of the subordinated debentures (the "Debentures") equal to 100% of
the 5 day average closing bid price, as reported by Bloomberg, LP, for the 5
trading days immediately preceding the closing date (February 3, 1998) of the
private placement offering ($.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>
<PAGE>
Preliminary prospectus subject to completion, dated April 23, 1998
Prospectus
USABG CORP.
662,500 Shares of Common Stock
This Prospectus covers the sale of shares of common stock (the "Shares"),
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 $450,000 in principal amount of 8% convertible
subordinate debentures (the "Debentures"); and (ii) an aggregate of 100,000
shares of Common Stock underlying Common Stock Purchase Warrants (the
"Warrants") being sold by certain "Selling Securityholders." The Debentures,
plus interest accrued thereon, are convertible into shares of Common Stock at
the lesser of (i) 100% of the 5 day average closing bid price, as reported by
Bloomberg, LP, for the 5 trading days immediately preceding the closing date
(February 3, 1998) of the private placement (the "Private Placement" or "Private
Placement Offering") ($.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; 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 of 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 Market
("Nasdaq") under the symbol "USBG." 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 April 23, 1998.
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.
<PAGE>
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, and should be read in conjunction with, the
detailed information and financial statements appearing elsewhere in this
Prospectus. Statements contained in this Prospectus which are not historical
facts are forward looking statements as defined under the Private Securities
Litigation Reform Act of 1995. These forward looking statements include
statements with respect to plans, projections, or future performance of the
Company and are subject to risks and uncertainties which could cause actual
results to differ materially from those projected.
USABG Corp. (the "Company") was incorporated on September 12, 1988, in the
State of Delaware, as Colonial Capital Corp. The Company's current name was
established via the filing, in January 1998, of an amendment to its Certificate
of Incorporation . The Company currently owns 56.8% of the outstanding shares of
common stock of USA Bridge Construction of N.Y., Inc. ("NY"), 100% of the
outstanding shares of common stock Royal Steel Services, Inc. ("Royal Steel")
and 100% of the outstanding shares of common stock of Worldwide Construction
Limited ("Worldwide"). These three subsidiaries are the only ones through which
the Company operates. Unless the context requires otherwise, all references to
the Company include its subsidiaries.
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 the New York State and Metropolitan areas.
Though formed to operate as a general contractor, NY operated initially only as
a subcontractor. NY's goals were to become a general contractor for municipal
projects; however, NY needed financing to enable it to obtain bonding which is
required for all municipal projects. To date, 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 completed in excess of twenty (20) projects with an aggregate project
value of $39,423,724 and was engaged in three (3) projects with an aggregate
value of approximately $12,752,681. NY plans to maintain its subcontractor
presence in the steel industry; however, it intends also to focus on obtaining
projects as a general contractor.
NY shall continue to bid on both private and public sector projects as a
general contractor and a subcontractor. Most of the steel fabrication projects,
both public and private sector, require Bid Bonds and Payment and Performance
Bonds. Rarely do the steel erection projects require such bonds, and when NY
performs erection and fabrication services together on a project, typically only
the fabrication portion of the job is bonded. 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, for its general contracting projects, NY obtained a
commitment for a Surety Bond Line of Credit ($10,000,000 single project limit)
from United American Guarantee Company, Ltd. ("UAGC"). This commitment allows 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 EklecCo., Grand Central Terminal, and
Korean Mission projects. Since New York State and City agencies require bonds
from bonding companies licensed by the State of New York, however, and UAGC is
not a New York licensed bonding company, NY is as yet unable to bid as a general
contractor on projects for New York State and City agencies.
<PAGE>
Royal Steel was formed by the Company in November 1997 to undertake steel
erection projects which carry a considerably smaller dollar value than those
which NY undertakes. Worldwide was formed by the Company in December 1997, in
the British Virgin Islands, as a holding company which owns 80% of each of
Falcon TChad S.A. ("Falcon") and Portshop S.A. ("Portshop"), both of which
companies were incorporated in Chad, a country located in North Central Africa.
Chad is a country with abundant natural resources such as cattle, cotton,
limestone, and crude oil. The remaining 20% of each of Falcon and Portshop is
owned by Diversified Investments Africa S.A. ("DIA"), a Luxembourg company
unaffiliated with the Company. Falcon and Portshop were jointly formed by the
Company and DIA, the latter of which facilitated the Company's commencement of
its Chadian operations by acting as a liaison with the Chadian government and by
developing business contacts and operations in Chad. Falcon will operate as a
full service transportation, forwarding, and warehousing company in the city of
N'Djamena. Portshop shall stock and operate a duty free store in Chad's sole
international airport. Worldwide shall operate as the liaison between Portshop,
Falcon, and the governmental or private entities with which these companies
intend to contract in Chad.
Falcon shall offer full transportation services including forwarding (i.e.,
trucking), customs clearance, and warehousing. In January 1998, Falcon purchased
16 transport vehicles and a communications system. It is currently engaged in
discussions 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 Chadian operation. These funds are being used to purchase the
trucks and to establish offices and operations in Chad (the "Chadian
operation").
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 (1)
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Securities Offered............... 662,500 shares of Common Stock, an estimated 562,500 of
which, subject to adjustment,
are issuable upon conversion
of the Debentures and 100,000
of which are issuable upon
exercise of the Warrants.
Common Stock Outstanding Prior to the Offering 7,844,148 shares
Common Stock Outstanding After the Offering (2) 8,506,648 shares
Use Of Proceeds The proceeds of the sale of the 562,500 shares of
Common Stock will be received by the respective Selling
Stockholders. The proceeds generated by the exercise of the
Warrants will be paid to the Company; such funds shall be
used by the Company for its Chadian operations. All 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.
Risk Factors This Offering involves a high degree of risk. See "Risk
Factors."
Nasdaq Symbol(3) Common Stock.............USBG
</TABLE>
(1) Unless otherwise indicated, no effect is given in this Prospectus to
the issuance of (i) 100,000 shares of Common Stock reserved for issuance upon
the exercise of the Warrants; (ii) 562,500 shares of Common Stock, subject to
adjustment, issuable upon conversion of the Debentures; -- and (iii) 2,000,000
shares of Common Stock reserved for issuance under the Company's 1994 Senior
Management Incentive Plan (the "Plan"), except for such shares as have been
issued under the Plan. See "Management - Senior Management Incentive Plan"
"Certain Relationships and Related Transactions" "Description of Securities - 8%
Convertible Debentures" and "--Warrants."
<PAGE>
(2) Includes (i) the issuance of 562,500 shares of Common Stock, subject to
adjustment, upon conversion of the Debentures in accordance with the provisions
of the Debentures; and (ii) 100,000 shares issuable upon exercise of the
Warrants. See "Description of Securities -- 8% Convertible Debentures" and
"--Warrants."
(3) The Company's Common Stock is listed on Nasdaq. Quotation on Nasdaq
does not imply that a meaningful, sustained market for the Common Stock has
developed or will develop. In addition, continued inclusion on Nasdaq is subject
to certain maintenance criteria, which if not met in the future may result in
the discontinuance of the listing of the Company's Common Stock on Nasdaq which
may have an adverse effect on the market for the Company's Securities. See "Risk
Factors."
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.
Summary of Operations Data:
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=========================================================================================================================
=========================================================================================================================
=========================================================================================================================
Six Months Six Months
Ended Ended Year Ended Year Ended
12/31/97 12/31/96 06/30/97 06/30/96
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Revenues $12,269,286 $5,806,441 $15,494,447 $7,401,433
- - - -------------------------------------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 240,003 ($208,676) ($540,876) 40,569
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=========================================================================================================================
Net Income (loss) per share (1)
$.03 ($.03) ($.08) $.01
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<PAGE>
Summary Balance Sheets Data:
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June 30, December 31, December 31,
- - - -------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
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Working Capital $2,499,026 $1,528,934 $7,445,671 $1,966,126
- - - -------------------------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------------------------
Total Assets $15,396,254 $9,544,047 $13,624,679 $11,303,313
- - - -------------------------------------------------------------------------------------------------------------
Total Liabilities $9,902,048 $4,973,023 $7,551,632 $6,381,747
- - - -------------------------------------------------------------------------------------------------------------
=============================================================================================================
Stockholders' Equity $5,494,206 $4,571,024 $6,073,047 $4,921,566
=============================================================================================================
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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; 6,854,390;
6,450,736; 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. Although NY and Joseph M. Polito have experience as
subcontractors in the erection and fabrication of steel structures, neither has
experience as a general contractor. NY is expanding its operations and is
seeking projects in its capacity as a general contractor, however. There can be
no assurances that NY will be able to implement this aspect of its business plan
successfully or that unanticipated expenses, problems, or difficulties will not
result in material delays in the implementation or ability of NY to implement
such plan.
As general contractor, NY will contract directly with the owner to perform
an entire project at a set value. NY will be responsible for all aspects of the
project and will be required to hire and oversee the work of subcontractors. In
addition to the unanticipated costs or problems that may be incurred as a
general contractor, many contracts are also subject to completion requirements
with liquidated damages assessed against NY if schedules are not met. NY has not
been materially adversely affected by these provisions in the past as a
subcontractor. Though NY has submitted general contracting bids on several
public and private sector projects, none of such bids have been accepted.
NY has, however, commenced two projects as a prime contractor. A prime
contractor is a contractor which performs a specific category of work on a
project. Unlike the general contractor, the prime contractor is responsible for
performance of that category alone, not the entire project. Like the general
contractor, the prime contractor typically contracts directly with the owner or
via the owner's construction manager acting as agent therefor; thus, unlike the
subcontractor, the prime contractor is responsible exclusively to the owner.
2. Operations Conducted in Chad, a Country Located in Africa; Dependence on
Political and Economic Stability of Chad. The Chadian operation will be
conducted in N'Djamena, Chad, a country located in Central Africa. To
effectively manage operations thereat, the Company must (i) engage persons with
managerial skills appropriate to the Chad's business operations; and (ii)
implement 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. Likewise, the Company must
ensure compliance with Chadian laws, rules, and regulations, particularly with
respect to licenses, permits, and governmental authority.
Richard Miller has been engaged by Falcon and Portshop, respectively, as
Chief Executive Officer thereof, and is charged with running the Chadian
operation. This 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; therefore, no assurances can be given that he or other persons
hired to work in Chad) effectively will be able to supervise and operate the
Chadian operation.
Chad is located in a region where there is ongoing political turmoil.
Accordingly, the success of the Chadian operation is, and will continue to be,
dependent on the political and economic stability of the country in general.
<PAGE>
3. Expansion of Business Activities; Entrance into New Market Segment. The
Company presently operates as a contractor primarily for large steel erection
projects. Recently, however, with the formation of Royal Steel, the Company has
expanded its operations and has entered a new market segment in the construction
industry whereby, via Royal, it shall undertake small steel erection projects
having a maximum contract value approximating $350,000. In addition, with the
formation of Falcon and Portshop, the Company has undertaken operations in which
it has no prior experience, wherein it shall (i) provide trucking, warehousing,
and forwarding services; and (ii) stock and operate a duty free store in Chad's
sole international airport. The Company's Royal Steel venture constitutes its
entree into a new market segment of the construction industry, whereas its
Falcon and Portshop ventures constitute its entree into two entirely new
industries. There can be no assurance that the Company will be successful in the
new construction market segment or in the new industries it has undertaken in
Chad. Moreover, (i) the Company's management's lack of trucking and duty free
shop operating experience; and (ii) Chad's political instability may result in
unanticipated problems, expenses, difficulties, complications, and delays in the
Company's operations.
4. Dependence on Bonding; Bonding Requirements. 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. Most government contracts
require bonding. Bids are submitted to the company accepting the bids together
with Bid 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.
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
other factors. 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. There can be no assurance that
the Company will meet all or any of these requirements and continue to maintain
bonding for its projects. See "Business - Insurance and Bonding."
5. Inability to Obtain New York State and City Agency Projects as a General
Contractor. New York State agencies require bonds from bonding companies 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 approved bonding companies; however, as of the date hereof it has not been
approved by any such company to receive bonding.
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; Bidding" and "-- Insurance and Bonding."
<PAGE>
6. Risk Associated with Type of Bid. There are two types of bid requests
made by a 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, and hence the
Company's, results of operations. See "Business - The Contract Process;
Bidding."
7. Amount and Concentration of Construction Projects and Receivables. For
the year ended June 30, 1997, NY had three unrelated customers, which accounted
for approximately 86% of total revenues. For the six months ended December 31,
1997, NY had two unrelated customers, which accounted for approximately 81% of
total revenues. At June 30, 1997 and December 31, 1997, approximately 83% and
77% of contracts receivables are due from four and three customers,
respectively. The discontinuance of any of these projects, or a general economic
downturn in the State of New York, in which the projects are located, could have
a material adverse effect on NY's results of operations.
8. Competition. All aspects of NY's business are and will continue to be
highly competitive. Many subcontractors and general contractors have
substantially greater personnel and financial resources and sales than those of
NY. When general 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. It is primarily Joseph Polito's (and many of his employees') thirty
plus year presence in the construction industry, which provides the industry
name recognition and confirmation of prior performance; therefore, the loss of
Mr. Polito and other Company employees could have an adverse effect on the
Company's ability to compete in the industry. In addition, regarding prior
performance, while NY has operated only since 1993, other companies owned by Mr.
Polito (i.e., , Atlas Gem Erectors Co. Inc. ("Atlas Gem"), a former steel
erector subcontractor or prime contractor for private and governmental
construction projects) was incorporated in 1986 and operated as such until NY
purchased its assets in 1993. See Risk Factor No. 15 - "Dependence on
Management; Ailing Health of Joseph M. Polito."
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 solicit bids for bridge and roadway
repair and replacement projects and the furnishing and erection of steel
structure for buildings projects - have been established. NY's competitors are
numerous, and many have substantially greater research and development,
marketing, financial, and human resources than NY. There can be no assurance
that NY will be able to compete successfully. See Risk Factor No. 15 "Dependence
on Management; Ailing Health of Joseph M. Polito" and "Business Competition."
9. Dependence on Suppliers; Subcontractors; Union Employees. NY receives
approximately 60% of the steel it requires from Hirschfeld Steel Co., Inc.
("Hirschfeld"). 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 rents an immaterial amount of cranes from Crown Crane,
Inc. ("Crown"), a company of which Joseph M. Polito is a 50% shareholder, and an
immaterial amount of generators and other equipment from Atlas Gem Leasing Inc.
("AGLI"), 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.
<PAGE>
NY hires skilled steel workers represented by the International Union of
Structural Ironworkers, Locals 40, 361, & 417 and International Operating
Engineers Locals 14, 14B, 15, 15A, 15C, 15D, and 825 and Cement Masons Local 472
(collectively referred to as the "Unions"). NY must comply with agreements with
the unions, which agreements regulate all employment issues - including pay,
overtime, working conditions, vacations, benefits, etc. - between NY and the
union employees. These 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 and to
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 that NY will in fact be able to attract such
subcontractors. As a general contractor, NY will be responsible for performance
of the entire contract, including the work to be performed by subcontractors.
Accordingly, NY may be subject to substantial liability if a subcontractor fails
to perform as required. In addition, unanticipated difficulties may arise in
hiring and overseeing subcontractors. See "Business - Suppliers and
Subcontractors" and "-- The Contract Process."
10. 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. It also must comply
with (i) the New York City Department of Buildings, which regulates the
placement and testing of cranes; and (ii) the New York Department of
Transportation which regulates the location of the cranes, vehicular traffic,
and the routing of pedestrian traffic. In addition, NY 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, and the failure to
comply with such regulations may have an adverse effect on NY's operations.
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 of
which could be substantial, even if NY exercises due care and complies 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 on or complete such projects.
See "Business - Government Regulations" and " --Litigation."
11. Payroll Taxes. As of December 31, 1997, the Company owes the Internal
Revenue Service, New York State, and New York City withholding taxes (including
estimated penalties and interest) of approximately $1,951,875. If such amounts
are not paid, the aforesaid authorities can levy on the accounts, assets, and
future earnings of these companies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
12. 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.
<PAGE>
13. Control by Management and Joseph M. Polito. Joseph M. Polito, President
and a Director of the Company owns approximately 66.3% 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 Directors.
14. Conflicts of Interest. Joseph M. Polito estimates that he devotes 80%
of his business time to the operations of NY and a combined 20% to all of the
other companies he owns and operates. Because Mr. Polito is an Officer,
Director, and principal shareholder in other companies, some of which transact
business with the Company and NY, certain issues may pose conflicts of interest,
and decisions made by Mr. Polito with respect to such issues may compromise Mr.
Polito's fiduciary duty to the Company and NY. Any remedy under state law, in
the event such circumstances arise, most likely would be prohibitively expensive
and time
consuming.
In June 1995, the Board of Directors formed an audit committee which
comprises 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. See "Management," "Certain Relationships and Related
Transactions," "Business - History" and "Description of Securities."
15. Dependence on Management; Ailing Health of Joseph M. Polito. The
Company and NY are dependent upon the personal efforts and abilities of Joseph
M. Polito, the President and majority shareholder of the Company, of which NY is
a majority owned subsidiary. Mr. Polito entered into a three year employment
agreement with NY: the agreement expires in June 1998. Pursuant to the terms of
the agreement, he is restricted from competing with NY. Mr. Polito has agreed to
devote 80% of his business time to the operations of NY.
Mr. Polito's cardiologist and neurologist have diagnosed him with (i)
coronary artery disease, severe angina, significant hypertension, and (ii)
cerebrovascular compromise and recurrent TIA, respectively. These diagnoses are
indicative of a high probability of acute heart attack, stroke, and possibly
sudden death given high levels of stress and anxiety. The threat of such
occurrences has prevented and shall continue to prevent Mr. Polito from
performing certain functions, such as completing full work weeks or working
excessive hours, which would exert too great a physical strain on his health.
Because the relationships forged by Mr. Polito throughout the years in the
industry are a significant factor in NY's obtaining projects from general
contractors, the loss of the services of Mr. Polito would adversely affect the
business of NY, and hence, the Company. Neither NY nor the Company has key-man
insurance on the lives of Mr. Polito or any other Officer or Director. See
"Management - Employment Agreements."
16. Indemnification of Officers and Directors. As permitted under the
Delaware 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. 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. See "Business - Recent Developments" and "Management."
<PAGE>
17. Limited Public Market for Securities. At present, there is a
limited public market for the Company's Securities, which are traded on Nasdaq
under the symbol "USBG." There is no assurance that a continued regular trading
market will develop, or that if one does develop, it will be sustained for any
period of time; therefore, purchasers of the Company's Securities may be unable
to resell same 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 does
develop. The underwriter of the Company's Initial Public Offering ("IPO") was a
dominant influence in the market for the Company's Securities until the
underwriter ceased operating in August 1996. The market for the Company's
Securities has been significantly affected, and may continue to be affected, by
the loss of this market maker's participation in the market, and this lack of
participation may cause a significant decrease in the liquidity of an investment
in such Securities.
18. 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."
19. Increased Public Float Through Shares Available for Resale. A total of
7,844,148 shares of Common Stock have been issued by the Company, approximately
5,084,156 of which may be deemed "restricted securities" (as such term is
defined in Rule 144 issued under the Act). In the future, such shares may be
publicly sold only if registered under the Act or pursuant to an exemption from
registration. Most of the 5,084,156 shares have been held in excess of one year
and may be sold in accordance with Rule 144. In connection with the Offering,
which closed in February 1998, the Company generated $450,000 through the sale
of Debentures, each Debenture convertible into Common Stock pursuant to a
conversion schedule. It is estimated that the number of shares actually issuable
upon conversion of the Debentures shall be 562,500 shares, though this amount
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 the Warrants which
were granted to the private placement investors. See "Capitalization." Any 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. See
"Shares Eligible for Future Sale."
20. Possible Future Dilution. The Company has authorized capital stock of
50,000,000 shares of Common Stock, par value $.001 per share, and 10,000,000
shares of Preferred Stock, par value $.0001 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.
21. Possible Delisting of Securities from Nasdaq Stock Market; 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 $2,000,000; (ii) at least 500,000
shares in the public float; (iii) a minimum market value for the public float of
$1,000,000; (iv) a minimum bid price of $1.00; (v) two market makers; and (vi)
at least 300 stockholders. In the event the Company's Securities are delisted
from Nasdaq, trading, if any, in the Securities will thereafter be conducted on
the over-the-counter market on the OTC Bulletin Board. Consequently, an investor
may find it more difficult to dispose, 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 that
if developed, it will be sustained for any period of time.
22. Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
<PAGE>
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.
23. Risks Associated with Holding Company Status. The Company is a holding
company with no operations of its own, and its principal assets comprise the
outstanding stock of its operating subsidiaries through which the Company
operates. Accordingly, in order to pay its expenses and meet its obligations and
to pay any cash dividends or distributions (which may be authorized by its Board
of Directors) on its Common Stock, the Company depends on (i) the earnings and
cash flows of its operating subsidiaries; and (ii) the dividends and
distributions from such subsidiaries. There can be no assurance (i) that the
Company's operating subsidiaries will generate sufficient earnings and cash
flows to pay dividends or distribute funds to the Company to enable the Company
to meet its obligations and pay its expenses; or (ii) that applicable
contractual restrictions, including negative covenants contained in the
instruments and agreements covering indebtedness of such operating subsidiaries,
will permit such distributions or dividends.
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.
<PAGE>
USE OF PROCEEDS
The maximum net proceeds to be received if all Warrants are exercised is
$126,250. However, there can be no assurance that all 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. Should, however, any or all of the Warrants be exercised, the Company
intends to use the funds generated thereby for general working capital purposes.
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information.
The Company's Common Stock began trading on the Nasdaq SmallCap Market on
July 25, 1996. Prior to that, from August 25, 1994 to July 24, 1996, the Common
Stock traded sporadically and on a limited basis in the over-the-counter market
on the OTC Bulletin Board. Prior to August 25, 1994, there was no trading market
for the Company's Common Stock. 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 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-ups, mark-downs, or commissions, 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.
<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 - 3/31/98 5/8 1 1/4
</TABLE>
(footnote from previous page)
(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 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 March 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. As of March 31, 1998, there were
7,844,148 shares of Common Stock outstanding.
<PAGE>
The Company has paid no dividends for the last two fiscal years or in the
1st three quarters 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
subject to any contractual or similar restrictions on its present or future
ability to pay such dividends.
<PAGE>
BUSINESS
History
The Company was incorporated on September 12, 1988, in the State of
Delaware, as Colonial Capital Corp. The Company's current name was established
via the filing, in January 1998, of an amendment to its Certificate of
Incorporation. The Company currently owns 56.8% of the outstanding shares of
common stock of NY, 100% of the outstanding shares of common stock of Royal
Steel, and 100% of the outstanding shares of common stock of Worldwide. These
three subsidiaries are the only ones through which the Company operates. Two
additional wholly-owned subsidiaries of the Company - One Carnegie Court
Associates, Inc. ("One Carnegie") and USA Bridge Construction Corp. (Maryland)
("MD") - 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 its subsidiaries.
1998 Private Placement
In February 1998, the Company raised $450,000 for the Chadian operation,
through its sale of Debentures through VenGua Capital, a London, England firm,
as placement agent (the "Private Placement" or "Private Placement Offering").
The Debentures, plus interest accrued thereon (at 8% per annum, payable in
shares of Common Stock upon conversion of the Debentures), are convertible into
shares of Common Stock at the lesser of (i) 100% of the 5 day average closing
bid price, as reported by Bloomberg, LP, for the 5 trading days immediately
preceding the closing date (February 3, 1998) of the Private Placement ($.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."
Pursuant to the terms of the Private Placement, the Company has filed this
Registration Statement covering the shares of Common Stock to be issued upon
conversion of the Debentures. If the Registration Statement is not declared
effective within 90 days following the closing of the Private Placement, then as
liquidated damages, the discount set forth in the Subscription Agreement and
Debenture will increase by 2.5% per 30 day period or portion thereof pro rata
until the Registration Statement is declared effective, or alternatively, if the
Registration Statement has not been declared effective within said 90-day
period, then at the purchaser'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.
The Warrants issued pursuant to the Private Placement, 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; 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 of
sale, or via a combination thereof.
The funds obtained through the Private Placement have been, and shall
continue to be, loaned to Falcon and/or Portshop to purchase trucks and to stock
a duty free store to be operated out of Chad's sole international airport. See
"Business - Business of Worldwide Construction Limited and Subsidiaries Falcon
TChad S.A. and Portshop S.A."
<PAGE>
Recent Developments
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) a $3,000,000 Note (of which Trinity was the holder), and (ii) a
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 "Business - Description of Property."
In February 1998, the Company consummated a Private Placement of Debentures
for which it received a net aggregate of $450,000. Each Debenture is convertible
into shares of Common Stock pursuant to a conversion schedule. In addition to
Debentures, the investors received Warrants to purchase an aggregate of 100,000
shares of the Company's Common Stock. The Company paid a 10% commission and a 1%
nonaccountable expense allowance to the placement agent and paid the placement
agent's attorney's fee of $7,500. See "Business - 1998 Private Placement."
In February 1998, the Company agreed to issue 192,000 shares of Common
Stock to R.S.J.J Realty Corp. ("RSJJ") in exchange for 106,667 shares of NY's
Common Stock. These issuances were made in accordance with an agreement between
NY and RSJJ pursuant to which NY remitted $240,000 in lease payments (in stock,
via the aforesaid issuance of the Company's stock to RSJJ) for the January 1
through December 31, 1998 extended lease term. The value of the Company's shares
will be recorded at their estimated market value at date of authorization ($1.06
per share) with a 50% discount due to the restricted nature of the stock. The
stock was issued in March 1998. See "Certain Relationships and Related
Transactions."
<PAGE>
23. Joseph M. Polito's Corporate Affiliations and Holdings
The following table lists, as of December 31, 1997, (i) those companies
with which the Company and/or its subsidiaries do business and of which Joseph
M. Polito is either an Officer, Director, or principal shareholder; and (ii) the
activities engaged in by such companies with the Company and/or its
subsidiaries:
<PAGE>
<TABLE>
<CAPTION>
Year J. Polito's Activities with the Place of Business
Name(1) of Inc. Title Ownership(%) Company and NY
<S> <C> <C> <C> <C> <C>
USABG Corp.(2) 1988 Pres./Director 66.3% Parent company Queens, NY
R.S.J.J. Realty Corp.(3) 1983 Pres./Director 100% Leases the offices and Queens, NY
storage space to the
Company and NY
Crown Crane, Ltd.(3) 1988 -- 50% Supplies cranes to Brooklyn, NY
NY for use in the
erection of steel
Atlas Gem Leasing, 1986 Pres./Director 100% Supplies welding Queens, NY
Inc. (3) machines and compressors
to NY
Atlas Gem Erectors
Co., Inc. (3) 1986 Pres./Director 100% Sold certain construction No office
contracts to NY; ceased
operations 9/94
USA Bridge Construction 1990 Pres./Director 56.8% Provides steel erection Queens, NY
of N.Y., Inc. (3)(4) for buildings, roadway,
and bridge repair projects
Royal Steel Services,
Inc. (5) 1997 -- 100% Formed to provide Queens, NY
steel erection for
projects smaller than
NY's projects
Worldwide Construction 1997 -- 100% Parent company of Falcon Chad, Africa
Limited (6) Chad S.A. and Portshop S.A.
</TABLE>
- - - --------------
(1) Except as disclosed hereunder, no company listed is beneficially owned
by another entity; nor does any company have any subsidiaries.
(2) Incorporated in the State of Delaware.
(3) Incorporated in the State of New York.
(4) Joseph M. Polito, through his ownership of approximately 66.3% of the
outstanding shares of the Company's Common Stock, may be deemed the beneficial
owner of the shares of NY common stock owned by the Company.
(5) Incorporated in the State of New York. Joseph M. Polito, through his
ownership of approximately 66.3% of the outstanding shares of the Company's
Common Stock, may be deemed the beneficial owner of the shares of Royal Steel
common stock owned by the Company.
(6) Incorporated in the British Virgin Islands in December 1997. Worldwide
is a wholly-owned subsidiary of the Company and the parent company of Falcon and
Portshop, two companies registered under the laws of Chad and authorized to
operate therein in November 1997. Joseph M. Polito, through his ownership of
approximately 66.3% of the outstanding shares of the Company's Common Stock, may
be deemed the beneficial owner of the shares of Worldwide common stock owned by
the Company. Business of Royal Steel Services, Inc.
<PAGE>
Royal Steel was incorporated by the Company, in New York, in November 1997
to undertake and perform steel erection services on a considerably smaller scale
than those undertaken by NY. Specifically, these projects generally will not
exceed an aggregate contract amount of $350,000. To date, Royal Steel has
commenced work on two projects, aggregating approximately $215,000.
Business of Worldwide Construction Limited and Subsidiaries Falcon TChad
S.A. and Portshop S.A.
Falcon TChad S.A.
In December 1997, the Company formed Worldwide, a British Virgin Islands
corporation, as a wholly-owned subsidiary. Worldwide was formed as a holding
company to own 80% of Falcon, a company incorporated in Chad. The remaining 20%
of Falcon is owned by DIA, the company which jointly with the Company, formed
Falcon. Falcon shall provide full service transportation services (including
trucking, customs clearance, and warehousing) and forwarding services in
N'Djamena, Chad. Worldwide shall operate as the liaison between Falcon and the
governmental or private entities with which Falcon intends to contract in Chad.
In January 1998, in furtherance of its goals, Falcon purchased 16 transport
vehicles and a communications system. Falcon is currently engaged in discussions
with (a) several large foreign corporations setting up to do business in Chad in
order to provide their trucking and certain materials needs, and (b) the Chadian
government (i) to transport cotton, the country's primary export; (ii) to
purchase and operate 65-75% of a construction company (whereby the Chadian
government will own the remaining 25-35%) for road and bridge building; (iii)
for the right to utilize 1/2 of a "mountain" of gravel, at no cost to Falcon, to
crush and sell same to a certain contractor with whom Falcon is engaged in
negotiating a four year requirements contract; and (iv) for the rights to 1/2 of
another "mountain" of gravel to be used to build a road to encircle Chad.
Despite the aforesaid negotiations, no contracts have been executed with respect
thereto, and there can be no assurance that any of the negotiations will result
in executed contracts; moreover, given the political instability of Chad, there
can be no assurance that if the aforesaid contracts are executed, same will be
performed fully. To date, Falcon has generated no revenues. 23. Portshop S.A.
In addition to its holdings in Falcon, Worldwide was formed to own 80% of
Portshop, a company which shall stock a duty free store in Chad's sole
international airport. The remaining 20% of Portshop is owned by DIA. Worldwide
shall operate as the liaison between Portshop and the governmental or private
entities with which Portshop intends to contract in Chad.
In February 1998, Portshop executed a contract with the Chadian government
to stock and operate a duty free store at Chad's sole international airport. The
Company expects the store shall be opened by the end of August 1998. To date,
Portshop has generated no revenues.
Business of USA Bridge Construction of N.Y., Inc.
General
The Company commenced operations, through NY, in or about June 1993 to
serve primarily as a general contractor for construction projects sponsored by
federal, state, and local government authorities in the New York State and
Metropolitan areas. Though formed to operate as a general contractor, NY
operated initially only as a subcontractor. NY'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. To date, 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 completed in excess of twenty (20)
projects with an aggregate project value of $39,423,724 and was engaged in three
(3) projects with an aggregate value of approximately $12,752,681. While NY
plans to maintain its subcontractor presence in the steel industry, it intends
also to focus on obtaining projects as a general contractor.
<PAGE>
On June 15, 1993, NY purchased, from Atlas Gem, six then existing contracts
to perform steel erection services for the following projects: Stillwell Avenue,
39th Street Bridge Rehabilitation, Honeywell Street Bridge, New England Thruway,
Lemon Creek, and Kosciuszko Bridge. Upon its sale of these contracts to NY and
its completion of its final project in September 1994, Atlas Gem ceased
operations. NY purchased Atlas Gem's contracts to add to its then backlog in
order to avoid a conflict of interest, as the two entities - which were
controlled by Joseph M. Polito as Officer, Director, and principal stockholder
were engaging in similar, but different work. 23.
<PAGE>
Schedule of Completed Projects
Below is a table detailing the projects completed by NY since its
formation.
<TABLE>
<CAPTION>
Schedule of Completed Contracts as of December 31, 1997
Costs and Estimated
Earnings in Excess
Project Name Contract Amount Contract Date Type of Contract of Billings (1)
- - - ------------ --------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Van Wyck .................................$ 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(2) .............................. 1,100,000 June 1993 Consulting Agreement
Kosciuszko Bridge ......................... 3,034,281 June 1993 Lump-Sum 367,997
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 (3) ................... 543,627 April 1996 Lump-Sum
South Avenue Plaza ........................ 286,051 May 1996 Lump-Sum
Hellgate Viaduct Structures ............... 286,080 Oct. 1996 Lump-Sum 69,000
Indonesian Mission ........................ 348,000 Nov. 1996 Lump-Sum 108,000
EklecCo 16,711,041 June 1996 Lump-Sum
- - - -----------------------------
Others(4) 207,902 N/A N/A
Total 39,423,724 544,997
</TABLE>
(1) "Costs and estimated earnings in excess of billings," represents costs
and profits which were unbilled until after December 31, 1997.
(2) Consulting agreement with John P. Picone, Inc. ("Picone"), whereby NY
entered into a consulting agreement with Picone, who was awarded the project.
The agreement provided that for 50% of the profits of the project, NY would
provide Picone with its expertise in steel erection, supply qualified workers,
and oversee the rehabilitation of the bridge. Picone put NY's employees on its
payroll and incurred all expenses of the project.
(3) 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 NY. NY
believes that it will not return to this project and thus deems the project
complete.
(4) Total estimated project value of a collection of smaller projects
completed.
<PAGE>
Prior to leasing equipment from Crown or AGLI, NY compares the costs
thereof to those costs it might otherwise incur from like companies. NY will
transact business with Crown and AGLI only on terms which may be considered
similar to the terms it might achieve elsewhere. In connection with such
transactions, the audit committee of NY's Board of Directors intends to exercise
reasonable judgment and take such steps as it deems necessary under 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
or appropriate. The fact that Joseph M. Polito is an Officer, Director, and
principal shareholder in other companies, including those that transact business
with NY and the Company, opens the potential that there may be conflicts of
interest in decisions made by Mr. Polito, which decisions 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."
Industry Overview
In recent years, there has been 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. NY is
preparing subcontracting and general contracting bids for some of the roadway
projects in the
Metropolitan area and is continuing to submit bids on private projects as
well. These projects positively affect the availability of work in diverse
disciplines in the construction industry: landscaping, concrete, paving, steel,
etc.
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.
23. The Contract Process; Bidding
NY obtains its projects primarily through the process of competitive
bidding. In order to be fully apprised of bid solicitations, NY (i) subscribes
to bid reporting services; (ii) monitors trade journals including Engineering
Record News, Dodge Report, and Brown's Letter, Inc.; (iii) monitors daily
newspapers and real estate publications; (iv) utilizes membership and networking
in affiliated organizations including Allied Building Trades; (v) maintains
contracts with developers and other general contractors; and (vi) requests
notification from various government agencies as to bid solicitations being
requested.
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. Generally, the
contract for a project is awarded to the lowest bidder, although other factors
may be taken into consideration.
<PAGE>
NY submits its bids after management performs a detailed review of the
project specifications, an internal review of NY'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 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. 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 NY is the low
bidder, it must provide the New York City agency with such documents as are
required - 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 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, NY is generally entitled to
receive a small cancellation fee. Many of NY'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, NY has only recently started bidding on projects as a general contractor,
and NY may incur unanticipated expenses, problems, or difficulties which may
affect its bid prices and project profitability. Though NY 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 and shall
continue to seek subcontracting projects. It has, however, commenced two
projects as prime contractor. A prime contractor is a contractor which performs
a specific category of work on a project. Unlike the general contractor, the
prime contractor is responsible for performance of that category alone, not the
entire project. Like the general contractor, the prime contractor typically
contracts directly with the owner or via the owner's construction manager acting
as agent therefor; thus, unlike the subcontractor, the prime contractor is
responsible exclusively to the owner.
As general contractor, NY will be responsible for the performance of the
entire contract, including work assigned to subcontractors. Accordingly, NY is
subject to liability associated with the failure of subcontractors to perform as
required under the contract; thus, NY may require its subcontractors to furnish
Performance Bonds.
Affirmative action regulations, however, require that NY 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
NY 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. NY carries liability
insurance of $1,000,000 per occurrence which management believes is adequate for
its current operations.
<PAGE>
Although NY 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, NY is serving as a subcontractor on two projects. For the EklecCo
prime contracting project, which terminated in November 1997, and the Grand
Central Terminal and Korean Mission subcontracting projects, which continue, NY
has been required to provide, and has provided, Performance Bonds and Labor and
Material Bonds.
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. 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, NY is generally entitled to
receive a small cancellation fee. Many of NY's contracts are also subject to
completion requirements with liquidated damages assessed against NY if schedules
are not met. In the past, NY has not been materially adversely affected by these
provisions as a subcontractor.
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. The larger the
project and/or the more projects in which NY is engaged, the greater the
bonding, net worth, and liquid working capital requirements. Surety companies
consider such factors in light of the amount of NY's surety bonds then
outstanding and the surety companies' current underwriting standards, which
standards may change periodically. Therefore, NY 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 NY, 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 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 client.
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 allows 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 one prime contracting and
two subcontracting projects which have required same: the EklecCo, Grand Central
Terminal, and Korean Mission projects.
<PAGE>
UAGC is not a New York licensed bonding company; thus, NY may be precluded
from working on certain projects. This is not always an issue, however, as the
requirement is sometimes waived (as in the Grand Central Terminal project) for
although general contractors prefer that a subcontractor be licensed by a New
York licensed bonding company, they will waive the requirement when necessary.
In addition, NY may engage in joint ventures with other companies who are bonded
by a New York licensed bonding company, thereby allowing it access it might
otherwise not have had.
23. Work in Progress; Backlog and Concentration of Customers
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
<TABLE>
<CAPTION>
list of those projects in which NY was engaged as of December 31, 1997.
- - - ------------------ ------------ ------------- ---------- ------------ ----------- ----------------- ------------ -------------
(3)
Costs Costs &
Contract incurred/ (2) (3) Est. Backlog
Contract Party/ Contract Date/ Type of Est. Costs % of Job Billings in Profit in Amount at
Project Name Amount Est. Contract to Complete Complete Excess of Costs Excess of 12/31/97
Completion & Profits Billings
- - - ------------------ ------------ ------------- ---------- ------------ ----------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lehrer McGovern,
Bovis, May 1996 Lump Sum 3,045,393
Inc./Grand 4,360,000 May 1998 263,978 92% -- 566,506 347,928
Central Terminal
Tishman
Construction
Corp./ Louis July 1996 Lump Sum 2,539,554
Vuitton N.A.(1) 6,197,750 May 1998 1,253,288 67% 380,408 -- 2,045,258
Humphreys &
Harding, Inc./ Jan. 1997 Lump Sum 1,049,394
Korean Mission 2,194,931 May 1998 650,537 62% -- 326,044 834,074
(4)
Total Signed $6,634,341
Contracts $12,752,681 $2,167,803 380,408 892,550 3,227,260
- - - ------------------ ------------ ------------- ---------- ------------ ----------- ----------------- ------------ -------------
(footnotes from previous page)
</TABLE>
(1) NY 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.
<PAGE>
(3) "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed on
respective uncompleted contracts at the end of each period. "Billings in excess
of costs and estimated earnings on uncompleted contracts," represents billings
which exceed revenues recognized on respective uncompleted contracts at the end
of each period.
(4) In January 1998, due to unresolved disputes on this project, NY
received a contract termination letter from the general contractor thereof.
For the year ended June 30, 1997, NY had three unrelated customers which
accounted for approximately 87% of total revenues. For the six months ended
December 31, 1997 NY had two unrelated customers, which accounted for
approximately 81% of total revenues. At June 30, 1997 and December 31, 1997,
approximately 82% and 77% of contracts receivables are due from four and two
customers, respectively, of total accounts receivable. The discontinuance of any
of these projects, or a general economic downturn in the State of New York, in
which the projects are located, could have a material adverse effect on NY's
results of operations.
23. Seasonality
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.
23. Suppliers; Subcontractors; Unions
For the year ended June 30, 1997, NY received approximately 43% of the
fabricated steel it required from MD, a subsidiary of the Company. MD provided
NY with fabricated steel until November 1996, at which time MD ceased operating.
Queens County Ironworks and New York Iron, Inc. provided the remainder of the
steel. Since January 1998, NY has received 60% of its steel from Hirschfeld.
Neither Queens County Ironworks nor New York Iron, Inc. is affiliated with the
Company, NY or any other Director or principal stockholder of either company.
The prices paid and the terms for the steel purchased from MD were comparable to
competitive prices and terms; therefore, NY believes it now will be able to
acquire same through other suppliers at similar prices and on similar terms.
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 rents
cranes from Crown, a company of which Joseph M. Polito is a 50% shareholder, and
rents generators and other equipment from AGLI, a company which is wholly-owned
by Mr. 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.
As is standard practice in the construction industry, NY'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. NY 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. NY must comply
with its agreements with the unions, which agreements regulate all employment
issues - including pay, overtime, working conditions, vacations, benefits, etc.
- - - - between NY and the union employees. These agreements expire on June 30, 1999.
NY believes that it has a good relationship with the Unions and is in
compliance with all union agreements. 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.
<PAGE>
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 and its
ability to oversee and retain qualified subcontractors to perform certain work.
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. Although NY believes
that it will be able to attract subcontractors for general contracting projects
it may obtain, there can be no assurance that it will be able to do so. In
addition, in hiring and overseeing subcontractors, there may be difficulties of
which NY is not aware.
23. Competition
All aspects of NY's business are, and will continue to be, highly
competitive. NY is a subcontractor and a general contractor specializing, but
not exclusively, in bridge and roadway repair and replacement as well as in
fabricating and erecting steel structures for buildings. NY's competitors are
numerous, and many have substantially greater marketing, financial, bonding, and
human resources.
All aspects of NY's business are and will continue to be highly
competitive. NY is one of many subcontractors which erect and furnish 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. It is primarily Joseph Polito's (and
many of his employees') thirty plus year presence in the construction industry,
which provides the industry name recognition and confirmation of prior
performance. In addition, regarding prior performance, while NY has operated
only since 1993, other companies owned by Mr. Polito (i.e., , Atlas Gem Erectors
Co. Inc. ("Atlas Gem"), a former steel erector subcontractor or prime contractor
for private and governmental construction projects) was incorporated in 1986 and
operated as such until NY purchased its assets in 1993.
There are approximately five to nine companies against which NY competes
for subcontracting projects. The number of the subcontracting companies which
may bid for projects for which NY is also bidding varies widely, from
approximately three such companies to nine. These companies vary in the number
of employees and union laborers they utilize.
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 solicit bids for bridge and roadway
repair and replacement projects and the furnishing and erection of steel
structure for buildings projects - have been established. There are
approximately twelve companies against which NY competes for general contracting
projects. These companies vary in the number of employees and union laborers
they utilize.
Government Regulation
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. It also must comply with (i) the New
York City Department of Buildings, which regulates the placement and testing of
cranes; and (ii) the New York Department of Transportation which regulates the
location of the cranes, vehicular traffic, and the routing of pedestrian
traffic. In addition, NY 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 NY's operations. NY believes that it is in substantial
compliance with all applicable laws and regulations.
<PAGE>
Employees
As of December 31, 1997, NY had three Executive Officers, two
administrative assistants, one comptroller, one project estimator, and two
employees in the accounting department. The number of union employees NY
utilizes depends on the number and size of projects in which NY 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. NY's contracts with these Unions, which contracts
regulate all employment issues between NY and the union employees - including
pay, overtime, working conditions, vacations, benefits, etc. - expire on June
30, 1999. NY 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 by NY
from an affiliate company, RSJJ. RSJJ is owned by the Company's President,
Joseph M. Polito. The lease, pursuant to which NY 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.
In February 1998, NY agreed to issue 106,667 shares of its common stock to
the Company as consideration for the Company's issuance of Common 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.
The stock was issued in March 1998.
As of May 1997, NY 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:
NY issued 270,000 shares of its common stock to the Company for the cancellation
of the debt owed to RSJJ. The Company, in turn, issued 200,000 shares of Common
Stock to Joseph M. Polito and 150,000 shares of 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.
Claims Against and By State Insurance Fund
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 to annul the cancellation of
NY's workers' compensation policy and to annul the rates, classifications, and
premiums assigned to NY. This action claims that defendants audited NY's books
for purposes of assigning the workers' compensation rates and premiums to be
assessed against NY and thereafter (i) "arbitrarily and capriciously and without
any foundation in law or in fact" assigned to NY's employees improper job
classifications which were then used unlawfully as the basis for improperly
<PAGE>
assessing the highest premium rates which could be assessed against NY; (ii)
improperly applied said premiums retroactively; (iii) billed NY for premiums
which were improper and excessive; and (iv) canceled NY's workers' compensation
policy upon NY's failure to tender payment in the improper and excessive amount
demanded by defendants.
In December 1995, 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, Metro Steel Structures, Ltd. (now known as NY), One
Carnegie Court Associates, Inc. ("One Carnegie"), and others alleging that
certain workers' compensation insurance policies obtained for various insured
defendants were obtained fraudulently and that the defendant corporations failed
to pay the appropriate premiums. The claims against NY, amounting to
approximately $3 million, are limited to a policy covering the period April 29,
1993 through December 1994. NY, Messrs. Polito, and all other defendants are
defending against this action.
The aforesaid actions settled for an aggregate of $750,000, payable by
defendants over a five-year period pursuant to certain more specific terms which
are still in negotiation. The Company expects that all relevant settlement
documents will be completed and executed by May 1998.
Claims Against Perini Corporation
Three actions to foreclose upon mechanic's liens were commenced by NY in
the last fiscal year. 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. NY's claim for relief
in this action is $2,199,560. The claim is based upon filed mechanic's liens and
general contract law. The claim is for labor performed and materials supplied
including money owed under the contract and money due for "extra" work with
regard to the rehabilitation of the Viaduct at the Stillwell Avenue Station of
the Coney Island Line in Brooklyn, New York. This action is still 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. NY's claim for relief in this action
is $844,932. This claim is based upon filed mechanic's liens and general
contract law. The claim is for labor performed and materials supplied including
money owed under the contract regarding the rehabilitation of the 39th Street
Bridge over the Long Island Rail Road and Amtrak in Queens, New York. This
action is still in the discovery phase.
On February 7,1997, Perini Corporation filed a related action against NY
and Metro Steel Structures, Ltd. in New York State Supreme Court, Kings County.
Perini's claims against NY total $1,140,560 and allege defective work on the
Stillwell Avenue project and upon a loss/profit agreement for both the Stillwell
Avenue project and the 39th Street Bridge project. NY has counterclaimed for the
amounts set forth above in the discussion of the two actions involving Perini
Corporation, and its claims are based upon the same theories as are set forth
above.
Claim Against Kiska Construction
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. NY's claim for relief in this action is
$279,346. This claim is based upon filed mechanic's liens and general contract
law. The claim is for labor performed and materials supplied including money
owed under the contract and money due for "extra" work regarding the
rehabilitation of the Robert Moses Causeway Northbound Bridge over the State
Boat Channel, in Suffolk County, New York. This action is still in the discovery
phase.
<PAGE>
Claim Against EklecCo
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 seeking to vacate the mechanic's lien and seeking specific
enforcement of the contract, declaratory relief, damages for slander of title,
and approximately $500,000,000 in damages from NY for breach of contract and
intentional interference with contractual relations. The lien was not vacated
and on February 9, 1998, EklecCo 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 EklecCo's motion to discharge said lien. The
court further ordered that discovery be expedited in this matter. This action is
in the discovery phase.
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
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("Act") provides a
safe harbor for forward-looking information made on behalf of the Company. All
statements, other than statements of historical facts, which address the
Company's expectation of sources of capital or which express the Company's
expectation for the future with respect to financial performance or operating
strategies can be identified as forward-looking statements. Forward-looking
statements made by the Company are based on knowledge of the environment in
which it operates; however, because of the factors previously listed, as well as
other factors beyond the control of the Company, actual results may differ
materially from the expectations expressed in the forward-looking statements.
General
USABG Corp. (the "Company") was incorporated on September 12, 1988, in the
State of Delaware, as Colonial Capital Corp. The Company's current name was
established via the filing, in January 1998, of an amendment to its Certificate
of Incorporation. The Company currently owns 56.8% of the outstanding shares of
common stock of NY Construction of N.Y., Inc. ("NY"), 100% of the outstanding
shares of common stock Royal Steel Services, Inc. ("Royal Steel") and 100% of
the outstanding shares of common stock of Worldwide Construction Limited
("Worldwide"). These three 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 NY Construction Corp.
(Maryland) (formerly 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, Royal Steel, and Worldwide.
Royal Steel was formed by the Company in November 1997 to undertake
steel erection projects which carry a considerably smaller dollar value than
those which NY undertakes. Worldwide was formed by the Company in December 1997,
in the British Virgin Islands, as a holding company intended to own 80% of each
of Falcon TChad S.A. ("Falcon") and Portshop S.A. ("Portshop"), American-run
companies registered in Chad, a country located in Central North Africa. The
remaining 20% of each of Falcon and Portshop is owned by Diversified Investments
Africa S.A. ("DIA"), a Luxembourg company unaffiliated with the Company. Falcon
will operate as a full service transportation, forwarding, and warehousing
company in the city of N'Djamena. Portshop shall stock a duty free store in
Chad's sole international airport. Worldwide shall operate as the liaison
between Portshop and Falcon and the governmental or private entities with which
Falcon and Portshop intend to contract in Chad.
The following analysis of the years ended June 30, 1997 and 1996 comprises
a description of the Company's subsidiaries since the Company itself did not at
those times, and still does not, have any material operations of its own except
for primarily stock related transactions.
NY's operations are substantially controlled by Joseph M. Polito since he
owns approximately 66.3% of the outstanding shares of the Company and may be
considered the beneficial owner of NY. Mr. Polito is also a 100% shareholder of
R.S.J.J. Realty Corp. ("RSJJ"), a company which leases administrative office
space to NY at a cost of $20,000 per month pursuant to a signed lease agreement
which extends through December 31, 1998. Mr. Polito has ownership interests also
in Waldorf Steel Fabricators, Inc. ("Waldorf") (which ceased operations in
August 1995), Crown Crane, Inc. ("Crown"), and Atlas Gem Leasing, Inc. ("AGLI")
which provided services to NY for the years ended June 30, 1997 and 1996.
Lastly, NY purchased from MD, certain materials and labor to perform steel
erection service. For the years ended June 30, 1997 and 1996 purchases by NY
from MD amounted to $371,321 and $622,050, respectively. MD ceased operations
during September 1996 and, accordingly, NY purchased its steel from unrelated
parties.
<PAGE>
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 the New York State and Metropolitan areas.
Though formed to operate as a general contractor, NY has operated primarily as a
subcontractor and as a prime contractor on two projects. As of December 31,
1997, NY has completed in excess of twenty projects with an aggregate project
value of $39,423,724 and is currently engaged in three (3) projects with an
aggregate value of approximately $12,752,681. NY plans to maintain its
subcontractor presence in the steel industry; however, it intends also to focus
on obtaining projects as a general contractor.
In December 1996, NY obtained a commitment for a Surety Bond Line of Credit
($10,000,000 single project limit) from UAGC for its general contracting
projects. This commitment allows 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 EcklecCo., Grand
Central Terminal, and Korean Mission projects. However, since New York State and
City agencies require bonds from bonding companies licensed by the State of New
York and UAGC is not a New York licensed bonding company, NY has been unable to
bid as a general contractor on projects for New York State and City agencies. NY
has approached several New York licensed bonding companies, but as of the date
hereof, has not been approved by any company to receive bonding.
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. For
the year ended June 30, 1997 and for the six months ended December 31, 1997, NY
obtained new contracts valued at approximately $1,889,000 and $20,000,
respectively. NY did not obtain any material new contracts for the six
months ended December 31, 1997 because it did not provide the lowest bids for
the projects for which it submitted same.
NY recognizes revenue and costs for all contracts under the percentage of
completion method. Cost of contract revenues includes 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.
The current asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized 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 revenues recognized on
respective uncompleted contracts at the end of each period.
<PAGE>
An amount equal to the costs attributable to unapproved change orders and
claims is included in the total estimated revenue when realization is probable
and the amount can be estimated. NY has elected not to recognize any portion of
the revenue associated with such unapproved change orders and claims until the
amounts have been received or awarded. Claims are amounts in excess of the
agreed contract price which NY seeks to collect for customer-caused delays,
errors in specifications and designs, contract terminations, or change orders
which are either in dispute or unapproved.
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 partially a result of NY's
backlog as of June 30, 1997 which amounted to approximately $6,100,000, and the
change orders and termination of the EklecCo project. The change orders for the
six months ended December 31, 1997 amounted to approximately $6,337,489 for
EklecCo and a total of $934,000 for the remaining projects: Grand Central, Louis
Vuitton, and Korean Mission. (In January 1998, due to certain project disputes,
NY received a contract termination letter from the general contractor for the
Korean Mission project.) During the six months ended December 31, 1997,
approximately $7,286,000 (or 59%) of the revenue recognized during the period
was collected. The remaining amounts uncollected represent retainage expected to
be collected within the next one to two years or amounts which NY is attempting
to collect under mechanic's liens. Approximately $965,000 (or 8%) of the revenue
recognized was not billed at December 31, 1997.
During the six months ended December 31, 1997, NY did not provide the
lowest bids for the projects for which it submitted bids, and thus, obtained no
new contracts during that period. As of December 31, 1997, NY's backlog amounted
to approximately $3,227,000. Backlog represents the amount of revenue NY expects
to realize from work to be performed on uncompleted contracts in progress and
from contractual agreements for which work has not yet begun.
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 seeking to vacate a mechanic's lien filed against EklecCo and seeking
specific enforcement of the contract, declaratory relief, damages for slander of
title, and approximately $500,000,000 in damages from NY for breach of contract
and intentional interference with contractual relations. The lien was not
vacated, however, and on February 9, 1998, EklecCo 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 EklecCo's motion to discharge
said lien.
The Company's gross profit for the six months ended December 31, 1997 and
1996 amounted to 18% and 29%, respectively. The decrease in gross profit for the
six months ended December 31, 1997 as compared to the six months ended December
31, 1996 is primarily a result of an overall different mix of contracts with a
lower gross profit percentage. The overall estimated gross profit for the six
months ended December 31, 1997 was approximately 22% as compared to the six
months ended December 31, 1996 whereby the overall estimated averages gross
profit was 27%. Additionally, the effect of change orders and adjustments to
estimated costs, as well as the interruption and termination of certain jobs,
has resulted in reductions of overall gross profit.
For the six months ended December 31, 1997 and 1996, NY paid $35,000 and
$337,821, respectively, to MD for material and labor necessary to perform steel
erection services. In November 1996, MD ceased substantially all of its
operations, and NY began purchasing material and labor from unrelated third
party steel fabricators. At December 31, 1997, NY owed MD $47,220, principally
for advances in connection with the above services. Such amounts are
non-interest bearing and are due on demand. The preceding transactions were
eliminated in consolidation.
<PAGE>
Below is a summary of the Company's billings and collections for the six
months ended December 31, 1997:
<TABLE>
<CAPTION>
Gross contract and Allowances for uncollectible Net contracts
retainage receivables receivables
Balances at June 30, 1997
<S> <C> <C> <C>
$ 11,249,297 $ 2,287,000 $ 8,962,297
Billings for the six months
ended December 31, 1997
13,380,093 -- 13,380,093
Collections during the six
months ended December 31, 1997
12,325,237 128,000 12,197,237
---------- ------- ----------
Balances at December 31, 1997
$12,304,153 $2,159,000 $10,145,153(1)
=========== ========== ===========
</TABLE>
(1) Through March 20, 1998, NY collected approximately $567,000 (or 6%) of
its net contract receivables. As of December 31 1997, $5,917,454 (or
approximately 58%) of its net receivables is due from the EklecCo project. The
project was to be performed in two phases. NY commenced work on Phase I during
June 1996. The project was terminated in October 1997, when it was approximately
98% complete. 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), for the EklecCo
project. See Business -- Legal Proceedings -- Claim Against EklecCo.
In addition to the EklecCo lien, NY has filed various other liens on
certain other projects with net receivables amounting to approximately
$1,954,324. With regards to the remaining receivables, amounting to
approximately $2,260,000 (approximately $725,000 of which represents retainage
that is not expected to be collected within one year), NY expects to collect
approximately the remaining $1,535,000 during the third and fourth quarters of
fiscal 1998.
As of December 31, 1997, NY was engaged in three (3) major projects (Grand
Central Terminal, Louis Vuitton, and Korean Mission) with a total contract value
amounting to $12,752,681 whereby the backlog associated therewith amounted to
$3,227,260. The contract receivables associated with these ongoing projects is
approximately $974,000. In January 1998, due to certain disputes on the Korean
Mission project, NY received a contract termination letter from the general
contractor thereof.
<PAGE>
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
is mainly attributable to an overall increase of NY's administrative salaries
associated with the material increase in contract revenue and certain general
corporate overhead.
For the six months ended December 31, 1997, the Company recorded an
estimated income tax expense of $212,768 whereby 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.
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
$15,494,447 and $7,401,433, respectively. This net increase of $8,093,014 (or
approximately 109%) is a direct result of NY's $17,943,400 backlog as of June
30, 1996. This backlog amount represents the contracts NY entered into during
the latter part of its June 30, 1996 fiscal year. During the year ended June 30,
1997, NY obtained new contracts and change orders to previous contracts
aggregated approximately $3,600,347. Included in contract revenues are revenues
from consulting and profit sharing agreements on certain projects. Consulting
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 NY's core business, construction contracts,
increased by approximately $8,293,000 as compared to the year ended June 30,
1996. During the year ended June 30, 1997, approximately $7,469,000 (or 48%) of
the revenue recognized was collected. Approximately $4,643,000 (or 30%) was
collected during the subsequent six month period ended December 31, 1997. The
remaining amounts uncollected represent retainage expected to be collected
within the next one to two years or amounts which NY is attempting to collect
under mechanic's liens. Approximately $1,718,000 (or 11%) of the revenue
recognized was not billed at June 30, 1997.
As of June 30, 1997, NY's backlog amounted to approximately $6,100,000.
Backlog represents the amount of revenue NY expects to realize from work to be
performed on uncompleted contracts in progress and from contractual agreements
for which work has not yet commenced. NY's gross profit for the years ended June
30, 1997 and 1996 has remained fairly constant between 27% and 28%,
respectively.
<PAGE>
Below is a summary of the Company's billings and collections for the year
ended June 30, 1997:
<TABLE>
<CAPTION>
Gross contract and Allowances for uncollectibles Net contracts
Retainage receivables receivables
Balances at June 30, 1996
<S> <C> <C> <C>
$ 4,613,665 $ 1,000,000 $ 3,613,665
Billings for the year ended
June 30, 1997
15,672,846 1,287,000 14,385,846
Collections for the year
ended June 30, 1997
9,037,214 -- 9,037,214
--------- ---------
Balances at June 30, 1997
$11,249,297 $2,287,000 $ 8,962,297
=========== ========== ===========
</TABLE>
As of June 30, 1997, NY increased its allowance up to $2,287,000 to reserve
for the uncollectibility of certain receivables for which mechanic's liens were
filed. Of the total net contract receivable amounting to $8,943,147,
approximately $1,140,040 was due from the Stillwell project, $1,888,221 was due
from the EklecCo project, $1,312,904 from the Grand Central Project, and
$2,132,035 from Louis Vuitton. For the years ended June 30, 1997 and 1996, NY
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.
For the years ended June 30, 1997 and 1996, NY purchased from Waldorf,
approximately $0 and $180,333, respectively, of the materials and labor
necessary to perform fabrication services. Lastly, for the years ended June 30,
1997 and 1996, NY paid $371,321 and $622,050, respectively, to MD for materials
and labor necessary to perform steel erection services. In November 1996, MD
ceased operations, and NY began purchasing material and labor from unrelated
third party steel fabricators. At June 30, 1997, NY owed MD $62,606, principally
for advances in connection with the above services: such amounts are
non-interest bearing and are due on demand.
<PAGE>
General and administrative expenses have increased by $441,517 or 18%, to
$2,934,916 for the year ended June 30, 1997, from $2,493,399 for the year ended
June 30, 1996. The increase in general administration costs is mainly
attributable to an overall increase in NY's administrative salaries associated
with the material amount of increase in contract revenue and the Company's
stock-based compensation expenses.
For the year ended June 30, 1996, the Company recorded an income tax
benefit of $860,960 resulting primarily from NY's utilization of its net
operating loss of approximately $1,700,000.
Liquidity and Capital Resources
At December 31, and June 30, 1997, the Company's working capital amounted
to $7,445,671 and $2,546,132, respectively. As of December 31, and June 30,
1997, the Company's net contract receivable amounted to $10,145,153 and
$8,962,297, respectively.
Of the $10,126,003 of net contract and retainage receivables as of December
31, 1997 through March 20, 1998, NY has collected approximately $567,000 or
5.6%. The collectibility of $7,866,448, which represents the amount of
receivables (net of allowances) associated with mechanic's liens placed by NY on
certain jobs, cannot be determined by NY due to the surrounding circumstances
and the legal process associated in collecting funds whereby a lien has been
placed on a project. The remainder of the receivables, amounting to
approximately $1,690,000, is expected to be collected during the third and
fourth quarters of fiscal 1998.
As a result of the slow collection process associated with the above
circumstances, the Company was unable to pay its payroll tax obligations and
rent on a timely basis. Upon the collection or settlement of a major portion of
contracts receivable, the Company's first priority is to pay down its payroll
tax obligations as much as possible. The accrued and unpaid rent has been
settled by NY with NY issuing stock to its landlord, RSJJ. Although the lack of
no new contracts has an effect on revenue and net income, the Company is
confident that based on its bidding process, it will obtain new contracts. Based
on the Company's backlog at December 31, 1997, amounting to approximately
$3,200,000, and its vigorous attempts to collect a portion of its contract
receivables, the Company expects to generate sufficient cashflow to satisfy its
cash requirements during the next twelve months.
Net cash provided by operating activities amounted to $863,843 for the six
months ended December 31, 1997. The major components of such provision of cash
was directly attributed to the Company's income amounting to $240,003 and
increases in accounts receivable net of increases of its payroll taxes payable
and accrued expenses. For the six months ended December 31, 1996, the net cash
used for operating activities amounted to $146,475 which is principally
attributable to increases in account receivables, decreases in costs and
estimated earnings in excess of billings on uncompleted contracts, and increases
in accounts payable.
With regards to investing activities, the Company used $8,997 of cash for
the six months ended December 31, 1997 for the acquisition of fixed assets and
an increase in the value of restricted cash.
As of December 31, 1997, the Company owes approximately $1,951,875 of
payroll taxes and related estimated penalties and interest. 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 to
same based on oral arrangements negotiated therewith.
In November 1997, NY entered into an agreement with the Iron Workers Locals
40, 361, and 417 Joint Security Funds (the "Union") in order to liquidate
$1,750,000 owed for unpaid union dues and 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 the
<PAGE>
EklecCo project as well as $1,750,000 of NY's related mechanic's lien (which was
discharged on the lien-debtor's payment of a bond with the court). Upon the
distribution of any funds under such bond, the Union will be repaid any balance
it is owed, in full, and NY shall receive the remainder thereof. NY will receive
credit for any payments received by the Union related to the assigned portion of
the bond.
Net cash provided by operating activities for the year ended June 30, 1997
amounted to $578,792. The major component of such cash provision was increases
in accounts payable, payroll taxes payable, and accrued expenses net of
increases in contracts receivables. For the year ended June 30, 1996, the net
cash used for operating activities amounted to $2,055,771 which amount is
principally attributable to increases in accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts and accounts
payable.
The Company used $200,852 in cash from financing activities for the year
ended June 30, 1997. Such cash was used primarily for advances to affiliates and
officers. During the year ended June 30, 1996, $2,249,171 in cash was provided
by financing activities. Such cash was provided primarily by proceeds from NY's
initial public offering. Such proceeds were used subsequently to secure bonding
and provide general working capital until such time as NY generated sufficient
cash flows to support its operations.
As of June 30, 1997, the Company owed approximately $1,634,614 in payroll
taxes and related penalties and interest. At June 30 ,1997 the breakdown was
$1,289,960 to the IRS and $344,654 to State payroll tax authorities. As of June
30, 1997, the Company has been making monthly payments to the respective tax
authorities pursuant to oral agreements negotiated with same.
In August 1996, the Company issued 400,000 shares of common stock in
payment of a loan of $300,000. The stock has been valued at $1.00 per share,
representing the average market value at the time of the loan. Accordingly,
interest expense in the amount of $100,000 has been recorded.
In December 1996, the Company issued bonuses aggregating 114,617 shares of
Common Stock to the consultants and employees of its subsidiary, NY; it also
issued an option to purchase 400,000 shares of Common Stock to Joseph Polito; an
option to purchase 100,000 shares of Common Stock to Ronald Polito; and an
option to purchase 75,000 shares of Common Stock to Steven Polito pursuant to
the Company's 1994 Senior Management Incentive Plan. These shares have been
valued at $1.875 per share with a 50% discount due to the restricted nature of
the stock for a total of $107,452.
In February 1997, pursuant to a Form S-8 Registration Statement filed with
the Securities and Exchange Commission, the Company registered the resale of a
total of 686,617 shares of Common Stock, 575,000 shares of which are underlying
options pursuant to the Company's 1994 Senior Management Incentive Plan. The
options are exercisable at various prices ranging from $1.750 each to $1.925
each and were exercisable at the then fair market value and no additional
compensation was recorded. Under the terms of the issue, the officer could
execute a note for payment of the shares. In March 1997, 125,000 shares of
common stock were issued pursuant to these options. The officer elected to
execute a note, payable on demand resulting in a reduction of stockholders'
equity for the balance of the note of $240,625. See "Certain Relationships and
Related Transactions."
In December 1997, the Company authorized the issuance of 250,000 shares of
its common stock during the third quarter of its fiscal year pursuant to its
Senior Management Incentive Plan. Of the 250,000 shares, all of which were
issued in March 1998, 150,000 were issued to the Company's President, and 25,000
shares each were issued to each of the Company's Secretary and Treasurer. The
remaining 50,000 shares were issued to consultants to the Company.
In December 1997, NY authorized the issuance, in its third fiscal quarter,
of 340,000 shares of Common Stock to management and certain employees and
consultants of NY. 290,000 of such shares were issued pursuant to NY's
Management Plan as follows: 150,000 were issued to NY's President, 70,000 were
issued to NY's Secretary, and 70,000 were issued to NY's Treasurer. The
remaining 50,000 shares were issued to various employees and consultants of NY.
NY also authorized the filing of a Post-Effective Amendment to the Form S-8
Registration Statement filed in February 1997, wherein the resale of the
aforesaid shares is to be registered.
<PAGE>
In February 1998, NY agreed to issue 106,667 shares of its common stock to
the Company as consideration to the Company for issuing 192,000 shares of its
own common 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 NY's shares issued will be recorded at their estimated market value at the
date of authorization ($2.12 per share) with a 50% discount due to the
restricted nature of the stock. The value of the Company's shares issued will be
recorded at their estimated market value at the date of authorization ($1.06 per
share) with a 50% discount due to the restricted nature of the stock. The
conversion of accounts payable into equity will result in a gain of
approximately $23,000 due to the difference in the market values of the
Company's and NY's respective stocks.
In January 1998, the Company raised a net of $450,000 after a 10%
commission, in connection with a Private Placement to fund the Chadian
operation, from the sale of $500,000 of convertible debentures. Such debentures
are due January 30, 2000 with interest accruing at 8% per annum. The Debentures,
plus interest accrued thereon, are convertible into shares of Common Stock at
the lesser of (i) 100% of the 5 day average closing bid price, as reported by
Bloomberg, LP, for the 5 trading days immediately preceding the closing date
(February 3, 1998) of the private placement (the "Private Placement" or "Private
Placement Offering") ($.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 "Business -
1998 Private Placement."
Legal Proceedings
NY is a party to various claims and legal proceedings incidental to its
business. While the amounts claimed may be substantial, the ultimate liability
cannot now be determined because of the considerable uncertainties that exist
with respect thereto. Accordingly, it is possible that results of operations or
liquidity in a particular period could be materially affected by certain
contingencies. However, based on facts currently available, management believes
that the disposition of matters that are pending or asserted will not have a
materially adverse effect on the financial position of NY.
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 to annul the cancellation of
NY's workers' compensation policy and to annul the rates, classifications, and
premiums assigned to NY. In December 1995, 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, Metro Steel Structures,
Ltd. (now known as NY), One Carnegie Court Associates, Inc. ("One Carnegie"),
and others alleging that certain workers' compensation insurance policies
obtained for various insured defendants were obtained fraudulently and that the
defendant corporations failed to pay the appropriate premiums. The claims
against NY, amounting to approximately $3 million, are limited to a policy
covering the period April 29, 1993 through December 1994. The aforesaid actions
settled for an aggregate of $750,000, payable by defendants over a five-year
period pursuant to certain more specific terms which are still in negotiation.
The Company expects that all relevant settlement documents will be completed and
executed by May 1998. See "Business - Legal Proceedings."
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. NY's claim for relief in this
action is $2,199,560. 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. NY's claim for
relief in this action is $844,932. Both actions are for labor performed and
materials supplied including money owed under the contract and money due for
"extra" work with regard to the rehabilitation of the (i) Viaduct at the
Stillwell Avenue Station, and (ii) the 39th Street Bridge, respectively. These
actions are still in the discovery phase. See "Business - Legal Proceedings."
<PAGE>
On February 7,1997, Perini Corporation filed a related action against NY
and Metro Steel Structures, Ltd. in New York State Supreme Court, Kings County.
Perini's claims against NY total $1,140,560 and allege defective work on the
Stillwell Avenue project and upon a loss/profit agreement for both the Stillwell
Avenue project and the 39th Street Bridge project. NY has counterclaimed for the
amounts set forth above in the discussion of the two actions involving Perini
Corporation, and its claims are based upon the same theories as are set forth
above. See "Business - Legal Proceedings."
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. NY's claim for relief in this action is
$279,346. The claim is for labor performed and materials supplied including
money owed under the contract and money due for "extra" work regarding the
rehabilitation of the Robert Moses Causeway Northbound Bridge over the State
Boat Channel, in Suffolk County, New York. This action is still in the discovery
phase. See "Business - Legal Proceedings."
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 seeking to vacate the mechanic's lien and seeking specific
enforcement of the contract, declaratory relief, damages for slander of title,
and approximately $500,000,000 in damages from NY for breach of contract and
intentional interference with contractual relations. The lien was not vacated
and on February 9, 1998, EklecCo 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 EklecCo's motion to discharge said lien. The
court further ordered that discovery be expedited in this matter. This action is
in the discovery phase. See "Business - Legal Proceedings."
<PAGE>
MANAGEMENT
Officers and Directors.
The names, ages, and positions of the Company's Executive Officers and
Directors are as follows: Position with the Name Age Company
<TABLE>
<CAPTION>
<S> <C> <C>
Joseph M. Polito 63 President and Director
Ronald J. Polito 38 Secretary and Director
Steven J. Polito 35 Treasurer and Director
Marvin Weinstein 66 Director
Ronald Murphy 56 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 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.
Joseph M. Polito has been the President and Director of the Company since
April 1994. He has been the president and a Director of NY since its inception
in 1990, and prior to the Acquisitions in April 1994, he was the sole
shareholder of NY. Mr. Polito oversees all of the Company's operations. Since
its inception in 1994, Mr. Polito has been the president and a Director of MD, a
wholly-owned subsidiary of the Company. Since December 1990, Mr. Polito has been
the president and sole Director and shareholder of One Carnegie, also a
wholly-owned subsidiary of the Company. Since 1988, Mr. Polito has been a 50%
shareholder of Crown, 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 NY. 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-1980's, he has served on the Council of Presidents of New York Building
Congress, Inc. 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
April 1994. Mr. Polito has been the secretary and a Director of NY since its
inception in 1990. 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 its inception in 1994, Mr. Polito has been
the secretary and a Director of MD. From its inception in 1990 until March 1995,
he was also the treasurer of NY. 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 Polito.
Steven J. Polito has been Treasurer of the Company since March 1995 and a
Director of the Company since April 1994. Mr. Polito was elected treasurer of NY
in March 1995. 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. He had previously been a Project
Manager and has been a Director of NY since its inception in 1990. Since its
inception in 1994, Mr. Polito also has been the treasurer and a Director of MD.
Since 1988, Mr. Polito has been the treasurer of One Carnegie, Waldorf, and
RSJJ. He is the son of Mr. Joseph Polito.
<PAGE>
Marvin Weinstein was elected Director of the Company in January 1998. 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. Neither NY nor the Company
engaged M. Weinstein Associates to provide any consulting services.
Ronald Murphy was elected Director of the Company in February 1998. Mr.
Murphy has been a private investigator since 1997. Prior thereto, from 1983 to
1996, Mr. Murphy was involved in the construction industry. From 1993-1996, he
was Field Operations Supervisor for The Steel Institute of New York. From
1983-1993, he was office manager and supervisor for Crown and Atlas Gem,
respectively. Prior to entering the construction industry, from 1966 to 1982,
Mr. Murphy was a New York City police officer.
Significant Employees of the Company
Richard Miller has been an employee of the Company since September 1997.
When Falcon was formed, he became chief executive officer thereof.
Significant Employees of NY
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 NY 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 NY since 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 NY in 1996 to provide
estimating expertise for the Company's general contracting and subcontracting
bids. Prior to joining NY, 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 Delaware's General 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.
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.
<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.
<PAGE>
(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".
(footnotes continued from previous 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 $3,200 for the years ended June 30,
1997, 1996, and 1995, respectively.
Stock Options
The following table sets forth certain information concerning the grant of
stock options made during the year ended June 30, 1997 under the Company's 1994
Senior Management Incentive Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
====================================================================================================================================
Individual Grants
- - - ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total Options/SAR's
# of Securities underlying Granted to Employees
Options/SARs Granted(1) in Fiscal Year Exercise or
Name Base Price ($/share) 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% $1.75 December 1, 2001
====================================================================================================================================
</TABLE>
(1) Represents incentive stock options granted under the Company's 1994
Senior Management Incentive Plan (the "Management Plan").
<PAGE>
The following table contains information with respect to employees of the
Company concerning options held as of June 30, 1997:
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
==================================================================================================================================
(a) (b) (c) (d) (e)
- - - ----------------------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Unexercised In-The-Money Options/
Options/SAR's at FY-End SAR's at FY-End($)
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 Polito entered into an employment agreement with NY dated April 4,
1995, whereby 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 on June 30, 1998. Pursuant to the terms of the agreement Mr. Polito is
to receive an annual salary of $300,000 per annum until June 30, 1996 with 10%
yearly escalation, subject to adjustment by the Board of Directors. Mr. Polito
is also to receive a yearly non-accountable expense allowance of $50,000. Mr.
Polito received stock options under NY's 1994 Senior Management Incentive Plan
to purchase 25,000 shares 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 shall pay the premiums on a $3,500,000 life
insurance policy for the benefit of individuals as directed by Mr. Polito, with
an estimated yearly premium of $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 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 the Employee during the preceding calendar year.
<PAGE>
Steven and Ronald Polito receive annual salary compensations of $94,000 and
$125,000, respectively, from NY, which 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 travel expenses.
Ronald Polito receives the payment of premiums on a life insurance policy of
which he chooses the beneficiaries. Neither individual has entered into an
employment agreement with NY.
1994 Senior Management Incentive Plan
In December 1994, the Board of Directors adopted the 1994 Senior Management
Incentive Plan (the "Management Plan") which was thereafter approved by
shareholder consent. 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
consultants.
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
March 1998, pursuant to the Management Plan, the Company issued bonuses of
150,000 shares of Common Stock to Joseph M. Polito and 25,000 shares of Common
Stock to each of Ronald Polito and Steven Polito.
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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).
<PAGE>
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).
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 March 31, 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
Name and Address Number of Shares Owned Stock Owned (1)
- - - ---------------- ---------------------- ---------------
<S> <C> <C>
Joseph M. Polito (1)
c/o USABG Corp.
53-09 97th Place 5,204,156 66.3%
Corona, New York 11368
Steven J. Polito (2)
c/o USABG Corp.
53-09 97th Place 152,500 *
Corona, New York 11368
Ronald J. Polito(3)
c/o USABG Corp.
53-09 97th Place 177,500 *
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) 5,534,156 70.1%
</TABLE>
*Less than 1%
(footnotes continued from previous page)
(1) Includes (i) 275,000 shares issuable upon the exercise of an option
which is presently vested and exercisable; (ii) 192,000 shares of Common Stock
issued in March 1998 in exchange for 106,667 shares of NY's common stock; and
(iii) 150,000 shares of Common Stock issued in March 1998. 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. See "Business -- Properties" and Certain Relationships and Related
Transactions."
<PAGE>
(2) Includes (i) 75,000 shares issuable upon the exercise of an option
which is presently vested and exercisable; and (ii) 25,000 shares of Common
Stock issued in March 1998.
(3) Includes (i) 100,000 shares issuable upon the exercise of an option
which is presently vested and exercisable; and (ii) 25,000 shares of Common
Stock issued in March 1998.
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
<S> <C> <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,
inclusive of (i) an estimated 562,500, subject to adjustment, issuable upon the
conversion of the Debentures; and (ii) 100,000 shares of Common Stock 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."
<PAGE>
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,
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, and 10,000,000 shares of Series A
Preferred Stock, par value $.0001. The following summary descriptions of the
Common Stock and Preferred Stock are qualified in their entirety by reference to
the Company's Articles of Incorporation and amendments thereto.
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.
Series A Preferred Stock
The Company has authorized 10,000,000 shares of Convertible Series A
Preferred Stock, par value $.0001 per share ("Series A Stock"), none of which
shares is outstanding. The Series A Stock has carries no voting rights or
dividend and/or liquidation preferences.
8% Convertible Debentures
In February 1998, the Company consummated a Private Placement Offering and
generated $450,000 in funds from the sale of 8% Convertible Debentures. The
Debentures, plus interest accrued thereon (at 8% per annum, payable in shares of
Common Stock upon conversion of the Debentures), are convertible into shares of
Common Stock at the lesser of (i) 100% of the 5 day average closing bid price,
as reported by Bloomberg, LP, for the 5 trading days immediately preceding the
closing date (February 3, 1998) of the Private Placement ($.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. 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 Private Placement, 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
The purchasers of the Debentures referenced above also 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 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 $107,452, which is based on upon 50% of the average closing bid price for the
month of December 1996.
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.
<PAGE>
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 for leasing cranes necessary to perform steel
erection services. Joseph M. Polito owns 50% of Crown.
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: in June 1997, NY issued 270,000 shares of common stock to the
Company, for the cancellation of the debt owed to RSJJ. The Company, in turn,
issued 200,000 shares of its Common Stock to Joseph 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 March 1998, the Company issued bonuses of 150,000 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. See "Executive Compensation-Employment and
Consulting Agreements" for information regarding management's compensation.
On February 10, 1998, NY agreed to remit its RSJJ lease payments for
January 1998 through December 31, 1998 by issuing the Company 106,667 shares of
its common stock in exchange for which the Company agreed to issue 192,000
shares of Common Stock to RSJJ. Both the Company and NY issued the aforesaid
stock in March 1998. The value of NY's shares will be recorded at their
estimated market value at date of authorization ($2.12 per share) with a 50%
discount due to the restricted nature of the stock. The stock was issued in
March 1998.
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, the Company's 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
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 (UNAUDITED)
POST EFFECTIVE AMENDMENT #2
<PAGE>
USABG CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Independent auditors' report 67
Consolidated balance sheets at December 31, 1997 (unaudited)
and June 30, 1997 68
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 69
Consolidated statement of stockholders' equity for the six months
ended December 31, 1997 (unaudited) and for the years
ended June 30, 1997 and 1996 70
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 71-72
Notes to consolidated financial statements 73 - 90
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
USABG Corp. and subsidiaries
We have audited the accompanying consolidated balance sheet of USABG Corp.
and 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
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(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 235,462 139,393
---------------- ---------------
Total current assets 13,572,303 12,401,074
Assets of discontinued operations - 2,889,999
Deferred tax asset - non current 30,200 74,575
Other assets 22,176 30,606
---------------- ---------------
Total assets $ 13,624,679 $ 15,396,254
================ ===============
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 1,159,907 771,211
Payroll taxes payable 1,951,875 1,634,614
Due to related parties - 166,540
Note payable 145,358 145,358
Current portion of long-term payables 325,000 -
Income taxes payable 722,744 522,379
Billings in excess of costs and estimated earnings
on uncompleted contracts 380,408 126,455
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 shares, issued
and outstanding -0- shares - -
Common stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding 7,402,148 shares 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)
Deferred compensation and consulting (58,250) (104,000)
----------------- ----------------
Total stockholders' equity 2,951,658 2,665,905
---------------- ---------------
Total liabilities and stockholders' equity $ 13,624,679 $ 15,396,254
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
USABG CORP. AND 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)
Amortization of financing costs (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
============ ============ ============ ============
Earnings per common share:
Basic:
Net income (loss) ............................. $ .03 $ (.03) $ (.08) $ .01
============ ============ ============ ============
Diluted:
Net income (loss) ............................. $ .03 $ (.03) $ (.08) $ .01
============ ============ ============ ============
Weighted average number of common
shares outstanding ................................. 7,402,148 6,450,736 6,854,390 6,137,530
============ ============ ============ ============
Weighted average number of common shares
outstanding - assuming dilution .................... 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
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
Stock subscription
Additional Receivables Total
Paid-in Accumulated and Other Stockholders'
Shares Amount capital Deficit Deductions Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1995 6,012,531 $ 5,616 $ 2,591,652 $ (252,758) $ (489,583) $ 1,854,927
Issuance of common stock in
consideration for services pursuant
to Senior Management Incentive Plan 150,000 150 49,350 - (49,500) -
Amortization of deferred expenses - - - - 266,500 266,500
- - - 40,569 - -
Net income for the year ended
June 30, 1996
Balances at June 30, 1996 6,162,531 5,766 2,641,002 (212,189) (272,583) 2,161,996
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 125,000 125 240,000 - (240,625) -
options
Issuance of common stock in
connection with settlement of
subsidiary's related party debt 350,000 350 218,400 - - 218,750
Amortization of deferred expenses - - - - 318,583 318,583
Net loss for the year ended
June 30,1997 - - - (540,876) - (540,876)
Balances at June 30, 1997 7,402,148 7,006 3,756,589 (753,065) (344,625) 2,665,905
Amortization of deferred expenses - - - - 45,750 45,750
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) $ (298,875) $ 2,951,658
</TABLE>
<PAGE>
USABG CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(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 income (loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization ........................ 11,298 242,327 453,584 882,549
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 ................ -- -- 107,452 --
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) -- --
Increase in restricted cash ............................ (5,198) (756) (10,126) (203,873)
Other assets ........................................... -- -- (8,156) --
----------- ----------- ----------- -----------
Net cash (used for) investing activities ........... (8,977) (6,433) (18,282) (203,875)
----------- ----------- ----------- -----------
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
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
USABG CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
<TABLE>
<CAPTION>
(Unaudited)
For the Six months ended For the Year ended
December 31, June 30,
1997 1996 1997 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net cash (used for) provided
by financing activities (467,085) 129,532 (200,852) 2,249,177
------------------------------------------------ --------------
Net increase in cash 387,781 (23,376) 359,658 (10,469)
Cash, beginning 555,435 195,777 195,777 206,246
------------- ------------- ------------- --------------
Cash, ending $ 943,216 $ 172,401 $ 555,435 $ 195,777
============= ============= ============= ==============
Supplemental disclosure of cash flow information: Cash paid during the six
months for:
Interest $ 7,758 $ 8,651 $ 36,848 $ 236,610
============= ============= ============= ==============
Taxes $ - $ - $ - $ -
============= ============= ============= ============
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock in connection with
a note payable to the Company $ - $ - $ 240,625 $ -
============= ============= ============= ============
Surrender of property plant and equipment in
lieu foreclosure on mortgage $ 2,889,999 $ $ - $ -
============= ============= ============= ============
In connection with the issuance of common stock,
114,617 shares were issued as consideration for
employee compensation $ - $ - $ 107,452 $ -
============= ============= ============= ============
In connection with the conversion of subsidiary's account payable of the
Subsidiary's common stock, 350,000 shares of common stock were issued as
consideration for 270,000 shares of common stock
of the Subsidiary $ - $ - $ 218,750 $ -
============= ============= ============= ===========
In connection with issuance of common stock,
250,000 shares were issued as deferred
compensation $ - $ 150,000 $ 150,000 $ -
======== ================ ============== ==========
In connection with the payment of due to shareholder,
400,000 shares of common stock were issued $ - $ - $ 300,000 $ -
========== ========= ========= ==========
In connection with issuance of common stock,
150,000 shares were issued as deferred compensation $ - $ - $ - $ 49,500
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTE 1 - ORGANIZATION
USABG Corp. ("the Company") was incorporated on
September 12, 1988, in the State of Delaware, as Colonial
Capital Corp. The Company's current name was established via
the filing, in January 1998, of an amendment to its
Certificate of Incorporation. The Company currently owns a
majority of the outstanding shares of USA Bridge Construction
of N.Y., Inc. ("NY"), 100% of the outstanding shares of common
stock of Worldwide Construction Limited ("Worldwide"), and
100% of the outstanding shares of common stock of Royal Steel
Services, Inc. ("Royal Steel"). These three 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. ("One
Carnegie") and USA Bridge Construction Corp. (Maryland)
("Maryland") ceased operations in August 1997 and November
1996, respectively.
Royal Steel was formed in November 1997 in order for the
Company to conduct work on its smaller base contracts.
Worldwide was formed by the Company in December 1997 and is a
British Virgin Islands corporation. It was formed to own 80%
of each of Falcon TChad S.A. ("Falcon") and Portshop S.A.
("Portshop"), both of which companies were formed in
N'Djamena, Chad. Falcon was formed in November 1997 to operate
as a full service transportation, forwarding, and warehousing
company in the city of N'Djamena. Portshop was formed in March
1998 to stock a duty free store in Chad's sole international
airport. Worldwide shall operate as the liaison between
Portshop and Falcon and the governmental or private entities
with which Falcon and Portshop intend to contract in Chad. As
of December 31, 1997, no activity commenced in either Royal
Steel or 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 and disclosures which are 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 subsidiaries, NY and Royal Steel, and its wholly-owned
subsidiaries, One Carnegie, Maryland, and Worldwide after elimination of all
significant inter-company 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 three months or
less to be cash equivalents. NY, 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, NY maintains $219,199
and $214,001, respectively, of restricted cash securing a credit line of the
Company from a financial institution.
<PAGE>
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 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.
e) Balance sheet classifications
In accordance with normal practice in the construction industry, the
Company included in current assets and current liabilities amounts related to
construction contracts receivable and payable over a period in excess of one
year. In general, contract related receivables and payables other than retainage
receivables are expected to be collected and paid within one year.
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 have 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
ranged from 10 to 40 years.
h) Deferred compensation
Deferred compensation consists of stock issued to an officer relating to
NY's initial public offering ("IPO") (see Note 10(b)(i)). 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 consist of consulting fees in the form of common
stock issued to a broker-dealer (see Note 10(a)). 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 assets and liabilities 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. In addition, future tax benefits, such as
net operating loss carryforwards, are recognized currently to the extent such
benefits are more likely than not to be realized as an economic benefit in the
form of a reduction of income taxes in future years. Current income taxes are
based on the respective periods' taxable income for Federal, State, and City
income tax reporting purposes.
<PAGE>
k) Revenue recognition
The Company recognizes revenue and costs for all contracts under the
percentage of completion method. Cost of contract revenues includes 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,
revisions 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 and the
amount can be reasonably estimated. No such costs or revenues have been
recognized during the years ended June 30, 1997 and 1996 or the six months ended
December 31, 1997 and 1996. The Company generally determines a contract complete
pursuant to a substantial completion clause stipulated in each contract.
The current asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed on 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 are in excess of revenues recognized on
uncompleted contracts at the end of each period.
l) Earnings (loss) per common share
Earnings (loss) per common share for the six months ended December 31, 1997
and 1996 and for the year ended June 30, 1997 and 1996 are based upon the
weighted average number of shares of common stock outstanding during the
respective periods. (See Note 14 for additional disclosures).
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
The Company elected to continue to measure compensation costs using
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock-Based
for Stock Issued to Employees," as is permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
for the options issued under the 1994 Senior Management Incentive Plan as the
exercise price and market value on the dates of grant were the same. For
companies that choose to continue applying APB No. 25, SFAS No. 123 requires
certain pro forma disclosures as if the fair value method had been utilized. Had
compensation cost for the Company's stock-based compensation plan been
determined based on the fair value on the grant dates for award under the plan
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996
<S> <C> <C>
Net income - as reported $ (540,876) $ 40,569
============ ============
pro forma $ (1,326,376) $ 40,569
============= ============
Basic EPS - as reported $ (.08) $ .01
============== ===========
pro forma $ (.19) $ .01
============== ===========
</TABLE>
The Company does not believe that any other recently issued accounting
standards, not yet adopted by the Company, will have a material impact on its
financial position and results of operations when adopted.
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 December 31, 1996 and June
30, 1996 consolidated financial statements in order to conform to the December
31, 1997 and 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 11,939,482 4,939,284
Retainage on completed and in
progress contracts 757,387 1,222,844
---------------- --------------
12,304,153 11,249,297
Less: allowance for doubtful accounts 2,159,000 2,287,000
----------- --------------
Contracts and retainage receivable, net $ 10,145,153 $ 8,962,297
============= ==============
</TABLE>
The allowance for doubtful accounts was increased to $2,287,000 during the
year ended June 30, 1997 from $1,000,000 at June 30, 1996 to reflect the filing
of mechanic's liens on certain jobs as well as a review of the aging of the
accounts receivable. During the six months ended December 31, 1997, receivables
amounting to $128,000 which were previously reserved were collected. No further
adjustments to the allowance have been deemed necessary by management as of
December 31, 1997.
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:
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
<S> <C> <C>
Costs incurred on uncompleted contracts $ 11,884,787 $ 14,025,808
Profits earned to date 1,293,621 4,190,473
---------------- --------------
13,178,408 18,216,281
Less: billings to date 12,121,269 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
Costs and estimated earnings in excess of
<S> <C> <C>
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 $ 6,088,048 $ 17,943,400
Change orders to contracts in progress
during the period 9,388,852 1,711,347
New contracts during the period 19,646 1,889,000
--------- -----------
15,496,546 21,543,747
Less: Contract revenue earned during
the period (12,269,286) (15,455,699)
---------------- --------------
Backlog balance at end of the period $ 3,227,260 $ 6,088,048
============ =============
</TABLE>
<PAGE>
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
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
---------- ----------
$1,159,907 $ 771,211
========== ==========
</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 expense (benefit) .......................... $ 142,875 $(860,960)
========= =========
</TABLE>
<PAGE>
The tax effects of significant item comprising the Company's net deferred
tax assets as of June 30, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
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>
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 in the future.
NOTE 8 - NOTES PAYABLE
a) Line of credit
In 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 NY'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 IPO price of $5.00 per share. In relation to the common stock
sold in the offering, NY 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 due date of the
related promissory notes (the earlier of March 1996 or the effective date of the
IPO). The IPO was declared effective on August 14, 1995 and as a result, for the
year ended June 30, 1996, NY recorded the balance of the amortization expense of
$441,863. NY's effective interest rate amounted to approximately 235% including
both the financing costs and interest expense. The private placement offering
was completed on March 9, 1995, resulting in all sixteen (16) units being sold
and netting proceeds of approximately $696,851 to NY.
NOTE 9 - MINORITY INTEREST
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 the stock
transactions of NY (see Note 11) and the proportionate share of income and
losses attributable to the minority stockholders.
<PAGE>
NOTE 10 - STOCKHOLDERS' EQUITY
a) Shares issued as consideration for consulting agreement
On June 16, 1995, pursuant to Form S-8 Registration Statement filed with
the Securities and Exchange Commission, the Company registered and issued
500,000 shares to a broker- dealer as consideration for a two year consulting
agreement. In August 1996, the Board of Directors amended the consulting
agreement to increase the additional number of shares to be issued to such
broker dealer upon Nasdaq listing from 100,000 to 250,000. Accordingly in August
1996, the Company issued an additional 250,000 restricted shares to such
consultant. The 500,000 shares issued in June 1995 were valued at $500,000, and
the 250,000 shares issued in August 1996 were valued at $150,000. Such shares
were valued based on the average closing bid price on the date of issue. Shares
which were restricted at the time of issuance were discounted 50% as a result of
such restriction to properly reflect their fair value.
b) Senior Management Incentive Plan
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 NY in the consummation of NY's initial public offering on August
14, 1995. Of the total 150,000 shares issued to the President, 50,000 shares
immediately vested without restrictions and the remaining 100,000 shares vested
pursuant to the restricted periods, whereby 50,000 shares vested on each August
15, 1996 and 1997. Such shares were valued based on the average closing bid
price on the date of issue. Shares which were restricted at the time of issuance
were discounted 50% as a result of such restriction to properly reflect their
fair value. The value of these shares of $49,500 is being amortized over the
vesting period.
ii)In 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 shares of common stock, 575,000 of which shares underlie options granted
in December 1996 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 had exercised options 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.
c) 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 (July 25,
1996), the Company liquidated such loan by issuing 400,000 shares to such
unrelated party pursuant to Regulation "S" under the Securities Act of 1933, as
amended. Such shares were issued in September 1996. 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, or $400,000. Accordingly,
the Company recorded financing expense amounting to $100,000 resulting in an
effective interest rate of approximately 100%.
d) Shares issued to employees
In December 1996, the Company issued an aggregate of 114,617 shares to
employees. In connection with the 114,617 shares issued, the Company recorded
compensation expense amounting to $107,452 which is based on upon 50% of the
average closing bid price of $1.875 per share for the month of December 1996.
e) Issuance of shares in settlement of accounts payable
<PAGE>
In June 1997, in conjunction with NY's capitalization of accounts payable,
the Company issued 350,000 shares of common stock to RSJJ in exchange for the
270,000 shares of NY common stock issued to RSJJ in forgiveness of NY's accounts
payable to RSJJ. The shares issued to RSJJ in exchange of NY'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 or $218,750. The shares issued to RSJJ by NY
were recorded at a value of $236,250, accordingly, the Company has recorded a
gain on the exchange of shares of approximately $17,500.
NOTE 11 - ISSUANCE OF SUBSIDIARY STOCK
a) Initial Public Offering
In August 1995, the Company's subsidiary, NY, completed the initial public
offering of its stock at $5.00 per share and of warrants at $.10 per share. NY
issued 791,850 shares of its common stock and 494,500 warrants to purchase one
share of its common stock for proceeds, net of offering costs, of $3,104,880. As
a result of the IPO, the Company's ownership of NY decreased from 85.6% to
49.95%. The Company has recorded a gain on sale of subsidiary stock of $817,650
after applying the Company's ownership percentage to NY's stockholders' equity
both before and after the IPO. Deferred tax liabilities arising from this
transaction will be aggregated with other deferred tax liabilities and assets of
the Company.
b) Special warrants
In conjunction with the IPO of NY, the Company was issued a "Special
Warrant" that enabled the Company to maintain its majority ownership of NY. Such
Special Warrant authorized the Company to purchase shares of NY's common stock
at an exercise price of one-half of the initial public offering price of $5.00
per share, or $2.50 per share, only if the Company's ownership of NY decreased
below 50%. Such exercise was limited in quantity to sufficient shares such that
the Company's ownership of NY upon exercise would not exceed 50.1%. At the time
of issuance, any such exercise of the warrant was speculative, and as such, no
amount could reasonably be computed for its value at the time of issuance or of
its future exercise, therefore, no value has been assigned to such Special
Warrant. As result of the IPO, and the underwriter's exercise of over-allotment
provisions, the Company's ownership was reduced to 49.95%. The Company exercised
its Special Warrant to purchase 5,665 shares of NY's common stock increasing its
ownership of NY to 50.1%. Such investment has been eliminated in consolidation.
In connection with the exercise of such special warrant, the Company recorded a
$14,921 gain on the purchase of subsidiary stock.
c) Senior Management Incentive Plan
During February 1997, pursuant to a Form S-8 Registration Statement filed
with the Securities and Exchange Commission, NY, registered 125,000 common
shares underlying options to NY's President pursuant to the NY Senior Management
Incentive Plan. The options were granted December 2, 1996 and were 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
NY issuing 125,000 shares of common stock.
d) Issuance of shares in settlement
In June 1997, pursuant to an agreement with R.S.J.J. Realty Corp. ("RSJJ,"
a company wholly-owned by the Company's President) to settle $480,000 in accrued
rent, NY issued 270,000 shares of its common stock to the Company, for the
cancellation of the debt owed to RSJJ. The Company, in turn, issued 200,000
shares of its common stock to Joseph Polito and 150,000 shares of 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. These
shares were then transferred to the Company by RSJJ in exchange for shares of
the Company's common stock (see Note 10(e)). These shares have been recorded at
the estimated market value at the date of issuance of $1.75 per share with 50%
haircut due to the restricted nature of the stock, or $236,250.
<PAGE>
NOTE 12 - COMMITMENT AND CONTINGENCIES
a) Disclosure of significant estimates - revenue recognition
NY 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 NY'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 estimates may be subject
to revision in the normal course of business.
b) Leases
NY leases its administrative offices pursuant to a signed lease agreement
with RSJJ, an entity wholly-owned by the Company's President, which lease
requires monthly payments of $20,000. This lease originally expired on March 31,
1998, but was extended to December 31, 1998. (See Note 17(a)(i)). Under such
lease agreement, NY is required to make future minimum lease payments as
Year Ending June 30, 1998: $ 180,000
===============
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. NY also leases a yard for storage material pursuant to an 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.
c) Significant customers and vendors
For the six months ended December 31, 1997 and 1996, NY had two and three
unrelated customers respectively, which accounted for approximately 69% and 12%;
and 38%, 30%, and 17% of total revenues. As of December 31, 1997, approximately
19% and 58% of contracts and retainage receivables are due from two customers.
For the years ended June 30, 1997 and 1996, the Company had three and two
unrelated customers respectively, which accounted for approximately 53%, 19%,
and 15%; and 22% and 28%, respectively, of total revenues. As of June 30, 1997
approximately 22%, 21%, 15%, and 24% of contracts and retainage receivables net
of allowances for doubtful accounts are due from four customers.
d) Seasonality
NY operates in an industry which may be seasonal, generally due to
inclement weather occurring during the winter months. Accordingly, NY 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.
e) Bonding requirements
NY is required to provide bid and/or performance bonds in connection with
governmental construction projects. To date, NY has been able to sufficiently
obtain bonding for its private projects. NY 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.
NY has been unable to bid as a general contractor on New York State and City
agency projects as a result of its inability to obtain bonding from a New York
licensed bonding company.
<PAGE>
f) Mechanic's liens
As of June 30, 1997, three actions to foreclose upon mechanics liens filed
during the fiscal year were commenced. Such actions seek relief in the amount of
$3,278,775. As of December 31, 1997, additional mechanic's liens had been filed,
bringing the total relief sought to $16,919,542.
The mechanic's liens have been filed in relation to work completed and
billed. As such, these amounts are included in contracts and retainage
receivable. Based upon the assessment of management and legal counsel, the
Company has recorded an allowance for doubtful account to adjust the receivables
to their estimated realizable amount.
g) Payroll taxes
As of December 31, 1997 and June 30, 1997, the Company owes approximately
$1,951,875 and $1,634,614, respectively, of payroll taxes and related estimated
interest and penalties. 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 is a party to various claims and legal proceedings incidental
to its business. While the amounts claimed may be substantial, the ultimate
liability cannot now be determined because of the considerable uncertainties
that exist with respect thereto. Accordingly, it is possible that results of
operations or liquidity in a particular period could be materially affected by
certain contingencies. However, based on facts currently available, management
believes that the disposition of matters that are pending or asserted will not
have a materially adverse effect on the financial position of the Company.
i) Claims
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED
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, and change orders in dispute or unapproved.
j) Accounts payable
In November 1997, 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 union dues previously recorded as accounts
payable. 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 mechanic's lien. Upon any funds being released or paid under such
mechanic's 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 mechanic's lien.
NOTE 13 - RELATED PARTY TRANSACTIONS
a) Due to related parties
As of June 30, 1997, the total due to officers 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.
c) Rental expense
Included in general and administrative expenses is rent expense paid by NY
pursuant to a signed lease agreement with RSJJ. The lease expired March 31, 1998
but was extended through and until December 31, 1998. (See Note 17(a)(i) for
additional information). Rent expense for the six months ended December 31, 1997
and 1996 amounted to $120,000, and for the years ended June 30, 1997 and 1996
amounted to $240,000.
d) Purchase of material and labor
For the years ended June 30, 1997 and 1996, NY purchased from Waldorf Steel
Fabricators, Inc. ("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, NY 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, NY 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 granted options to purchase
25,000 shares of NY's common stock, all of which options are vested and expire
in April 2000. The exercise price of the options is $5.50 per share. The
foregoing options are intended to qualify as incentive stock options.
<PAGE>
NOTE 14 - EARNINGS PER SHARE
Effective December 31, 1997, the Company implemented Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("EPS") ("SFAS #128"). The
following is the reconciliation of the numerators and denominators of the basic
and diluted EPS for the years ended June 30, 1997 and 1996 and for the six
months ended December 31, 1997 and 1996:
<PAGE>
USABG CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1996 IS UNAUDITED
<TABLE>
<CAPTION>
(Unaudited)
For the six months For the year
ended December 31, ended June 30,
Numerator: 1997 1996 1997 1996
--------- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $240,003 $(208,676) $(540,876) $40,569
======== ========= ========= =======
Denominator:
Computation of basic EPS:
Weighted average common shares outstanding
7,402,148 6,450,736 6,854,390 6,137,530
========= ========= ========= =========
Basic EPS
.03 (.03) (.08) .01
========== ========= ========== =========
Computation of diluted EPS:
Weighted average common
shares outstanding
7,402,148 6,450,736 6,854,390 6,137,530
========= ========= ========= =========
Potentially dilutive shares:
Weighted average shares
issuable under options
(A) (B) (B) (C)
Weighted average shares
outstanding & available
7,402,148 6,450,736 6,854,390 6,137,530
========= ========= ========= =========
Diluted EPS
$ .03 $ (.03) $(.08) $ .01
========= ========= ========== =========
</TABLE>
(A) Shares issuable under options, were not included in the computation of
diluted EPS since the options' exercise prices were greater than the average
market price of the common shares.
(B) In accordance with the provisions of SFAS #128, no potential dilutive
shares have been included in the computation of diluted EPS as the Company has a
loss from continuing operations.
(C) No options were outstanding during this period.
NOTE 15 - STOCK BASED COMPENSATION
A summary of the status of the Company's stock options outstanding as of
June 30, 1996 and 1997, and changes during the years ending on those dates is as
follows:
<TABLE>
<CAPTION>
1996 1997
----------------------- ---------------
Weighted Weighted
Average Average
Exercise Exercise
Stock Options Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 0 N/A 0 $ N/A
Additional options granted 0 N/A 575,000 1.87
Options exercised 0 N/A (125,000) 1.925
---------- ----------- -------------
Outstanding at end of year 0 450,000 $1.86
========== ============ =============
Options exercisable at year end 0 450,000 $1.86
========== ============ ============
Weighted average fair value
of options granted during the year $ 0 $ 1.37
======= =============
</TABLE>
See Note 10(b) for additional information concerning options granted and
exercised during the year ended June 30, 1997.
A summary of the status of NY's stock options outstanding as of June 30,
1996 and 1997, and changes during the years ending on those dates is as follows:
<TABLE>
<CAPTION>
1996 1997
----------------------- ---------------
Weighted Weighted
Average Average
Exercise Exercise
Stock Options Shares Price Shares Price
------------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 25,000 $5.50 25,000 $ 5.50
Additional options granted 0 N/A 125,000 1.10
Options exercised 0 N/A (125,000) 1.10
---------- --------- ------------ ----------
Outstanding at end of year 25,000 $5.50 25,000 $ 5.50
========== ==== =========== ======
Options exercisable at year end 7,500 $5.50 15,000 $ 5.50
========= ===== =========== ======
Weighted average fair value
of options granted during the year $ 0 $ .78
======= ===========
</TABLE>
See Note 11(c) for additional information concerning options granted and
exercised during the year ended June 30, 1997.
NOTE 16 - 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. Expenses of One Carnegie include depreciation interest and real estate
taxes. All income is eliminated in consolidation, resulting in losses from
discontinued operations prior to disposal.
<PAGE>
NOTE 17 - SUBSEQUENT EVENTS
a) Issuance of common stock
i) In February 1998, NY agreed to issue 106,667 shares of its common stock
to the Company as consideration to the Company for issuing 192,000 shares of its
own common 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 NY's shares issued will be recorded at their estimated market value at the
date of authorization ($2.12 per share) with a 50% discount due to the
restricted nature of the stock. The value of the Company's shares issued will be
recorded at their estimated market value at the date of authorization ($1.06 per
share) with a 50% discount due to the restricted nature of the stock. The
conversion of accounts payable into equity will result in a gain of
approximately $23,000 due to the difference in the market values of the
Company's and NY's respective stocks.
ii) In December 1997, the Company authorized the issuance of 250,000 shares
of its common stock during the third quarter of its fiscal year pursuant to its
Senior Management Incentive Plan. Of the 250,000 shares, all of which were
issued in March 1998, 150,000 were issued to the Company's President, and 25,000
shares each were issued to each of the Company's Secretary and Treasurer. The
remaining 50,000 shares were issued to consultants to the Company. The Company
also authorized the filing of a Post-Effective Amendment to the Form S-8
Registration Statement initially filed in February 1997 to register the resale
of the aforesaid shares and to reflect the increase (to 2,000,000) in the number
of shares which may be issued under the plan. In connection with such issuance,
the Company will record compensation and consulting expense amounting to
approximately $230,000 which is based on the average closing bid price of $0.92
per share for the month of March 1998.
iii)In December 1997, NY authorized the issuance, in its third fiscal
quarter, of 290,000 shares of Common Stock, pursuant to the Management Plan, to
its management. NY authorized the issuance of an additional 50,000 shares to
certain of its employees and consultants. Of the 340,000 shares issued in March
1998, 150,000 were issued to NY's President, 70,000 were issued to NY's
Secretary, and 70,000 were issued to NY's Treasurer. NY also authorized the
filing of an amended Form S-8 Registration Statement to register the aforesaid
340,000 shares for resale and to reflect an increase (to 1,000,000 shares) of
the shares which may be issued under the Management Plan. In connection with
such issuance, NY will record compensation and consulting expense amounting to
approximately $510,000 which is based on the average closing bid price of $1.50
per share for the month of March 1998.
b) Private placement
In January 1998, the Company raised a net of $450,000 after a 10%
commission, in connection with a Private Placement to fund the Chadian
operation, from the sale of $500,000 of convertible debentures. Such debentures
are due January 30, 2000 with interest accruing at 8% per annum. The Debentures,
plus interest accrued thereon, are convertible into shares of Common Stock at
the lesser of (i) 100% of the 5 day average closing bid price, as reported by
Bloomberg, LP, for the 5 trading days immediately preceding the closing date
(February 3, 1998) of the private placement (the "Private Placement" or "Private
Placement Offering") ($.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.
Pursuant to the terms of the Private Placement, the Company must file a
Registration Statement covering the shares of Common Stock to be issued upon
conversion of the Debentures. If the Registration Statement is not declared
effective within 90 days following the closing of the Private Placement, then as
liquidated damages, the discount set forth in the Subscription Agreement and
Debenture will increase by 2.5% per 30 day period or portion thereof pro rata
until the Registration Statement is declared effective, or alternatively, if the
Registration Statement has not been declared effective within said 90-day
period, then at the purchaser'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.
<PAGE>
In addition to Debentures, the investors received Warrants to purchase an
aggregate of 100,000 shares of the Company's Common Stock: 50,000 Shares
exercisable at $1.125 per share and $50,000 Shares exercisable at $1.41 per
share.
As a result of the beneficial conversion feature, the Company will record
additional interest of $166,667 which will be amortized over the period between
the date of issuance and the estimated date of conversion, or six months. The
recording of additional interest results in an effective interest rate of 74.7%.
<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.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee $ 273.66
Printing and Engraving $ 5,000 (1)
Legal Fees $25,000 (1)
Accounting $ 7,500 (1)
Nasdaq Filing Fees $ 6,500 (1)
Miscellaneous $ 5,726.34(1)
----------
Total $50,000(1)
- - - ------------------
</TABLE>
(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, Esq. 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 Market, 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 Mr. Berkun.
<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 and Steven Polito
pursuant to the Management Plan. In addition, 313 shares were issued to Joseph
M. Polito's wife. In connection with the aggregate 114,617 shares issued to NY's
employees and consultants, the Company recorded compensation expense amounting
to $107,452, which is based on 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: NY issued 270,000 shares of its common stock to the Company, for the
cancellation of the debt owed to RSJJ. The Company, in turn, issued 200,000
shares of Common Stock to Joseph M. Polito and 150,000 shares of 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 sold $450,000 of 8% Convertible Debentures in
a Private Placement Offering (the "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.
In February 1998, the Company agreed to issue 192,000 shares of Common
Stock to R.S.J.J Realty Corp. ("RSJJ") in exchange for 106,667 shares of NY's
Common Stock. These issuances were made in accordance with an agreement between
NY and RSJJ pursuant to which NY remitted $240,000 in lease payments (in stock,
via the aforesaid issuance of the Company's stock to RSJJ) for the January 1
through December 31, 1998 extended lease term. The value of the Company's shares
issued will be recorded at their estimated market value at the date of issuance
($1.06 per share), with a 50% discount due to the restricted nature of the
stock. The value of NY's shares issued will be recorded at their estimated
market value at the date of issuance ($2.12 per share) , with a 50% discount due
to the restricted nature of the stock. The stock was issued in March 1998. See
"Certain Relationships and Related Transactions."
<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>
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).
4.1 - 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).
10.15* - Form of Subscription Agreement for 1998 Private Placement
10.16* - Form of Registration Rights Agreement for 1998 Private Placement
21.1* - List of Subsidiaries
23.1* - Consent of Scarano & Tomaro, P.C.
23.2** - 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 22nd day of April 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 04/22/98
Joseph M. Polito (Chief Executive Officer) Date
/s/ Ronald J. Polito Secretary and Director 04/22/98
Ronald J. Polito Date
/s/ Steven J. Polito Treasurer and Director 04/22/98
Steven J. Polito Date
/s/ Marvin Weinstein Director 04/22/98
Marvin Weinstein Date
</TABLE>
Exhibit 10.15
Form of Subscription Agreement
----------------------------------
U.S. BRIDGE CORP.
----------------------------------
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 BE 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.
Maximum Offering: $450,000
This offering consists of $450,000 of Convertible Debentures of U.S. Bridge
Corp. and Warrants to purchase up to 100,000 shares of the Company's Common
Stock
--------------------
SUBSCRIPTION AGREEMENT
-------------------
<PAGE>
SUBSCRIPTION PROCEDURES
Convertible Debentures of U.S. Bridge Corp. (the "Company") are being
offered in an aggregate amount not to exceed $450,000. In addition to the
Debentures, the investors shall receive a warrant (the "Warrant" or "Warrants")
to purchase 10,000 shares of the Company's Common Stock per $90,000 of
Debentures purchased, pro rata. The Debentures and Warrants will be transferable
to the extent that any such transfer is permitted by law. This offering is being
made in accordance with the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Act") and Rule 506 of Regulation D
promulgated under the Act (the "Regulation D Offering").
The Investor Questionnaire is designed to enable the Investor to
demonstrate the minimum legal requirements under federal and state securities
laws to purchase the Debentures and Warrants. The Signature Page for the
Investor Questionnaire and the Subscription Agreement contain representations
relating to the subscription.
Also included is an Internal Revenue Service Form W-9: "Request for
Taxpayer Identification Number and Certification" for U.S. citizens or residents
of the U.S. for U.S. federal income tax purposes only. (Foreign investors should
consult their tax advisors regarding the need to complete Internal Revenue
Service Form W-9 and any other forms that may be required).
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you may submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer as provided below: Immediately
available funds should be sent via wire transfer to the escrow account stated
below and the completed subscription documents should be forwarded to the Escrow
Agent. Your subscription funds will be deposited into a non-interest bearing
escrow account of Joseph B. LaRocco, Esq., Escrow Agent, at First Union Bank of
Connecticut, Stamford, Connecticut. In the event of a termination of the
Regulation D Offering or the rejection o this subscription, all subscription
funds will be returned without interest. The wire instructions are as follows:
First Union Bank of Connecticut
Executive Office
300 Main Street, P. O. Box 700
Stamford, CT 06904-0700
ABA #: 021101108
Swift #: FUNBUS33
Account #: 20000-2072298-4
Acct.Name: Joseph B. LaRocco, Esq. Trustee Account
<PAGE>
SUBSCRIPTION AGREEMENT
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 BE 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.
To: U.S. BRIDGE CORP.
This Subscription Agreement is made between U.S. BRIDGE CORP. ("Company" or
"Seller") a Delaware corporation, and the undersigned prospective purchaser
("Purchaser") who is subscribing hereby for the Company's Convertible Debentures
(the "Debentures"). In addition to the Debentures, the investors shall receive a
warrant (the "Warrant" or "Warrants") to purchase 10,000 shares of the Company's
Common Stock per $90,000 of Debentures purchased, pro rata. The Debentures and
Warrants being offered will be separately transferable, to the extent that any
such transfer is permitted by law. The conversion terms of the Debentures are
set forth in Section 4. This subscription is submitted to you in accordance with
and subject to the terms and conditions described in this Subscription Agreement
dated ___________, 199_, together with any Exhibits thereto, relating to an
offering (the "Offering") of up to $450,000 of Debentures. This Offering is
comprised of an offering of the Debentures to accredited investors (the
"Regulation D Offering") in accordance with the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and
Rule 506 of Regulation D promulgated under the Act ("Regulation D").
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $________ of the Company's Debentures and a Warrant to purchase _______
shares of the Company's Common Stock. The Debentures shall pay a 8% cumulative
interest payable annually, in cash or in freely trading Common Stock of the
Company, at the Company's option, at the time of each conversion. 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 dividend 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 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 defined below in Section 4(b) hereof. If the
interest is to be paid in cash, the Company shall make such payment within 5
business days of the date of each "Conversion Date" as that term is defined in
Section 4(b). If the interest is to be paid in Common Stock, said Common Stock
shall be delivered to the Purchaser, or per Purchaser's instructions, within 5
business days of the Conversion Date. The Debentures are subject to automatic
conversion at the end of two years from the date of issuance at which time all
Debentures outstandin will be automatically converted based upon the formula set
forth in Section 4(c). The closing shall be deemed to have occurred on the date
the funds are received by the Company (the "Closing Date").
(b) Upon receipt by the Company of the requisite payment for the Debentures
being purchased the Debentures so purchased will be forwarded by the Escrow
Agent, Joseph B. LaRocco, to the Purchaser and the name of such Purchaser will
be registered on the Debenture transfer books of the Company as the record owner
of such Debentures. The Escrow Agent shall not be liable for any action taken or
omitted by him in good faith and in no event shall the Escrow Agent be liable or
responsible except for the Escrow Agent's own gross negligence or willful
misconduct. The Escrow Agent has made no representations or warranties in
connection with this transaction and has not been involved in the negotiation of
the terms of this Agreement or any matters relative thereto. Seller and
<PAGE>
Purchaser each agree to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Agreement. The Escrow Agent
is not rendering securities advice to anyone with respect to this proposed
transaction; nor is the Escrow Agent opining on the compliance of the proposed
transaction under applicable securities law.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The undersigned has been furnished with, and has carefully read the
applicable form of Debenture included herein as Exhibit A and the form of
Registration Rights Agreement annexed hereto as Exhibit B (the "Registration
Rights Agreement"), and is familiar with and understands the terms of the
Offering. With respect to tax and other economic considerations involved in his
investment, the undersigned is not relying on the Company. The undersigned has
carefully considered and has, to the extent the undersigned believes such
discussion necessary, discussed with the undersigned's professional legal, tax,
accounting and financial advisors the suitability of an investment in the
Company, by purchasing the Debentures, for the undersigned's particular tax and
financial situation and has determined that the investment being made by the
undersigned is a suitable investment for the undersigned.
(b) The undersigned acknowledges that all documents, records, and books
pertaining to this investment which the undersigned has requested including Form
10-K for the fiscal year ended December 31, 1996 and Form 10-QSB for the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997 (the
"Disclosure Documents") have been made available for inspection by the
undersigned, or the undersigned has had access thereto.
(c) The undersigned has had a reasonable opportunity to ask questions of
and receive answers from a person or persons acting on behalf of the Company
concerning the Offering and all such questions have been answered to the full
satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the Debentures or
Warrants without registration under the Act or applicable state securities laws
or an exemption therefrom. The Debentures and Warrants have not been registered
under the Act or under the securities laws of any states. The Common Stock
underlying the Debentures and Warrants is to be registered by the Company
pursuant to the terms of the Registration Rights Agreement attached hereto as
Exhibit B and incorporated herein and made a part hereof. Without limiting the
right to convert the Debentures and Warrants and sell the Common Stock pursuant
to the Registration Rights Agreement, the undersigned represents that the
undersigned is purchasing the Debentures and Warrants for the undersigned's own
account, for investment and not with a view to resale or distribution except in
compliance with the Act. The undersigned has not offered or sold any portion of
the Debentures or Warrants being acquired nor does the undersigned have any
present intention of dividing the Debentures or Warrants with others or of
selling, distributing or otherwise disposing of any portion of the Debentures or
Warrants either currently or after the passage of a fixed or determinable period
of time or upon the occurrence or non-occurrence of any predetermined event or
circumstance in violation of the Act. Except as provided in the Registration
Rights Agreement, the Company has no obligation to register the Common Stock
issuable upon conversion of th Debentures and exercise of the Warrants
(e) The undersigned recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, the undersigned has carefully read and considered the
schedule entitled Pending Litigation matters attached hereto as Exhibit C.
<PAGE>
(f) Legends (i) The undersigned acknowledges that each certificate
representing the Debentures and Warrants unless registered pursuant to the
Registration Rights Agreement, shall be stamped or otherwise imprinted with a
legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE SECURITIES
EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE ALSO SUBJECT TO THE
REGISTRATION RIGHTS SET FORTH IN EACH OF THAT CERTAIN SUBSCRIPTION AGREEMENT AND
REGISTRATION RIGHTS AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY,
A COPY OF EACH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE.
(ii) The Common Stock issued upon conversion shall contain the following
legend:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN INCLUDED IN THE COMPANY'S
REGISTRATION STATEMENT INITIALLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON __________, 1998, AND MAY BE SOLD IN ACCORDANCE WITH THE COMPANY'S
PROSPECTUS DATED ___________, 1998, WHICH FORMS A PART OF SUCH REGISTRATION
STATEMENT, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
(g) If this Subscription Agreement is executed and delivered on behalf of a
corporation, (i) such corporation has the full legal right and power and all
authority and approval required (a) to execute and deliver, or authorize
execution and delivery of, this Subscription Agreement and all other instruments
(including, without limitation, the Registration Rights Agreement) executed and
delivered by or on behalf of such corporation in connection with the purchase of
the Debentures and (b) to purchase and hold the Debentures: (ii) the signature
of the party signing on behalf of such corporation is binding upon such
corporation; and (iii) such corporation has not been formed for the specific
purpose of acquiring the Debentures, unless each beneficial owner of such entity
is qualified as an accredited investor within the meaning of Rule 501(a) of
Regulation D and has submitted information substantiating such individual
qualification.
(h) The undersigned shall indemnify and hold harmless the Company and each
stockholder, executive, employee, representative, affiliate, officer, director,
agent (including Counsel) or control person of the Company, who is or may be a
party or is or may be threatened to be made a party to any threatened, pending
or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any actual or
alleged misrepresentation or misstatemen of facts or omission to represent or
state facts made or alleged to have been made by the undersigned to the Company
or omitted or alleged to have been omitted by the undersigned, concerning the
undersigned or the undersigned's subscription for and purchase of the Debentures
or the undersigned's authority to invest or financial position in connection
with the Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the undersigned, against
losses, liabilities and expenses for which the Company, or any stockholder,
executive, employee, representative, affiliate, officer, director, agent
(including Counsel) or control person of the Company has not otherwise been
reimbursed (including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the Company, or
such officer, director stockholder, executive, employee, agent (including
Counsel), representative, affiliate or control person in connection with such
action, suit or proceeding.
<PAGE>
(i) The undersigned is not subscribing for the Debentures or Warrants as a
result of, or pursuant to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or meeting.
(j) The undersigned or the undersigned's representatives, as the case may
be, has such knowledge and experience in financial, tax and business matters so
as to enable the undersigned to utilize the information made available to the
undersigned in connection with the Offering to evaluate the merits and risks of
an investment in the Debentures and Warrants and to make an informed investment
decision with respect thereto.
(k) The Purchaser is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof.
Purchaser is neither an underwriter of, nor a dealer in, the Debentures or the
Common Stock issuable upon conversion thereof and is not participating in the
distribution or resale of the Debentures or the Common Stock issuable upon
conversion thereof.
(l) The Company will be responsible for the payment of $7,500 to Joseph B.
LaRocco for escrow services and a 10% fee to VenGua Capital Markets as a
placement fee, all of which fees may be deducted from escrow on the Closing
Date.
(m) (i) Neither the Purchaser nor any person or entity for whom the
Purchaser is acting as fiduciary is a U.S. person. A U.S. person means any one
of the following:
(1) any natural person resident in the United States of America;
(2) any partnership or corporation organized or incorporated under the laws
of the United States;
(3) any estate of which any executor or administrator is a U.S. person;
(4) any trust of which any trustee is a U.S. person;
(5) any agency or branch of a foreign entity located in the United States;
(6) any non-discretionary account or similar account (other than an estate
or trust) held by a dealer or other fiduciary for the benefit or account of a
U.S. person;
(7) any discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the Untied States; and
(8) any partnership or corporation if:
(A) organized or incorporated under the laws of any foreign jurisdiction;
and
(B) formed by a U.S. person, principally for the purpose of investing in
securities not registered under the Securities Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined in Rule 501(a)
under the Securities Act) who are not natural persons, estates or trusts.
(ii) At the time the buy order was originated, Purchaser was outside the
United States and is outside the United States as of the date of the execution
and delivery of this Agreement. No offer to purchase the Debentures and Warrants
by Purchaser was made to a person in the United States.
(iii) Purchaser is purchasing the Debentures and Warrants for its own
account or for the account of beneficiaries for whom the Purchaser has full
investment discretion with respect to the Debentures and Warrants and whom the
Purchaser has full authority to bind so that each such beneficiary is bound
hereby as if such beneficiary were a direct purchaser hereunder and all
representations, warranties and agreements herein were made directly by such
beneficiary. Purchaser is not purchasing the Debentures and Warrants on behalf
of any U.S. person and the sale has not been prearranged with a purchaser in the
United States.
<PAGE>
(iv) Purchaser represents and warrants and hereby agrees that all offers
and sales of the Debentures and Warrants by it or by persons acting on its
behalf shall only be made (A) in compliance with the safe harbor contained in
Regulation S; (B) pursuant to registration of Debentures and Warrants under the
Securities Act; or (C) pursuant to an exemption from registration.
(v) Purchaser understands and acknowledges that the Debentures and Warrants
have not been registered under the 1933 Act and may not be offered or sold in
the United States or to U.S. persons or for the account or benefit of a U.S.
person (other than distributors as defined in Regulation S) unless the
Debentures are registered under the Securities Act or an exemption from the
registration requirements is available.
(vi) Purchaser acknowledges that the purchase of the Debentures and
Warrants involves a high degree of risk and further acknowledges that it can
bear the economic risk of the purchase of the Debentures and Warrants, including
the total loss of its investment. Purchaser acknowledges that it has obtained
the advice of competent legal counsel in its domicile jurisdiction that
Purchaser is qualified under the laws of its domicile to purchase the Debentures
and Warrants offered hereunder and that the offer and sale of said Debentures
and Warrants will not violate the laws of its domicile jurisdiction.
(vii) Purchaser understands that the Debentures and Warrants are being
offered and sold to it in reliance on the rules promulgated under Regulation S
and that the Issuer is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Purchaser set forth herein in order to determine the applicability of such rules
and the legality of Purchaser to acquire the Debentures and Warrants. (viii) The
Purchaser is purchasing the Debentures and Warrants for its own account for
investment, and not with a view toward the resale or distribution thereof.
Purchaser is neither an underwriter of, nor a dealer in, the Debentures and
Warrants or the Common Stock issuable upon conversion thereof and is not
participating in the distribution or resale of the Debentures and Warrants or
the Common Stock issuable upon conversion or exercise thereof.
(ix) In evaluating its investment, Purchaser has consulted with its own
investment and/or legal and/or tax advisors.
(x) Purchaser understands that in the view of the SEC the statutory basis
for the exemption claimed for this transaction would not be present if the
offering of Debentures and Warrants, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the registration provision of
the Securities Act. Purchaser is acquiring the Debentures and Warrants for
investment purposes and has no present intention to sell the Debentures and
Warrants in the United States, to a U.S. person o for the account or benefit of
a U.S. person.
(xi) Purchaser represents and warrants that neither it nor any of its
affiliates will directly or indirectly maintain any short position in
Debentures, Common Stock or any other securities of the Issuer so long as any of
the Debentures have not been converted into Common Stock;
(xii) Purchaser represents and warrants that it is an "accredited investor"
as that term is defined in Regulation D.
(xiii) The undersigned is not subscribing for the Debentures and Warrants
as a result of, or pursuant to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or meeting.
(xiv) The undersigned or the undersigned's representatives, as the case may
be, has such knowledge and experience in financial, tax and business matters so
as to enable the undersigned to utilize the information made available to the
undersigned in connection with the Offering to evaluate the merits and risks of
an investment in the Debentures and Warrants and to make an informed investment
decision with respect thereto.
<PAGE>
If Purchaser is purchasing the Debentures and Warrants subscribed for
hereby in representative or fiduciary capacity, the representations and
warranties in this Agreement shall be deemed to have been made on behalf of the
person or persons for whom Purchaser is so purchasing.
The foregoing representations and warranties are true and accurate as of
the date hereof, shall be true and accurate as of the date of the acceptance by
the Issuer of Purchaser's subscription, and shall survive thereafter. If
Purchaser has knowledge, prior to the acceptance of this Agreement by the
Issuer, that any such representations and warranties shall not be true and
accurate in any respect, the Purchaser, prior to such acceptance, will give
written notice of such fact to the Issuer specifying which representations and
warranties are not true and accurate and the reasons therefor.
3. SELLER REPRESENTATIONS.
(a) Concerning the Securities. The issuance, sale and delivery of the
Debentures and Warrants have been duly authorized by all required corporate
action on the part of Seller, 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 and enforceable in accordance with
their terms, subject to the laws of bankruptcy and creditors' rights generally.
At least 1,000,000 shares of Common Stock issuable upon conversion of all the
Debentures and Warrants issued pursuant to this offering have been duly and
validly reserved for issuance and, upon issuance shall be duly and validly
issued, fully paid, and non-assessable (the "Reserved Shares"). From time to
time, the Company shall keep such additional shares of Common Stock reserved so
as to allow for the conversion of all the Debentures and exercise of all the
Warrants issued pursuant to this offering.
Prior to conversion of all the Debentures, if at anytime the conversion of
all the Debentures and Warrants outstanding would result in an insufficient
number of authorized shares of Common Stock being available to cover all the
conversions, then in such event, the Company will move to call and hold a
shareholder's meeting within 60 days of such event for the sole purpose of
authorizing additional shares of Common Stock to facilitate the conversions. In
such an event, the Company shall recommend to all shareholders to vote their
shares in favor of increasing the authorized number of shares of Common Stock .
Seller represents and warrants that under no circumstances will it deny or
prevent Purchaser's right to convert the Debentures and Warrants as permitted
under the terms of this Subscription Agreement or the Registration Rights
Agreement. Nothing in this Section shall limit the obligation of the Company to
make the payments set forth in Section 4(h).
(b) Authority to Enter Agreement. This Agreement has been duly authorized,
validly executed and delivered on behalf of Seller and is a valid and binding
agreement in accordance with its terms, subject to general principals of equity
and to bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
(c) Non-contravention. The execution and delivery of this Agreement and the
consummation of the issuance of the Debentures and Warrants, and the
transactions contemplated by this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or provisions of, or constitute
a default under, the articles of incorporation or by-laws of Seller, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Seller is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule, or regulation of the United States
or any State thereof or any applicable decree, judgment, or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
<PAGE>
(d) Company Compliance. The Company represents and warrants that the
Company and its subsidiaries are: (i) in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; (ii) not in violation of any term or
provision of its Certificate of Incorporation or by-laws; (iii) not in default
in the performance or observance of any obligation, agreement or condition
contained in any bond, debenture note or any other evidence of indebtedness or
in any mortgage, deed of trust, indenture or other instrument or agreement to
which they are a party, either singly or jointly, by which it or any of its
property is bound or subject except at set forth in Exhibit C. Furthermore, the
Company is not aware of any other facts, which it has not disclosed which could
have a material adverse effect on the business, condition, (financial or
otherwise), operations, earnings, performance, properties or prospects of the
Company and its subsidiaries taken as a whole.
(e) Pending Litigation. Except as otherwise disclosed in Exhibit C, there
is (i) no action, suit or proceeding before or by any court, arbitrator or
governmental body now pending or, to the knowledge of the Company, threatened or
contemplated to which the Company or any of its subsidiaries is or may be a
party or to which the business or property of the Company or any of its
subsidiaries is or may be bound or subject, (ii) no law, statute, rule,
regulation, order or ordinance that has been enacted, adopted or issued by any
Governmental Body or that, to the knowledge of the Company, has been proposed by
any Governmental Body adversely affecting the Company or any of its
subsidiaries, (iii) no injunction, restraining order or order of any nature by a
federal, state or foreign court or Governmental Body of competent jurisdiction
to which the Company or any of its subsidiaries is subject issued that, in the
case of clauses (i), (ii) and (iii) above, (x) is reasonably likely, singly or
in the aggregate, to result in a material adverse effect on the business,
condition, (financial or otherwise), operations, earnings, performance,
properties or prospects of the Company, and its subsidiaries taken as a whole or
(y) would interfere with or adversely affect the issuance of the Debentures and
Warrants or would be reasonably likely to render this Subscription Agreement or
the Debentures and Warrants, or any portion thereof, invalid or unenforceable.
(f) Issuance of the Debentures. No action has been taken and no law,
statute, rule, regulation, order or ordinance has been enacted, adopted or
issued by any Governmental Body that prevents the issuance of the Debentures and
Warrants or the Common Stock issuable upon conversion or exercise thereof; no
injunction, restraining order or order of any nature by a federal or state court
of competent jurisdiction has been issued that prevents the issuance of the
Debentures and Warrants or the Common Stock issuable upon conversion or exercise
thereof or suspends the sale of the Debentures and Warrants or the Common Stock
issuable upon conversion thereof in any jurisdiction; and no action, suit or
proceeding is pending against or, to the best knowledge of the Company,
threatened against or affecting, the Company, any of its subsidiaries or, to the
best knowledge of the Company, before any court or arbitrator or any
Governmental Body that, if adversely determined, would prohibit, materially
interfere with or adversely affect the issuance or marketability of the
Debentures or the Common Stock issuable upon conversion or exercise thereof or
render the Subscription Agreement or the Debentures and Warrants, or any portion
thereof, invalid or unenforceable.
(g) The Company shall indemnify and hold harmless the Purchaser and each
stockholder, executive, employee, representative, affiliate, officer, director
or control person of the Purchaser, who is or may be a party or is or may be
threatened to be made a party to any threatened, pending or contemplated action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of or arising from any actual or alleged misrepresentation or
misstatement of facts or omission to represent or state facts made or alleged to
have been made by the Company to the Purchaser or omitted or alleged to have
been omitted by the Company, concerning the Purchaser or the Purchaser's
subscription for and purchase of the Debentures and Warrants or the Purchaser 's
authority to invest or financial position in connection with the Offering,
including, without limitation, any such misrepresentation, misstatement or
omission contained in this Subscription Agreement, the Questionnaire or any
other document submitted by the Company, against losses, liabilities and
expenses for which the Purchaser, or any stockholder, executive, employee,
representative, affiliate, officer, director or control person of the Purchaser
has not otherwise been reimbursed (including attorneys' fees and disbursements,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred by the Purchaser, or such officer, director, stockholder, executive,
employee, representative, affiliate or control person in connection with such
action, suit or proceeding.
<PAGE>
(h) No Change. Other than filings required by the Blue Sky or federal
securities law, no consent, approval or authorization of or designation,
declaration or filing with any governmental or other regulatory authority on the
part of the Company is required in connection with the valid execution, delivery
and performance of this Agreement. Any required qualification or notification
under applicable federal securities laws and state Blue Sky laws of the offer,
sale and issuance of the Debentures and Warrants, has been obtained on or before
the date hereof or will have been obtained within the allowable period
thereafter, and a copy thereof will be forwarded to Counsel for the Purchaser.
(i) True Statements. Neither this Agreement nor any of the "Disclosure
Documents", as hereinafter defined, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in the light of the
circumstances under which such statements are made. There exists no fact or
circumstances which, to the knowledge of the Company, materially and adversely
affects the business, properties or assets, or conditions, financial or
otherwise, of the Company, which has not been set forth in this Subscription
Agreement or disclosed in such documents.
(j) The Purchaser has been advised that the Company has not retained any
independent professionals to review or comment on this Offering or otherwise
protect the interests of the Purchaser. Although the Company has retained its
own counsel, neither such counsel nor any other firm, including Joseph B.
LaRocco, Esq., has acted on behalf of the Purchaser, and the Purchaser should
not rely on the Company's legal counsel or Joseph B. LaRocco, Esq. with respect
to any matters herein described.
(k) There has never been represented, guaranteed, or warranted to the
undersigned by any broker, the Company, its officers, directors or agents, or
employees or any other person, expressly or by implication (i) the percentage of
profits and/or amount of or type of consideration, profit or loss to be
realized, if any, as a result of the Company's operations; and (ii) that the
past performance or experience on the part of the management of the Company, or
of any other person, will in any way result in the overall profitable operations
of the Company.
(l) Prior Shares Issued Under Regulation S or Regulation D. Since January
1, 1997, the Company raised $ 0 in Regulation S offerings for which $ 0 remains
outstanding. Since January 1, 1997, the Company raised $ 0 in Regulation D
offerings for which $ 0 remains outstanding.
(m) Current Authorized Shares. As of January 15, 1998, there were
50,000,000 authorized shares of Common Stock of which approximately 7,500,000
shares of Common Stock were issued and outstanding.
(n) Disclosure Documents. The Disclosure Documents are all the documents
(other than preliminary materials) that the Company has been required to file
with the SEC from December 31, 1996, to the date hereof. As of their respective
dates, none of the Disclosure Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and no material event
has occurred since the Company's filing on Form 10-K for the year ended December
31, 1996, which could make any of the disclosures contained therein misleading.
The financial statements of the Company included in the Disclosure Documents
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited financial
statements, only to normal recurring year-end audit adjustments) the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
changes in financial position for the periods then ended.
<PAGE>
(o) Information Supplied. The information supplied by the Company to
Purchaser in connection with the offering of the Debentures and Warrants does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements, in the light of the circumstances in
which they were made, not misleading. There exists no fact or circumstances
which, to the knowledge of the Company, materially and adversely affects the
business, properties, assets, or conditions, financial or otherwise, of the
Company, which has not been set forth in this Agreement or disclosed in such
documents.
(p) Delivery Instructions. On the Closing Date the Debentures being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Agent, who will simultaneously wire to the Company the funds being held in
escrow, less the escrow fee and placement fee, at which time the Escrow Agent
shall then have the Debentures and Warrants delivered to the Purchaser, per the
Purchaser's instructions.
(q) Non-contravention. The execution and delivery of this Agreement by the
Company, the issuance of the Debentures and Warrants, and the consummation by
the Company of the other transactions contemplated by this Agreement, and the
Debentures and Warrants do not and will not conflict with or result in a breach
by the Company of any of the terms or provisions of, or constitute a default
under, the (i) certificate of incorporation or by-laws of the Company, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, (iii) any material existing applicable law, rule, or regulation or
any applicable decree, judgment, or (iv) order of any court, United States
federal or state regulatory body, administrative agency, or other governmental
body having jurisdiction over the Company or any of its properties or assets,
except such conflict, breach or default which would not have a material adverse
effect on the transactions contemplated herein.
(r) No Default. Except as set forth in the Company's report on form 10-K
for the year ending December 31, 1996, the Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound, and neither the execution of, nor the delivery by the Company of, nor the
performance by the Company of its obligations under, this Agreement or the
Debentures, other than the conversion provision thereof, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, (i) any material
indenture, mortgage, deed of trust or other material agreement applicable to the
Company or instrument to which the Company is a party or by which it is bound,
(ii) any statute applicable to the Company or its property, (iii) the
Certificate of Incorporation or By-Laws of the Company, (iv) any decree ,
judgment, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company regulation of any court or governmental
agency or body having jurisdiction over the Company or its properties, or (v)
the Company's listing agreement for its Common Stock.
(s) Use of Proceeds. The Company represents that the net proceeds of this
offering will be used for working capital.
(t) Lock-up and Right of First Refusal. The Company agrees not to pursue a
transaction of the nature already contemplated hereby with any other person or
entity unless and until the Purchaser(s) have been informed that good faith
negotiations with the Company have been terminated. During the one hundred and
eighty (180) day period following the Closing Date, the Company will not
conduct, without the prior written consent of each Purchaser in this offering,
any Regulation S or Regulation D financing and/or equity private placement with
common stock registration/public sale rights within twelve (12) months of the
Closing Date. Thereafter, for the next three hundred and sixty (360) days, the
Purchaser will have a pro-rata right of first refusal with all other Purchasers
in this offering with respect to any equity financing.
(u) Reporting Company Status. Seller is a "Reporting Issuer" as defined by
Rule 902 of Regulation S. Seller has registered its Common Stock, $0.01 par
value per share (the "Common Stock"), pursuant to the Securities Exchange Act of
1933, as amended (the "Exchange Act"), and the Common Stock is listed and trades
on the Electronic Bulletin Board. Seller has filed all material required to be
filed pursuant to all reporting obligations under Section 15(d) of the Exchange
Ac for a period of at least twelve (12) months immediately preceding the offer
or sale of the Securities (or for such shorter period that Seller has been
required to file such material).
(v) Offshore Transaction. Seller has not offered the Debentures or Warrants
to any person in the United States or to any U.S. person or for the account or
benefit of any U.S. person. At the time the buy order was originated, Issuer
and/or its agent reasonably believed that Purchaser was outside of the United
States and was not a U.S. Person. Issuer and/or its agent reasonably believe
that the transaction has not been prearranged with a Purchaser in the United
States.
(w) No Directed Selling Efforts. In regard to this transaction, Seller has
not conducted any "directed selling efforts" as that term is defined in Rule 902
of Regulation S nor has Seller conducted any general solicitation relating to
the offer and sale of Debentures or Warrants to U.S. persons residing within the
United States or elsewhere.
<PAGE>
4. TERMS OF CONVERSION.
(a) Debentures. Upon the Company's receipt of a facsimile or original of
Purchaser's signed Notice of Conversion and the original Debenture to be
converted in whole or in part, 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 is convertible in accordance with the provisions
regarding conversion set forth in Exhibit D hereto. The Seller'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 Procedures. The face amount of the Debentures, plus accrued
interest, may be converted anytime sixty (60) days after the Closing Date The
date on which the Notice of Conversion is effective ("Conversion Date") shall be
deemed to be the date on which the Purchaser 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.
(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
Purchaser's signed Notice of Conversion (see Exhibit D) Seller shall instruct
Seller's transfer agent to issue Stock Certificates with restrictive legends as
set forth in this Agreement in the name of Purchaser (or its nominee) and in
such denominations to be specified at conversion representing the number of
shares of Common Stock issuable upo such conversion, as applicable. Seller
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 Seller.
(d) Conversion Rate. Purchaser is entitled to convert the entire face
amount of the Debentures, 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 Purchaser'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 Purchasers, 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 Subscription Agreement 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 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 Purchaser to the
Company.
<PAGE>
(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 Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser.
(g) Within five (5) business days after receipt of the documentation
referred to above in Section 4(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 Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser.
In the event the Company does not make delivery of the Common Stock, as
instructed by Purchaser, within 5 business days after delivery of the original
Debenture, then in such event the Company shall pay to Purchaser 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.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- - - ---------------------- ----------------------
<S> <C>
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
</TABLE>
The Company acknowledges that its failure to deliver the Common Stock
within 5 business days after the Conversion Date will cause the Purchaser to
suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement 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 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
Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 4(g) shall not
apply but instead the provisions of Section 4(h) shall apply.
<PAGE>
The Company shall make any payments incurred under this Section 4(g) in
immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Purchaser'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 Purchasers of the
entire amount of Debentures then outstanding. If, at any time Purchaser 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
Purchaser 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 Purchaser'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 Purchasers 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 Purchaser 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 Purchasers 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 Purchaser 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 Purchaser of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Purchaser'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 Purchaser's option, payable as follows: (i)
in the event Purchaser elects to take such payment in cash, cash payments shall
be made to such Purchaser of outstanding Debentures by the fifth day of the
following calendar month, or (ii) in the event Purchaser elects to take such
payment in stock, the Purchaser may convert such payment amount into Common
Stock at the conversion rate set forth in section 4(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 Purchaser to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement 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 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 Agreement.
Nothing herein shall limit the Purchaser'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 Purchaser 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) 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 and Warrants 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 th
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.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Other than the Mandatory Conversion provisions contained in this Agreement
which are not limited by the following, in no other event shall the Purchaser be
entitled to convert that amount of Debentures and Warrants in excess of that
amount upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Purchaser and its affiliates (other than shares
of Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Debentures and Warrants), and (2) the number of
shares of Common Stock issuable upon the conversion of the Debentures and
Warrants with respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Purchaser 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.
6. DELIVERY INSTRUCTIONS.
Prior to or on the Closing Date the Company shall deliver to the Escrow
Agent a copy of the board resolution authorizing the offering a copy of which is
attached hereto as Exhibit E. Also, prior to or on the Closing Date the Company
shall deliver to the Escrow Agent a signed Registration Rights Agreement in the
form attached hereto as Exhibit B. The Debentures being purchased hereunder
shall be delivered to Joseph B. LaRocco, Esq. as Escrow Agent, who will hold
them in escrow until funds have been wired to the Company or its Counsel at
which time the Escrow Agent shall then have the Debentures delivered to the
Purchaser, per the Purchaser's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the Company
in its sole and absolute discretion at any time before the date set for closing
unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other jurisdiction
has made any finding or determination as to the fairness of the terms of the
Offering for investment nor any recommendation or endorsement of the Debentures
and Warrants.
<PAGE>
(c) The representations, warranties and agreements of the undersigned and
the Company contained herein and in any other writing delivered in connection
with the transactions contemplated hereby shall be true and correct in all
material respects on and as of the date of the sale of the Debentures and
Warrants, and as of the date of the conversion and exercise thereof, as if made
on and as of such date and shall survive the execution and delivery of this
Subscription Agreement and the purchase of the Debentures and Warrants.
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF ANY
MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
(e) The Regulation D Offering is intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) of the Securities Act and the
provisions of Regulation D thereunder, which is in part dependent upon the
truth, completeness and accuracy of the statements made by the undersigned
herein and in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's exempt
status under Section 4(2) of the Securities Act and Regulation D, any transferee
may, at a minimum, be required to fulfill the investor suitability requirements
thereunder.
(g) THE DEBENTURES AND WARRANTS MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE
DISPOSED OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS
SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933 AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
9. 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. 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 litigatio
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.
<PAGE>
(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 an 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 Delaware, and the parties hereby irrevocably
submit to the non-exclusive jurisdiction of such courts for the purpose of any
such action or proceeding.
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Subscription Agreement nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered or sent
by registered mail, return receipt requested, addressed: (i) if to the Company,
at 53-09 97th Place, Corona, NY 11368 (ii) if to the undersigned, at the address
for correspondence set forth in the Questionnaire, or at such other address as
may have been specified by written notice given in accordance with this
paragraph 10(c).
(d) This Subscription Agreement shall be enforced, governed and construed
in all respects in accordance with the laws of the State of Delaware, as such
laws are applied by Delaware courts to agreements entered into, and to be
performed in, Delaware by and between residents of Delaware, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or rule of
law, then such provisions shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C, D and E
attached hereto and made a part hereof, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties hereto. An executed facsimile copy of
the Subscription Agreement shall be effective as an original.
11. NOTICE.
All notices or other communications required or permitted hereunder shall
be in writing and shall be deemed given, delivered and received (a) when
delivered, if delivered personally, (b) four days after mailing, when sent by
registered or certified mail, return receipt requested and postage prepaid, (c)
the next business day after delivery to a private courier service, and (d) on
the date of delivery by telecopy, receipt confirmed, provided that a
confirmation copy is sent on the next business day by registered or certified
mail, return receipt requested and postage prepaid, in each case addressed as
follows:
<PAGE>
If to Company, to:
U.S. Bridge Corp.
53-09 97th Place
Corona, NY 11368
Attention:
Phone: 718-699-0100
Fax: 718-
If to Purchaser, to:
================================
--------------------------------
Phone: ___________________________
Fax: ___________________________
or to such other address as the recipient party may indicate by a notice
delivered to the sending party (such change of address notice to be deemed
given, delivered and received only upon actual receipt thereof by the recipient
of such notice).
12. SIGNATURE.
The signature of this Subscription Agreement is contained as part of the
applicable Subscription Package, entitled "Signature Page."
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
U.S. BRIDGE CORP.
CORPORATION QUESTIONNAIRE
Investor Name: _______________
The information contained in this Questionnaire is being furnished in order
to determine whether the undersigned CORPORATION'S Subscription to purchase the
Debentures described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Debentures
is exempt from registration under the Securities Act of 1933, as amended.
Further, the undersigned CORPORATION understands that the offering is required
to be reported to the Securities and Exchange Commission and to various state
securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION MUST
COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE
CORPORATION.
1. The undersigned CORPORATION: (a) has total assets in excess of
$5,000,000; (b) was not formed for the specific purpose of acquiring the
Debentures and (c) has its principal place of business in ___________.
2. Each of the shareholders of the undersigned CORPORATION is able to
certify that such shareholder meets at least one of the following three
conditions:
(a) the shareholder is a natural person whose individual net worth* or
joint net worth with his or her spouse exceeds $1,000,000; or
(b) the shareholder is a natural person who had an individual income* in
excess of $200,000 in each of 1996 and 1997 and who reasonably expects an
individual income in excess of $200,000 in 1998; or
(c) Each of the shareholders of the undersigned CORPORATION is able to
certify that such shareholder is a natural person who, together with his or her
spouse, has had a joint income in excess of $300,000 in each of 1996 and 1997
and who reasonably expects a joint income in excess of $300,000 during 1998; and
the undersigned CORPORATION has its principal place of business in
___________________.
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining income, an investor
should add to his or her adjusted gross income any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to IRA or Keogh
retirement plan, alimony payments and any amount by which income from long-term
capital gains has been reduced in arrivin at adjusted gross income.
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the Securities Act; or
(b) a savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity; or
(c) a broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; or
(d) an insurance company as defined in Section 2(13) of the Securities Act;
or
<PAGE>
(e) An investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48) of the
Investment Company Act of 1940; or
(f) a small business investment company licensed by the U.S. Small Business
Administration under Section 301 (c) or (d) of the Small Business Investment Act
of 1958; or
(g) a private business development company as defined in Section 202(a)
(22) of the Investment Advisors Act of 1940.
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Debentures will be solely for
the CORPORATION'S own account and not for the account of any other person or
entity; and
(b) that the CORPORATION'S name, address of principal place of business,
place of incorporation and taxpayer identification number as set forth in this
Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:
Principal Place of Business: ________________________________________
- - - ----------------------------------------------------------------
Address for Correspondence (if different): ___________________________
(Number and Street)
- - - ----------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number:________________________________________________
(Area Code) (Number)
Jurisdiction of Incorporation:__________________________________
Date of Formation:_________________________________________________
Taxpayer Identification Number:______________________________________
Number of Shareholders:____________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name:___________________________________________________________
Position or Title:__________________________________________________
<PAGE>
U.S. BRIDGE CORP.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the agreement
by the Purchaser to be bound by the Questionnaire and the Subscription
Agreement.
1. The undersigned hereby represents that (a) the information contained in
the Questionnaire is complete and accurate and (b) the Purchaser will notify
U.S. BRIDGE CORP. immediately if any material change in any of the information
occurs prior to the acceptance of the undersigned Purchaser's subscription and
will promptly send U.S. BRIDGE CORP. written confirmation of such change.
2. The undersigned officer of the Purchaser hereby certifies that he has
read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and warrants
that he has been duly authorized by all requisite action on the part of the
Corporation to acquire the Debentures and sign this Subscription Agreement on
behalf of _______________ and, further, that ____________________ has all
requisite authority to purchase the Debentures and enter into this Subscription
Agreement.
- - - -------------------------- --------------------------
Amount of Debentures subscribed for Date
_____________________
(Purchaser)
By: _______________________
(Signature)
Name: ____________________
(Please Type or Print)
Title: _____________________
(Please Type or Print)
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT.
<PAGE>
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ____ day of _______, 1998
U.S. BRIDGE CORP.
BY____________________________________
, its CEO duly authorized
<PAGE>
EXHIBIT D
NOTICE OF CONVERSION
(To be Executed by the Registered owner in order to Convert
the Debentures)
The undersigned hereby irrevocably elects, as of ______________, 199_ to
convert $__________ of Convertible Debentures into Common Stock of U.S. BRIDGE
CORP. (the "Company") according to the conditions set forth in the Subscription
Agreement dated ________, 1998.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
- - - ------------------------------------------------------------
Phone______________________ Fax___________________________
<PAGE>
EXHIBIT E
SCHEDULE OF PENDING LITIGATION
There are no pending litigation matters other than as stated in the
Company's most recent quarterly report.
Exhibit 10.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of _____________, 199_, ("this
Agreement"), is made by and between U.S. Bridge Corp. a Delaware corporation
(the "Company"), and the person named on the signature page hereto (the
"Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Subscription
Agreement, dated as of ________, 199_, between the Investor and the Company (the
"Subscription Agreement"), the Company has agreed to issue and sell to the
Investor 8% Convertible Debentures of the Company (the "Debentures"), which will
be convertible into shares of the common stock, $.01 par value (the "Common
Stock"), of the Company (the "Conversion Shares") upon the terms and subject to
the conditions of such Debentures; and
WHEREAS, to induce the Investor to execute and deliver the Subscription
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "Securities
Act"), and applicable state securities laws with respect to the Conversion
Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investor
hereby agrees as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Closing Date" means the date funds are received by the Company
pursuant to the Subscription Agreement.
(ii) "Investor" means the Investor and any transferee or assignee who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 hereof.
(iii) "Register." "Registered." and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each Investor
(as defined above) and (ii) each person who is a permitted transferee or
assignee of the Registrable Securities pursuant to Section 9 of this Agreement.
(c) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. Registration.
<PAGE>
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than fifteen (15) days after the Closing Date, a Registration
Statement on Form S-3, or any other applicable registration statement, covering
a sufficient number of shares of Common Stock for the Investors but in no event
less than 1,000,000 shares of Common Stock into which the $500,000 of Debentures
in the total offering would be convertible. Such Registration Statement shall
state that, in accordance with the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
to prevent dilution resulting from Stock splits, or stock dividends). If at any
time the number of shares of Common Stock into which the Debenture may be
converted exceeds the aggregate number of shares of Common Stock then
registered, the Company shall, within ten (10) business days after receipt of
written notice from any Investor, either (i) amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to register
all shares of Common Stock into which the Debenture may be converted, or (ii) if
such Registration Statement has been declared effective by the SEC at that time,
file with the SEC an additional Registration Statement on Form S-3, or any other
applicable registration statement, to register the shares of Common Stock into
which the Debenture may be converted tha exceed the aggregate number of shares
of Common Stock already registered.
(b) Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors acting by majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
to represent their interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions and other fees
and expenses of such investment banker or bankers and manager or managers so
selected in accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or state
securities laws, which are payable by the Company pursuant to Section 5 hereof)
with respect to their Registrable Securities and the fees and expenses of such
legal counsel so selected by the Investors.
(c) Payment by the Company. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective within 90 days from the Closing Date, then
as liquidated damages the discount set forth in the Subscription Agreement and
Debenture will increase by 2.5% per 30 day period or portion thereof pro rata
until the Registration Statement is 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. The Company acknowledges that its
failure to have the Registration Statement declared effective within 90 days
from the Closing Date will cause the Investor to suffer damages in an amount
that will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement 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
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 register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
3. Obligation of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within thirty (30) days of the
Closing Date, a Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a), above, and thereafter use
its best efforts to cause each Registration Statement relating to Registrable
Securities to become effective the earlier of (i) five business days after
notice from the Securities and Exchange Commission that the Registration
Statement may be declared effective, or (b) ninety (90) days after the Closing
<PAGE>
Date, and keep the Registration Statement effective at all times until the
earliest (the "Registration Period") of (i) the date that is two years after the
Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration effective at all times during the Registration Period, and,
during the Registration Period, comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement;
(c) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use its best efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions:
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and uses its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
<PAGE>
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of any notice of effectiveness or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securitie covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the NASDAQ Small Cap
Market; or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NAS authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later than
the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registration in such names as the Investors may request; and, within
five (5) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration /statement) an appropriate
instruction and opinion of such counsel, if so required by the Company's
transfer agent; and
(j) Take all other reasonable actions necessary to expedite and facilitate
distribution to the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations;
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities an shall timely execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
<PAGE>
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to Section 3, but including,
without limitations, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company and a fee for a single counsel for the Investor not exceeding $3,500,
shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations of the
Registration Statement or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereof or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securitie law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being collectively referred to as "Violations"). The Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (i) apply to any Claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
<PAGE>
of any Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company pursuant to
Section 3(b) hereof; (ii) with respect to any preliminary prospectus, inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(b) hereof; (iii) be
available to the extent such Claim is based on a failure of the Investor to
deliver or cause to be delivered the prospectus made available by the Company;
or (iv) apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Each Investor will indemnify the Company, its
officers, directors and agents (including Counsel) against any claims arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person or Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. In such event, the Company shall pay for only one separate legal
counsel for the Investors; such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty or
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
<PAGE>
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities (or all or any portion of
any Debenture of the Company which is convertible into such securities) only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under th Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. Nothing contained herein shall be deemed to establish or require the
payment of interest to the Investor 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 hereunder 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 Investor to the
Company.
<PAGE>
12. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company received conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
by courier, by telephone line facsimile transmission, receipt confirmed, or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company, at 53-09 97th
Place, Corona, NY 11368 (ii) if to the Investor, at the address set forth under
its name in the Subscription Agreement, with a copy to its designated attorney
and (iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 12(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) business days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by the interpreted in accordance with
the laws of the State of Delaware without reference to its conflicts of laws
rules or principles. Each of the parties consents to the jurisdiction of the
state and federal courts of the State of Delaware in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non coveniens, to
the bringing of any such proceeding in such jurisdictions. A facsimile
transmission of this signed Agreement shall be legal and binding on all parties
hereto. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not effect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
U.S.BRIDGE CORP. __________________
By: ____________________________________ (Name of Investor)
Name: By: ______________
Title: Name and Title:
Exhibit 21.1
List of Subsidiaries
1. USA Bridge Construction of N.Y., Inc.
State of Incorporation: New York
Name(s) under which does business: None
2. Worldwide Construction Limited
Country of Incorporation: British Virgin Islands
Name(s) under which does business: None
3. USA Bridge Construction Corp. (Maryland)
State of Incorporation: Delaware
Ceased operations in November 1996
4. One Carnegie Court Associates, Inc.
State of Incorporation: Maryland
Ceased operations in August 1997
Exhibit 23.1
Consent of Scarano & Tomaro, P.C.
April 21, 1998
USABG 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 Amendment No. 1 to Form SB-2 Registration Statement being
filed for USABG Corp.
Very truly yours,
/s/ Scarano & Tomaro, P.C.
Scarano & Tomaro, P.C.
Syosset, New York
