<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
THERMACELL TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 2850 59-3223708
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
5419 PROVOST DRIVE
NEW PORT RICHEY, FLORIDA 34690-2939
(813) 938-3269
(Address, including zip code, and telephone number, including area code, of
small business issuer's principal executive offices)
JOHN PIDORENKO
5419 PROVOST DRIVE
NEW PORT RICHEY, FLORIDA 34690-2939
(813) 938-3269
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Michael T. Cronin, Esquire Gregory Sichenzia, Esq.
Johnson, Blakely, Pope, Bokor, Ruppel Singer Zamanzky LLP
& Burns, P.A. 40 Exchange Plaza
911 Chestnut Street New York, New York
P.O. Box 1368 (212) 809-8550
Clearwater, Florida 34617
(813) 461-1818
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE 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 statement number of the earlier
effective registration statement for the same offering. [ ] --
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] --
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units (2)........................... 100 $4.00 $4.00 $100
Common Stock, $.01 par value........ 100 $4.25 $4.25 --
Total........................................................................................... $100
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes an aggregate of 100 shares of Common Stock and 100 Series A
Redeemable Common Stock Purchase Warrants ("Series A Warrants") to be
offered to the public in 100 Units. Each Unit consists of one share of
Common Stock and Series A Warrant and will be sold to the public for $4.00
per Unit. No value has been assigned to the Series A Warrants.
Also registered hereunder pursuant to Rule 416 are an indeterminate number
of shares of Common Stock which may be issued pursuant to the anti-dilution
provisions applicable to the Series A Warrants, the Underwriter's Warrants and
the Series A Warrants issuable under the Underwriter's Warrants.
--------------------------
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.
FILED PURSUANT TO RULE 429 AND RELATING BACK TO SEC REGISTRATION NO. 333-4864-A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THERMACELL TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-B
This cross-reference sheet is provided pursuant to Regulation S-B, showing
the location in the Prospectus of information required by Part I of Form SB-2.
<TABLE>
<CAPTION>
FORM SB-2 ITEM NO. AND HEADING CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................. Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Cover Page, Risk Factors, Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Selling Security Holder
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Selling
Security Holders; Underwriting;
9. Legal Proceedings.................................... Legal Matters
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Business; Management
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Security Ownership of Certain Beneficial Owners and
Management
12. Description of Securities to be Registered........... Front Cover Page of Prospectus; Prospectus Summary;
Capitalization; Selling Security Holders;
Description of Securities
13. Interests of Named Experts and Counsel............... Legal Matters; Experts
14. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Dividend Policy;
Selected Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Security Ownership of Certain
Beneficial Owners and Management; Certain
Transactions; Financial Statements
15. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Management
16. Organization Within Last Five Years.................. Prospectus Summary; Business
17. Description of Business.............................. Risk Factors; Business
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
FORM SB-2 ITEM NO. AND HEADING CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
18. Management's Discussion and Analysis of Financial
Conditions and Results of Operations................ Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business
<C> <S> <C>
19. Description of Property.............................. Business
20. Certain Relationships and Related Transactions....... Certain Transactions
21. Market for Common Equity and Related Stockholder
Matters............................................. Prospectus Summary; Risk Factors; Description of
Securities
22. Executive Compensation............................... Management
23. Financial Statements................................. Financial Statements
24. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................. Not applicable
</TABLE>
(iii)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THAT REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 18, 1997
PROSPECTUS
[LOGO]
1,250,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
---------------------
THERMACELL TECHNOLOGIES, INC. (the "Company") is hereby offering to the
public 1,250,000 Units, each Unit consisting of one (1) share of Common Stock,
$.0001 par value ("Common Stock") and one (1) Series A Redeemable Common Stock
Purchase Warrant ("Warrants"). The Common Stock and the Warrants will be
separately transferable 90 days after the closing of this offering or such
earlier date as Monroe Parker Securities, Inc. (the "Underwriter") may
determine. Each Warrant shall entitle the holder thereof to purchase one (1)
share of Common Stock during the period commencing twelve (12) months from the
date of this Prospectus and expiring at the close of business on the last day of
the four (4) year period following the date of this Prospectus. The exercise
price of the Warrants shall be $4.25 per share. The Company may call the
Warrants for a redemption price of $.10 per Warrant commencing eighteen (18)
months after the date of this Prospectus (or earlier at the sole discretion of
the Underwriter) if notice of not less than thirty (30) days is given and the
closing sale price of the Common Stock has been at least 250% of the then
exercise price of the Warrants on all twenty (20) of the trading days ending on
the third day prior to the day on which notice is given. See "Description of
Securities."
This Prospectus also relates to the sale of up to 416,067 shares of Common
Stock of the Company by John Pidorenko, who is the Chief Executive Officer of
the Company (the "Selling Security Holder"). The Selling Security Holder has
entered into an agreement with Monroe Parker Securities (the "Underwriter") to
lock up his shares for at least a two year period from the date of this
Prospectus, which shares may be sold earlier with the consent of the
Underwriter. The Company will not receive any of the proceeds from the sale of
the shares by the Selling Security Holder. The Selling Security Holder may offer
his shares in ordinary brokerage transactions in the over-the-counter market,
negotiated transactions or otherwise, at market prices prevailing at the time of
the sale or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Security Holder in
connection with the sale of his shares. The sale of such shares may have a
depressive effect on the market price of the Common Stock being offered pursuant
to this Prospectus. See "Risk Factors," "Selling Security Holder," "Certain
Transactions," "Shares Eligible for Future Sale," "Description of Securities,"
and "Underwriting."
Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. The initial public offering prices of the Units and
Common Stock and the exercise price of the Warrants have been determined by
agreement between the Company and the Underwriter. For the factors considered in
determining these prices, see "Underwriting." The Company has applied for
quotation of the Units, Common Stock and Warrants on the NASDAQ SmallCap market
system under its symbols VCLL-U, VCLL and VCLL-W, respectively. There can be no
assurance that a market will develop for the Company's securities in the future
or that if developed, such market will be sustained.
--------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND AN IMMEDIATE SUBSTANTIAL
DILUTION. THE COMPANY HAS A LIMITED OPERATING EXPERIENCE, LOSSES FROM OPERATIONS
AND UNPROVEN COMMERCIAL VIABILITY OF ITS PRODUCTS AND TECHNOLOGY. SEE PAGES 6
THROUGH 12 FOR A DETAILED DESCRIPTION OF SUCH RISKS. THE SECURITIES OFFERED
HEREBY SHOULD NOT BE PURCHASED BY ANY INVESTOR WHO CANNOT AFFORD THE LOSS OF HIS
ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
DISCOUNT AND
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Unit........................................ $4.00 $.40 $3.60
Total (3)....................................... $5,000,000 $500,000 $4,500,000
</TABLE>
(FOOTNOTES CONTINUED ON PAGE 2)
The shares offered by this Prospectus (other than the shares offered by the
Selling Security Holder) are being offered by the Underwriter on a "firm
commitment" basis subject to prior sale, when, as and if accepted by the
Underwriter, subject to approval of certain legal matters by counsel for the
Underwriter and certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject any order in whole or in
part in accordance of the Underwriting Agreement and applicable state law. It is
expected that delivery of the certificates representing the shares will be made
in the offices of the Underwriter, 2500 Westchester Avenue, Purchase, New York
10577, on or about March , 1997.
MONROE PARKER SECURITIES, INC.
(800) 743-2555
The date of this Prospectus is , 1997.
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(1) Does not include additional compensation to be received by the Underwriter,
including (i) a non-accountable expense payable to the Underwriter equal to
3% of the gross proceeds of this offering; (ii) warrants entitling the
Underwriter to purchase from the Company 125,000 Units (the "Underwriter
Warrants") at 165% of the public offering price for a period of 4 years
commencing 1 year after the date hereof; (iii) a fee of $50,000 payable to
the Underwriter pursuant to 2 year financial consulting agreement; (iv) a 5
year finders fee agreement based upon the transaction value of any
transaction consummated by the Company, which was originated by the
Underwriter; (v) the right of the Underwriter for 5 years to designate one
person to serve on the board of directors. The Company has also agreed to
indemnify the Underwriter against certain liabilities incurred under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of this offering estimated at $550,000 including
the Underwriter's non-accountable expense allowance and financial consulting
fee, payable by the Company.
(3) The Company has granted to the Underwriter an option (the "Over-Allotment
Option"), exercisable within 45 days after the date of this Prospectus, to
purchase from it up to an additional 187,500 Units at the public offering
price of $4.00, less underwriting discounts and commissions, to cover Over-
Allotment Options, if any. If the Over-Allotment Options is exercised in
full, the total price to the public, underwriting discounts and commissions
and proceeds to the Company will be $5,750,000, $575,000 and $4,575,000,
respectively. See "Underwriting."
------------------------
SELLING SECURITY HOLDER MATTERS
The Selling Security Holder may be deemed to be an "underwriter" as defined
in the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are
used by the Selling Security Holder, any commissions paid to broker-dealers and,
if broker-dealers purchase any shares as principal, any profits received by such
broker-dealers on the resales of the shares may be deemed to be underwriting
discounts and commissions under the Securities Act. In addition, any profits
realized by the Selling Security Holder may be deemed to be underwriting
commissions. The Company has agreed to indemnify the Selling Security Holder
against certain liabilities, including liabilities under the Securities Act.
AFTER THE CLOSING OF THIS OFFERING THE UNDERWRITER MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OF THE COMPANY AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. ALL SHARES AND PER SHARE AMOUNTS GIVE EFFECT TO A ONE FOR TEN
REVERSE STOCK SPLIT EFFECTIVE AUGUST 12, 1996. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS MEAN THERMACELL
TECHNOLOGIES, INC.
THE COMPANY
The Company was incorporated in Florida in August, 1993, for the purpose of
developing, manufacturing and marketing insulating materials and coatings using
partially evacuated glass microspheres (sometimes referred to as "shells"). The
process of evacuation removes air from the sphere, thereby creating a vacuum. A
shell is a very small glass sphere (generally the size of a grain of salt) made
by crushing glass particles. The insertion of shells into various materials and
products ("shell technology") can substantially improve the thermal resistive
characteristics of such materials and products resulting in improved insulation
("R") values. The more a shell is evacuated, the higher the thermal resistive
characteristics of the product or material to which the shells are added.
Management of the Company believes that there is a broad range of
applications for introduction into products of evacuated or partially evacuated
shells, the effect of which is improved energy efficiency of such products
because of the inherent insulating characteristics provided by the glass
spheres. The Company's strategy is to commercially exploit the use of shell
technology to improve the "R" values of a number of products. In fiscal year
1995, the Company completed the development of its first product line which
consists of paints and coatings containing shells in order to reduce heat
transmission and improve insulation values of the products. The products are
marketed under the ThermaCool-TM- label.
On November 30, 1995, the Company acquired the assets of C.F. Darling Paint
& Chemicals, Inc., a paint manufacturing company, located in New Port Richey,
Florida ("Darling Paint") for $251,016 in cash. The Company acquired these
assets so that it would have a facility to produce and develop paints and
coatings for its ThermaCool-TM- product line which incorporates its shell
technology. Prior to this acquisition, the Company was required to purchase
paints and coatings from independent paint and coating manufacturers.
The Company's business strategy is to (i) expand the marketing and
distribution of ThermaCool-TM- paints and coatings, (ii) develop and manufacture
the Company's own shells and (iii) expand the shell technology to other
products, such as drywall, gypsum board, home siding materials and space foam
insulation. Other markets may include refrigeration and cooling systems,
automotive and transportation applications and cups and thermoses. There is no
assurance that the Company will be successful in penetrating any markets for the
ThermaCool-TM- product lines, developing commercially viable manufacturing
techniques or addressing other markets.
The Company's principal executive offices are located at 5419 Provost Drive,
New Port Richey, Florida 34690-2939, and its telephone number is (813) 938-3269.
The Company's fiscal year ends on November 30.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered (1)............ Up to 1,250,000 Units. Each Unit consists of one share
of Common Stock and one Warrant to purchase one share of
Common Stock at $4.25 per share.
Common Stock Presently Outstanding
(2)............................... 1,822,210 shares
Common Stock to be Outstanding
After Completion of Offering
(1)............................... 3,072,210 shares.
Warrants to be Outstanding........ 1,250,000. Each Warrant shall entitle the holder thereof
to purchase one (1) share of Common Stock during the
period commencing twelve (12) months from the date of
this Prospectus and expiring at the close of business on
the last day of the
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
four (4) year period following the date of this
Prospectus. The exercise price of the Warrants shall be
$4.25 per share. The Company may call the Warrants for a
redemption price of $.10 per Warrant commencing eighteen
(18) months after the date of this Prospectus (or
earlier at the sole discretion of the Underwriter) if
notice of not less than thirty (30) days is given and
the closing sale price of the Common Stock has been at
least 250% of the then exercise price of the Warrants on
all twenty (20) of the trading days ending on the third
day prior to the day on which notice is given. See
"Description of Securities -- Warrants."
Estimated Net Proceeds............ $3,950,000
Use of Proceeds................... The estimated net proceeds of this offering will be
principally utilized by the Company for (i) advertising
and marketing, (ii) acquisition of property, plant and
equipment, (iii) repayment of loans, (iv) new product
applications and development, (v) automating and
updating the Darling Paint equipment and facilities and
(vi) working capital. See "Use of Proceeds."
Risk Factors...................... The securities offered hereby involve a high degree of
risk and immediate substantial dilution from the public
offering price. See "Risk Factors."
Shares Available for Resale....... The Company is also registering up to 416,067 shares of
Common Stock. See "Selling Security Holders."
Proposed NASDAQ SmallCap
Market Symbols (3)................ Common Stock "VCLL", Units "VCLL-U", Warrants "VCLL-W".
</TABLE>
- ------------------------
(1) Prior to this offering, the Company in a "best efforts" underwriting,
offered a minimum of 833,333 Units in a maximum of 1,833,333 Units at $6.00
per Unit under a registration statement on Form SB-2 declared effective by
the Commission on August 20, 1996. This offering did not close. All funds
received and placed in escrow as a result of that offering have been
returned to the investors and the escrow account has been closed.
(2) Excludes (i) the Warrants, (ii) the Over-Allotment Option and Underwriter's
Warrants, (iii) 350,000 shares reserved for issuance under the Company's
1996 Stock Option Plan, (iv) 500,000 shares reserved upon exercise of
options granted to Mr. Pidorenko in connection with his employment agreement
exercisable at $4.00 for five years. Includes the 416,067 shares of Common
Stock registered on behalf of the Selling Security Holder. Also includes
901,230 shares of Common Stock issued to retire $1,498,500 of certain
convertible note obligations plus accrued interest thereon. See "Certain
Transactions."
(3) There can be no assurance that the Company's application for NASDAQ SmallCap
Market listing will be approved. Inclusion in the NASDAQ SmallCap Market
does not imply that a meaningful, sustained market for the Units, Common
Stock and Warrants will develop. Moreover, continued inclusion in NASDAQ
SmallCap Market is subject to certain maintenance criteria. The failure to
meet these maintenance criteria in the future may result in a
discontinuation of the inclusion of the Company's Units, Common Stock, and
Warrants on the NASDAQ SmallCap Market, which would have an adverse effect
on the market for these securities. See "Risk Factors -- "No Assurance of
NASDAQ SmallCap Listing" and "Broker-Dealer Sales of Company's Securities."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------
1996 1995
------------- -----------
<S> <C> <C>
INCOME STATEMENT DATA (1)
Total revenue....................................................................... $ 615,845 $ 43,691
Net loss............................................................................ $ (1,033,553) $ (314,857)
Net loss per share.................................................................. $ (1.34) $ (0.53)
Shares used in per share computation................................................ 771,154 626,191
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
-------------------------- AS ADJUSTED
1996 1995 (3)(4)
------------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total assets.......................................................... $ 1,537,273 $ 734,733 $ 5,087,273
Working capital (2)................................................... $ (2,444,417) $ (874,313) $ 3,223,739
Long-term debt........................................................ $ $ -- $ --
Stockholders' equity.................................................. $ (1,363,939) $ (330,395) $ 4,304,217
Net tangible book value............................................... $ (1,475,950) $ (448,719) $ 4,192,206
Net tangible book per share........................................... $ (1.70) $ (0.67) $ 1.36
</TABLE>
- ------------------------
(1) Excludes operating activity of Darling Paint, which the Company acquired
November 30, 1995. Had the operations of the paint company been included in
the Company's financial statements for the years ended November 30, 1995, a
summary pro forma effect on the Company's operating results would have been
as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1995
----------------------------
<S> <C>
Total revenue......................................... $ 458,041
Net loss.............................................. $ (268,989)
Net loss per share.................................... $ (.43)
Shares used in per share computation.................. 626,191
</TABLE>
(2) Includes convertible debt of $740,203 and $1,898,500 at November 30, 1995
and November 30, 1996, respectively. Assumes that $1,498,500 such
convertible debt plus accrued interest thereon has been converted into
Common Stock.
(3) Adjusted to reflect the sale of the 1,250,000 Units after deduction of the
underwriting discounts and commissions payable by the Company, and estimated
offering expenses.
(4) Excludes the (i) Over-Allotment Option (ii) Underwriter's Warrants (iii)
350,000 shares reserved for issuance under the Company's 1996 Stock Option
Plan, (iv) 500,000 shares reserved upon exercise of options granted to Mr.
Pidorenko in connection with his employment agreement exercisable at $4.00
for five years. Also includes the effect of issuing 901,230 shares of Common
Stock to retire $1,498,500 of certain convertible note obligations, plus
accrued interest thereon. See "Certain Transactions."
5
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative in nature and involve a
high degree of risk, including the principal risk factors described below.
Prospective investors should carefully consider the various risks and
speculative factors inherent in and affecting the business of the Company and
this offering prior to making an investment in the Company. Purchase of the
Company's securities should not be made by investors who do not have sufficient
financial means to sustain the loss of their entire investment.
Prospective investors should carefully consider the following risk factors:
1. LIMITED OPERATING EXPERIENCE. The Company operates as a development
stage company principally engaged in product and market research, product
development activities, initial product manufacturing and marketing, obtaining
capital to fund operations, recruitment of management and formation of a
business plan, and therefore has a limited operating history. Accordingly, the
Company remains subject to the risks inherent in the creation and operation of a
new business, including unpredictable expenses, uncertainty of market acceptance
of products utilizing shells and lack of capital resources. There is no
assurance that the Company will become profitable. See "Business."
2. LOSSES FROM OPERATIONS; ACCUMULATED DEFICIT; NEGATIVE NET WORTH;
NEGATIVE WORKING CAPITAL AND GOING CONCERN OPINION. The Company has sustained
significant operating losses since its inception resulting in an accumulated
deficit of approximately $1,548,840 at November 30, 1996. As of November 30,
1996, the Company has a negative net tangible net worth of $(1,475,950) and
negative working capital of $(2,444,417). The Company's independent auditors in
their report regarding the Company's financial statement as of November 30,
1996, indicate that since the Company has a history of reccurring losses from
operations and insufficient cash resources to fund a plan of operations,
substantial doubt exists as to the Company's ability to continue as a going
concern. Management's strategy of expanding the ThermaCool-TM- product line,
developing a commercially viable manufacturing process for shells and expansion
into new markets for its shell technology will result in the Company incurring
substantial additional losses due to the costs associated with these strategies.
The Company is not currently generating sufficient revenues from its operations
to repay existing indebtedness or fund product development activities. The
Company expects to use a portion of the net proceeds of this offering for
repayment of certain of its existing indebtedness and for general working
capital purposes. The Company will continue to incur significant losses until
the Company is able to increase its sales, expand its product line and increase
its distribution capabilities sufficiently to offset ongoing operating and
expansion costs. There can be no assurance that the Company will ever generate
sufficient revenues to allow the Company to achieve profitable operations. See
"Use of Proceeds," "Selected Financial Data," and "Business."
3. NO ASSURANCE OF SUCCESSFUL BUSINESS STRATEGY; LIMITED PRODUCTS. There
is no assurance that the Company's business strategy will be successful. A
substantial portion of the proceeds of this offering will be used to develop and
manufacture shells. If management's estimates prove to be incorrect or if
unforeseen technological or production difficulties are encountered, the
Company's ability to develop and operate it's planned shell manufacturing
facilities will be adversely affected. To date, evacuated or substantially
evacuated glass shells have not been manufactured on a commercially viable
basis. There is no assurance that the manufacturing facilities and techniques
used by the Company will be commercially viable or profitable. See "Business --
Manufacturing Facilities and Techniques." Although the Company sells paints
under its "Scientific Coatings" product line, these paints do not utilize shell
technology. The application of shell technology under the ThermaCool-TM- label
is currently limited to roof coatings and exterior wall coatings where the
energy efficiency characteristics are most beneficial. There is no assurance
that the Company will be able to expand its ThermaCool-TM- product line beyond
coating. There is no assurance that the commercial exploitation of shell
technology beyond coatings will be successful. See "Business -- Business
Strategy."
6
<PAGE>
4. DEPENDENCE ON NEW PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE. The
Company's continued existence is dependent on increased consumer awareness and
acceptance of the Company's existing and new products which promote energy
efficiency through the use of partially evacuated shells. No assurances can be
given that the Company will be able to successfully develop new products, that
any new products developed will meet with consumer acceptance in the
marketplace, or that the Company's current products will be accepted by
consumers. The acceptance and demand for the Company's products are based upon
the need for, and technological acceptance, of the Company's shell technology
which requires higher upfront costs for a customer. No assurance can be given
that the Company's existing or future products can be sold at acceptable gross
profit levels or that the Company will be able to develop, manufacture and
distribute new products at such levels. See "Business."
5. POSSIBLE NEED FOR ADDITIONAL FINANCING; REPAYMENT OF DEBT. The Company
may require additional financing in the future to support its operations and any
expansion plans may result in additional dilution to the investors in this
offering. There can be no assurance that the Company's operations will supply
the revenues necessary for such purpose. There can be no assurances given that
such financing will be available in the amounts required or, if available, that
such financing may be obtained on terms satisfactory to the Company. A
substantial portion of the proceeds of this offering will be used to repay
existing debt, further reducing the Company's working capital. See "Financial
Statements."
6. LOSS OF KEY PERSONNEL. Although the Company has an employment agreement
with Mr. Pidorenko which expires on December 30, 2001, the loss of the services
of Mr. Pidorenko, the Company's Chief Executive Officer, could have a material
adverse effect on the Company. The Company does not maintain any key man life
insurance on the life of Mr. Pidorenko. In addition, there is no assurance the
Company will be able to attract other competent and qualified employees on terms
deemed acceptable to the Company to implement its expansion plans. See
"Management."
7. NO ASSURANCE OF PATENT PROTECTION. The Company intends to devote a
substantial portion of the proceeds of this offering to secure the facility and
equipment necessary to manufacture partially evacuated glass spheres. While
management believes that the processes as described in its patent applications
to manufacture evacuated shells are based upon sound scientific principles,
there is no assurance that the Company will be successful in manufacturing
commercially viable partially evacuated shells on a large scale basis. The
Company has filed a patent application with the United States Patent and
Trademark Office, which covers certain processes that the Company proposes to
utilize relating to the production of evacuated microspheres which improve
energy efficiency and the application of shells in paints and coatings. There is
no assurance that the Company's patent applications will be granted or that the
Company will be able to commercially exploit such patent rights. If assertions
were made that the Company's products or technology infringe the intellectual
property rights of others, the Company could be prohibited from using such
technology or marketing such products and could also incur substantial costs to
redesign its products or defend any legal action that may be taken against the
Company. In addition, there can be no assurance that any patents which may be
issued to the Company will not be challenged, invalidated or circumvented or
that any rights granted thereunder will provide proprietary protection to the
Company. See "Business -- Patents."
8. PRODUCT LIABILITY CLAIMS. The Company could be subject to product
liability claims in connection with the use of the products that it sells. There
can be no assurance that the Company would have sufficient resources to satisfy
any liability resulting from the product claims or would be able to have its
customers indemnify or insure the Company against such claims. Although the
Company currently carries product liability insurance there can be no assurance
that such coverage will be adequate in terms and scope to protect the Company
against material adverse effect in the event of a successful product liability
claim.
9. ENVIRONMENTAL CONCERNS. The process of formulating paints and coatings
involves the mixing of resins and other substances, which if spilled, could
potentially contaminate the soil or ground water at or
7
<PAGE>
surrounding the Company's facilities. The Company believes that it is
substantial compliance with all applicable laws and regulations. However,
changes to current laws or regulations or an unforeseen spill or accident at the
Company's facilities could have a material adverse effect on the Company.
10. COMPETITION. The paint and coatings business is extremely competitive.
There is no assurance that the Company will be able to compete profitably in the
paint and insulative coatings industry or other industries in which the
Company's shell technology may be applicable in the future. The Company does not
anticipate that there are significant barriers of entry which would prevent
competitors from introducing comparable products and technologies. The Company
has identified at least three suppliers of partially evacuated shells. All of
these suppliers provide shells to the Company and are substantially larger and
better capitalized that the Company. There is no assurance that these suppliers
will not market comparable products and technologies to those of the Company.
The Company expects that if its products become successful, competitors may be
more likely to develop and introduce into the marketplace comparable products
and technologies. Such increased competition may result in reduced sales,
reduced margins, or both. The Company is and will be competing with larger,
better capitalized companies which are better positioned to respond to shifts in
consumer demand and other market-based changes. If other companies successfully
introduce competing products before the Company achieves significant market
entrenchment, the Company could experience sales below its expectations, or the
Company could be forced to reduce its sales price, or both, which could have a
material adverse effect on the Company's operating results. See "Business --
Competition."
11. CHANGES IN APPLICATION OF PROCEEDS AND ACQUISITIONS. Under certain
circumstances, the Company may find it necessary or advisable to reallocate some
of the proceeds among the currently intended uses of such proceeds. Accordingly,
the Company and its management will have discretion as to the application of
such proceeds. In addition, a portion of the proceeds may be used to consummate
an acquisition of other businessess or products. In seeking such a business
venture, management will focus upon businesses that are complimentary to the
Company's shell technology or which would be a viable application for commercial
utilization of the Company's shell technology. The company will not acquire or
merge with a business or corporation in which the company's officers, directors
or promoters or their affiliates or associates, have any direct or indirect
ownership interest. It is anticipated that any such acquisitions would involve
companies located in the sunbelt region of the United States. There are no
pending agreements or understandings for any acquisitions. See "Use of Proceeds"
and "Business -- Business Strategy."
12. FUTURE ACQUISITIONS. The Company may expand its business, in part,
through the acquisition of compatible products or businesses. In attempting to
locate and consummate such acquisitions, the Company may be competing with other
prospective purchasers of the acquisition candidate, many of which may have
greater resources than the Company. There can be no assurance that suitable
acquisition candidates can be identified and acquired on terms favorable to the
Company, or that the acquired product lines or operations can be profitably
operated or integrated into the Company's operations. In addition, any
internally generated growth experienced by the Company could place significant
demands on the Company's management, thereby restricting or limiting its
available time and opportunity to identify and evaluate potential acquisition,
candidates. The ability of the Company to consummate acquisitions will depend on
it's ability, to obtain sufficient financing on acceptable terms, of which there
can be no assurance. To the extent management is successful in identifying
suitable companies or products lines for acquisition, the Company may deem it
necessary or advisable to finance such acquisitions through the issuance of
Common Stock, securities convertible into Common Stock, or debt financing, or a
combination thereof. In such cases, the issuance of Common Stock or convertible
securities could result in further dilution to the purchasers at the time of
such issuance or conversion. The issuance of debt to finance acquisitions may
result, among other things, in the encumbrance of certain of the Company's
assets, may impede the Company's ability to obtain bank financing, decrease the
Company's liquidity, decrease the
8
<PAGE>
Company's liquidity and adversely affect the Company's ability to declare and
pay dividends to its stockholders. See "Use of Proceeds" and "Business --
Business Strategy."
13. UNSUCCESSFUL PRIOR PUBLIC OFFERING. Prior to this offering, the
Company, in a "best efforts" underwriting, offered a minimum of 833,333 Units in
a maximum of a 1,833,333 Units at $6.00 per Unit under a registration statement
on Form SB-2 declared effective by the Commission on August 28, 1996. All funds
received and placed in escrow as a result of that offering have been returned to
the investors and the escrow account has been closed. The failure to close this
prior public offering has adversely affected the Company. The Company has closed
its Sarasota, Florida retail sales office, vacated its executive offices,
curtailed marketing plans and reduced the number of the Company's employees. The
Company currently conducts its business from the Darling Paint facilities
located in New Port Richey, Florida. Because this prior offering did not close,
the Company was, as of November 30, 1996 in default of $505,000 of its bridge
loans. As a condition to closing this offering, the Company has converted
$1,498,500 of its outstanding convertible notes plus accrued interest thereon,
into 901,230 shares of Common Stock, subject to the lock up restrictions
described elsewhere in this Prospectus. Although management believes that the
implementation of organizational and operational changes necessitated by the
failure to close the public offering along with the proceeds from this offering
will enable the Company continue as a going concern, no assurance can be given
as to the ultimate success of any of these actions.
14. LIMITATION OF DIRECTORS' LIABILITY. The Company's Certificate of
Incorporation contains a provision which, in substance, eliminates the personal
liability of the directors to the Company and its stockholders for monetary
damages for breaches of their fiduciary duties as directors to the fullest
extent permitted by Florida law. By virtue of this provision, under current
Florida law a director of the Company will not be personally liable for monetary
damages for breach of his fiduciary duty, except for liability for: (a) breach
of his duty of loyalty to the Company or to its stockholders; (b) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (c) dividends or stock repurchases or redemptions that are
unlawful under Florida laws; and (d) any transaction from which he receives an
improper personal benefit. This provision pertains only to breaches of duty by
directors and not in any other corporate capacity, such as officers, and limits
liability only for breaches of fiduciary duties under Florida corporate law and
not for violations of other laws such as the federal securities laws. As a
result of the inclusion of such provision, stockholders may be unable to recover
monetary damages against directors for actions taken by them that constitute
negligence or gross negligence or that are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. The inclusion of this provision in the
Company's Certificate of Incorporation may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders. It is the position of
the Securities and Exchange Commission that, insofar as the foregoing provisions
may be invoked to disclaim liability for damages arising under the Securities
Act, such provisions are against public policy as expressed in the Securities
Act and are therefore unenforceable.
15. NO DIVIDENDS AND NONE ANTICIPATED. The payment by the Company of
dividends, if any, in the future rests within the discretion of its Board of
Directors and will depend, among other things, upon the Company's earnings, its
capital requirements and its financial condition, as well as other relevant
factors. The Company has not paid or declared any dividends upon its Common
Stock since its inception and by reason of its present financial status and its
contemplated future financial requirements does not contemplate or anticipate
paying any dividends upon its Common Stock in the foreseeable future. See
"Dividend Policy."
16. LIMITED SOURCES OF SUPPLIERS; INTERRUPTION OF RAW
MATERIALS. Currently, the Company has identified three sources to supply
partially evacuated shells which it utilizes in its ThermaCool-TM- product line.
To date, the Company has relied exclusively upon one such supplier for acquiring
the partially evacuated shells which are utilized in its ThermaCool-TM- product
line. There is no assurance that this supplier will
9
<PAGE>
continue to provide the Company with partially evacuated shells at favorable
prices, on a timely basis or at all. In addition, the inability of the Company
to obtain other raw materials necessary to produce its ThermaCool-TM- painting
and coating product lines, such as resins, would adversely affect the Company.
See "Business."
17. NO ASSURANCE OF TRADEMARKS. The Company believes that its trademarks
have significant value and are important to the marketing of its products. The
Company has registered and received approval for the mark "ThermaCool"-TM- with
the United States Patent and Trademark Office. The Company intends to file other
applications to register additional marks. There can be no assurance, however,
that the Company's future products will result in registration for additional
marks, that such marks will not violate the proprietary rights of others, or
that the Company's marks would be upheld if challenged. In addition, there can
be no assurance that the Company will have the financial resources necessary to
enforce or defend its trademarks and service marks. Any difficulty experienced
by the Company in utilizing its marks or defending an infringement action could
have a material adverse effect on the Company.
18. CONTROL OF THE COMPANY BY THE COMPANY'S CHIEF EXECUTIVE OFFICER. Upon
completion of this offering, John Pidorenko, the Company's Chief Executive
Officer, will own approximately 16.3% of the outstanding Common Stock (excludes
options to acquire up to 500,000 shares of Common Stock exercisable at $4.00 per
share). In addition, Mr. Pidorenko owns 5,000,000 shares of Series A Voting
Convertible Preferred Stock (the "Voting Preferred Stock"). Each share of Voting
Preferred Stock has one-half vote per share on all matters submitted to the
holders of Common Stock. The Voting Preferred Stock was issued to Mr. Pidorenko
to provide him with control of the Company after completion of this offering.
The issuance of the Voting Preferred Stock to Mr. Pidorenko constitutes an
anti-takeover action. Mr. Pidorenko is provided the opportunity to convert his
Voting Preferred Stock into up to 1,250,000 shares of Common Stock subject to
the Company achieving certain earnings objectives. See "Management" and "Certain
Transactions".
19. CONFLICTS OF INTERESTS; AFFILIATED PARTY TRANSACTIONS. Mr. Pidorenko
has an employment agreement with the Company which provides for a base salary of
$90,000, expense reimbursement and the right to bonus compensation. Mr.
Pidorenko owns 416,067 shares of the Company's Common Stock being registered
under the Securities Act as part of this Prospectus, which he received in
connection with the formation of the Company and the contribution of certain
proprietary rights. Mr. Pidorenko is the holder of options which entitles him to
acquire up to 500,000 shares of the Company's Common Stock exercisable of $4.00
for five years. Mr. Pidorenko is also the holder of the Voting Preferred Stock
which provides him with control over the affairs of the Company and the ability
to convert such Voting Preferred Stock into shares of Common Stock. During
fiscal year 1996, the Company advanced $257,134 to Mr. Pidorenko and received
payment of advances of $226,031. Certain relatives and family members of Mr.
Pidorenko are employed by the Company. Kendall B. Stiles, M.D., is the
brother-in-law of Mr. Pidorenko and is the holder of 71,452 shares. Mr. Hankins
and Mr. Reilly, who are also directors of the Company, own 143,490 and 122,766
shares of Common Stock, respectively. See "Management", and "Certain
Transactions."
20. IMMEDIATE SUBSTANTIAL DILUTION. This offering involves an immediate
and substantial dilution of $2.64 per share from the offering price
(approximately 66% of the offering price). See "Dilution."
21. COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS. The private
placement of $1,898,500 of the Company's securities consisting of certain notes
and common stock during the period September 1995 through April 1996 was not
registered under the Securities Act or the blue sky laws of various states in
reliance upon the provisions of exemptions from registration under applicable
laws. There is no assurance that these private offerings qualify for such
exemptions due to, among other things, the adequacy of disclosure and the manner
of distribution of such offering materials. If and to the extent that suits for
rescission are successfully concluded by such investors for failure to register
the prior private placements of the Company's securities pursuant to state or
federal securities laws or for acts or omissions constituting
10
<PAGE>
certain prohibited practices pursuant to federal and state securities laws, both
the capital and assets of the Company could be adversely affected, thus
jeopardizing the ability of the Company to operate successfully.
22. SHARES ELIGIBLE FOR FUTURE SALE. As of the date of this Prospectus,
the Company had outstanding 1,822,210 shares of its Common Stock. Of this
amount, 416,067 shares of Common Stock are being registered on behalf of the
Selling Security Holder. Holders of shares of Common Stock ( % of
current outstanding shares) have agreed not to sell their shares for a period of
at least two (2) years from the date of this Prospectus, without the
Underwriter's consent. The Underwriter has the right to extend this lock-up
period for one (1) additional year if the Company has not achieved during any 12
consecutive month period a cumulative pre-tax profit or income, calculated in
accordance with GAAP, of at least $3,000,000. Approximately shares of the
Company's common stock will be available for resale pursuant to Rule 144 after
the closing of this offering. The possibility of future sales by existing
stockholders under Rule 144 or otherwise may, in the future, have a depressive
effect on the market price of the Common Stock, and such sales, if substantial,
might also adversely affect the Company's ability to raise additional capital.
See "Description of Securities," and "Underwriting."
23. ANTI-TAKEOVER PROVISIONS. Florida law, the Certificate of
Incorporation and By-Laws of the Company contain various provisions which may
have the effect of discouraging future takeover attempts which the Company's
stockholders may deem to be in their best interests and perpetuating the
Company's existing management. Mr. Pidorenko's ownership of the Voting Preferred
Stock provides him with control over the business and affairs of the Company. In
addition, in certain circumstances, Florida law requires the approval of
two-thirds of all shares eligible to vote for certain business combinations
involving a stockholder owning 15% or more of the Company's voting securities,
excluding the voting power held by such stockholder. In addition to the
potential impact on future takeover attempts and the possible perpetuation of
management, the existence of all of the above provisions could have an adverse
effect on the market price of the securities offered hereby. See "Management"
and "Description of Securities."
25. LACK OF PUBLIC TRADING MARKET; OFFERING PRICE AND POSSIBLE FLUCTUATION
OF STOCK PRICE. Prior to this offering, there has been no public market for the
Units, Common Stock or Warrants of the Company and there can be no assurance
that a regular or active public trading market for the securities will develop
or be sustained after this offering. The initial public offering price of the
Units and Common Stock and the exercise price of the Warrants has been
determined solely by negotiations between the Company and the Underwriter, and
may not be indicative of the market prices for the securities after this
offering. Factors such as quarterly variations in the Company's financial
results, announcements by the Company or others, and development affecting the
Company or its customers could cause the market price of the Units, Common Stock
or Warrants to fluctuate substantially. In addition, the stock market is
sometimes characterized by extreme price and value fluctuations, which may have
a substantial effect on the market prices of the Company's securities and
related effect on the Company's operating performance. See "Description of
Securities" and "Underwriting."
26. CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants have the right to exercise the Warrants for
the purchase of shares of the Common Stock only if a current prospectus relating
to such shares is then in effect and only if shares are qualified for sale under
applicable securities laws of the states in which the various Warrant holders
reside. The maintenance of a currently effective registration statement could
result in substantial expense to the Company. There is no assurance the Company
will be able to keep this Prospectus covering the shares issuable upon the
exercise of the Warrants current. The Warrants may be deprived of any value if a
current prospectus covering the shares issuable upon exercise thereof is not
kept effective or if such shares are not registered in the states in which
certain Warrant holders reside. See "Description of Securities -- Warrants."
27. BROKER-DEALER SALES OF COMPANY'S SECURITIES. In the absence of a
security being quoted on NASDAQ, a market price of at least $5.00 per share or
the Company having in excess of $2,000,000 in net tangible assets, trading in
the Company's securities may be covered by a Commission rule that imposes
11
<PAGE>
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally persons with net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with their spouse). For transactions
covered by the rule, the broker-dealer must make a special suitability
determination for the purchaser and receive the purchasers' written agreement to
the transaction prior to the sale. Consequently, the rule affects the ability of
broker-dealers to sell the Company's securities and also may affect the ability
of purchasers in this offering to sell their securities in the secondary market.
Previously, the Commission adopted certain rules ("Rules") under the
Exchange Act requiring broker/dealers engaging in certain transactions with
their customers in specified equity securities falling within the definition of
"penny stock" (generally non-NASDAQ securities priced below $5.00 per share) to
provide to those customers certain specified information. Unless the transaction
is exempt under the Rules, broker/dealers effecting customer transactions in
such defined penny stocks are required to provide their customers with: (i) a
risk disclosure document; (ii) disclosure of current bid and ask quotations, if
any; (iii) disclosure of the compensation of the broker/dealers and its sales
person in the transaction; and (iv) monthly account statements showing the
market value of each penny stock held in the customer's account.
As a result of the aforesaid rules regulating penny stocks, the market
liquidity for the Company's securities could be severely adversely affected by
limiting the ability of broker-dealers to sell the Company's securities and the
ability of purchasers in this offering to sell their securities in the secondary
market.
28. NO ASSURANCE OF MAINTAINING NASDAQ SMALLCAP LISTING. Although
management believes that the proceeds of this offering together with anticipated
growth will result in profitable operations there is no assurance the Company
will not generate losses or a reduction in asset value such that the Company
will be able to maintain a NASDAQ SmallCap Market system listing. In addition,
NASDAQ may change its continued listing requirements to a level the Company
cannot maintain. If the Company were to lose its NASDAQ SmallCap Listing
privileges investors will not have access to the liquidity and trading
privileges afforded by the NASDAQ SmallCap market. In such event the Company's
securities would trade in the over-the-counter electronic bulletin board or
"pink sheets". As a result, the market liquidity and an investor's ability to
resell the Company's securities could be severely adversely affected.
29. SELLING SECURITY HOLDER RISKS AND LIABILITIES. The sale of shares by
Selling Security Holder can have a depressive effect on the trading price of the
Common Stock acquired by investors in this offering or from the Selling Security
Holder. If the Company, for whatever reason, is unable to keep this Prospectus
current under applicable state and federal securities laws, the Selling Security
Holder may be unable to sell their shares outside of Rule 144 or another
available exemption from registration under Section 5 of the Securities Act. The
Selling Security Holder through his participation in the distribution of the
shares offered by this Prospectus may be deemed to be statutory "underwriter" as
that term is defined in Section 2(11) of the Securities Act and as such may be
subject to certain liabilities under Section 11 or 12 of the Securities Act for,
among other matters, the material misstatement or material omission of facts in
the Prospectus. See "Selling Security Holder."
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Units
(after deducting the Underwriting discounts and commissions, the non-accountable
expense allowance, and other estimated expenses of this offering) are estimated
to be $3,950,000 ($4,575,000 if the Over Allotment Option is exercised). The
Company expects to apply the net proceeds approximately as shown in the
following table:
<TABLE>
<CAPTION>
APPROXIMATE
USE OF NET PROCEEDS AMOUNT PERCENTAGE
- -------------------------------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Advertising and Marketing (1)......................................................... $ 500,000 13%
Acquisition of Property, Plant and Equipment (2)...................................... $ 1,700,000 43%
Repayment of Loans (3)................................................................ $ 400,000 10%
Research New Products and Applications (4)............................................ $ 465,000 12%
Automate and update Darling Paint equipment and facilities (5)........................ $ 200,000 5%
Officers' and Directors' Compensation (6)............................................. $ 140,000 3%
Working Capital....................................................................... $ 545,000 14%
------------ ---
TOTAL............................................................................... $ 3,950,000 100%
------------ ---
------------ ---
</TABLE>
- ------------------------
(1) Advertising and marketing efforts will be centered around a public relations
campaign and strategically placed advertisements in leading paint, paint
dealer, and other related magazines. The Company intends to aggressively
solicit established distributors and contractors and to open additional
retail outlets in West Central Florida. See "Business--Marketing and
Distribution."
(2) Management intends to use these proceeds to locate a suitable production
facility and to equip this facility with the necessary machinery, tooling,
furnaces and other items necessary to manufacture evacuated or partially
evacuated microspheres. These estimates are based solely upon management's
prior experience and no independent engineering or other outside consultant
data has been utilized to determine these amounts. There is no assurance
that the Company will be successful in its efforts to manufacture evacuated
shells. See Business--Manufacturing Facilities and Techniques."
(3) Represents repayment of approximately $400,000 in principal of various
convertible promissory notes at 12% interest per annum. Accrued interest has
been converted into Common Stock. See "Certain Transactions."
(4) Represents proceeds allocated to the development of new products and
applications utilizing shell technologies beyond paints and coatings.
(5) Represents funds to purchase automated mixers, sealers and label machines,
tanks and storage facilities. Also includes leasehold improvements for
retail outlets.
(6) Represents the base salaries of Mr. Pidorenko and Mr. Trusty. See
"Management--Employment Agreements."
The Company anticipates that the Offering proceeds will be sufficient to
satisfy its anticipated cash needs for approximately 12 months following the
completion of this offering.
The above amounts and priorities for the use of proceeds represent
management's estimates based upon currently proposed plans and assumptions
relating to its operations, and does not take into consideration receipt of
revenues, if any, from operations during such period. Although the Company does
not contemplate any changes in the proposed use of proceeds, to the extent the
Company finds that general economic and industry conditions or prevailing
business conditions vary from those which were assumed in arriving at the amount
set forth above, the Company may find it necessary or advisable to reallocate
the amount shown among the above-described categories.
The Company reserves the right to change the use of the balance of the net
proceeds if its sales or expenses are materially higher or lower than
anticipated, if competitive or technological developments
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<PAGE>
occur in the areas of energy efficient coatings or other areas of the Company's
business which cause management to conclude that it would be in the Company's
best interest to pursue alternative products or services, or if an opportunity,
not presently known to the Company arises to develop additional products or to
acquire additional products or marketing resources either directly or through
the acquisition of additional companies. If any of these events should occur,
the Company may reallocate the net proceeds among their intended applications,
or it may use a part of the remaining net proceeds to acquire additional
products, other resources or businesses.
There are no pending agreements or understandings for any acquisitions. It
is anticipated that the purchase price of acquisitions which may be undertaken
by the Company may be paid in cash, by issuance of securities or notes payable
to the Company or a combination thereof. Funds used for acquisitions may also be
used to absorb operating expenses of the acquired company, and to pay
accounting, legal and other expenses of the Company in connection with such
acquisitions. In seeking a business venture, management will focus upon
businesses that are complimentary to the Company's shell technology or which
would be a viable application for commercial utilization of the Company's shell
technology. The Company will not acquire or merge with a business or corporation
in which the Company's officers, directors, or promoters or their affiliates or
associates, have any direct or indirect ownership interest. It is anticipated
that any such acquisitions would involve companies located in the Sunbelt region
of the United States. See "Risk Factors--Future Acquisitions."
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other interest-bearing
investments.
DIVIDEND POLICY
The payment by the Company of cash dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid or
declared any cash dividends upon its Common Stock since its inception and its
contemplated financial requirements do not anticipate paying dividends upon its
Common Stock in the foreseeable future.
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<PAGE>
DILUTION
At November 30, 1996, the negative net tangible book value of the Company
was $(1,475,950), or $(1.70) per share based upon 869,899 shares of Common Stock
then issued and outstanding. Net tangible book value per share is the amount of
the Company's tangible assets less all liabilities, divided by the number of
shares of Common Stock outstanding.
After giving effective this offering (net of underwriting discounts and
commissions and the estimate expenses of this offering), the net tangible book
value of the Company would be $4,192,206, or $1.36 per share of Common Stock,
based upon 3,072,210 shares of Common Stock outstanding. Purchasers in this
offering would own an aggregate of 40.7% of the outstanding shares of Common
Stock, with a dilution to the investors in this offering of $2.64 per share.
The following table illustrates the per share dilution to the investors in
this Offering:
<TABLE>
<S> <C>
Assumed initial public offering price per Unit.................................... $ 4.00
Net tangible book value per share of Common Stock before the offering............. $ (1.70)
Increase per share of Common Stock attributable to new investors.................. $ 3.06
Proforma net tangible book value per share upon completion of the offering........ $ 1.36
Dilution per share of Common Stock to new investors............................... $ 2.64
Dilution as a percentage of the per share purchase price.......................... 66%
</TABLE>
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price per share of Common Stock paid by existing stockholders and by
purchasers of shares in this offering at an offering price of $4.00 per Unit
(before deduction of underwriting commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER % AMOUNT % SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Promoters, Officers and Directors............. 773,775 25.2% $ 516,110 7.4% $ .67
Current Shareholders........................ 1,048,435 34.1% $ 1,470,751 21.1% $ 1.40
Investors in this offering.................. 1,250,000 40.7% $ 5,000,000 71.5% $ 4.00
---------- --- ------------ --- -----
Total..................................... 3,072,210 100% $ 6,986,861 100% $ 2.27
---------- --- ------------ --- -----
---------- --- ------------ --- -----
</TABLE>
Excludes the (i) Underwriter's Warrants (ii) 350,000 shares reserved for
issuance under the Company's 1996 Stock Option Plan, (iii) 500,000 shares
reserved upon exercise of options granted to Mr. Pidorenko in connection with
his employment agreement exercisable at $4.00 for five years. Also reflects the
conversion of $1,498,500 convertible notes plus accrued interest of
approximately $303,960 into 901,230 shares of Common Stock.
15
<PAGE>
SELECTED FINANCIAL DATA
The following presents selected financial information of the Company as of
November 30, 1995 and 1996. The financial statements as of November 30, 1995 and
1996, and the report of the Independent Certified Public Accountants thereon are
included elsewhere in this Prospectus. The information set forth below is
qualified by, and should be read in conjunction with, the financial statements
and related notes thereto in their entirety.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------
1996 1995
------------- -----------
<S> <C> <C>
INCOME STATEMENT DATA (1)
Total revenue......................................................................... $ 615,845 $ 43,691
Net loss.............................................................................. $ (1,033,553) $ (314,857)
Net loss per share.................................................................... $ (1.34) $ (0.53)
Shares used in per share computation.................................................. 771,154 626,191
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
-------------------------- AS
1996 1995 ADJUSTED (3)(4)
------------- ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total assets...................................................... $ 1,537,273 $ 734,733 $ 5,087,273
Working capital................................................... $ (2,444,417) $ (874,313 (2) $ 3,223,739
Long-term debt.................................................... $ -- $ -- $ --
Stockholders' equity.............................................. $ (1,363,939) $ (330,395) $ 4,304,217
Net tangible book value........................................... $ (1,475,950) $ (448,719) $ 4,192,206
Net tangible book value per share................................. $ (1.70) $ (0.67) $ 1.36
</TABLE>
- ------------------------
(1) Excludes operating activity of Darling Paint, which the Company acquired
November 30, 1995. Had the operations of the paint company been included in
the Company's financial statements for the year ended November 30, 1995, a
summary pro forma effect on the Company's operating results would have been
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1995
------------
<S> <C>
Total revenue............................................................................. $ 458,041
Net loss.................................................................................. $ (268,989)
Net loss per share........................................................................ $ (0.43)
Shares used in per share computation...................................................... 626,191
</TABLE>
(2) Includes convertible debt of $740,203 and $1,898,500 at November 30, 1995
and 1996, respectively. $1,498,500 of these convertible notes were exchanged
for 901,230 shares of Common Stock by such note holders. See "Certain
Transactions."
(3) Adjusted to reflect the sale of the Offering after deduction of the
underwriting discounts and commissions payable by the Company, and estimated
offering expenses.
(4) Excludes the (i) Underwriter's Warrants and Over-Allotment Option (ii)
350,000 shares received for issuance under the Company's 1996 Stock Option
Plan, (iii) 500,000 shares reserved for the exercise of options granted to
Mr. Pidorenko in connection with his employment agreement exercisable at
$4.00 for 5 years. Also includes the effect of issuing 901,230 shares of
common stock to retire $1,498,500 of certain convertible note obligation
plus accured interest thereon. See "Certain Transactions."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at November
30, 1996, and as adjusted to give effect to: (i) a 1 for 10 reverse common stock
split effective August 12, 1996; and (ii) the sale by the Company of the
1,250,000 Units offered hereby (excluding the Over-Allotment Option), and the
application of the net proceeds therefrom. The table should be read in
conjunction with the financial statements of the Company and related notes
thereto included elsewhere in this Prospectus. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
ACTUAL (1) AS ADJUSTED
------------- -------------
<S> <C> <C>
Stockholder's Equity:
Common Stock, $.0001 par value; 20,000,000 shares authorized; 869,899 shares
(3,072,210 at Offering) issued and outstanding.................................. 87 307
Voting Preferred Stock, par value $.01; 5,000,000 shares authorized, issued
and outstanding.................................................................... 500 500
Additional paid-in capital.......................................................... 184,314 5,740,239
Accumulated (deficit), equity....................................................... (1,548,840) (1,548,840)
------------- -------------
Total stockholders' equity...................................................... $ (1,363,939) $ 4,192,206
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Excludes the (i) Underwriter's Warrants (ii) 350,000 shares reserved for
issuance under the Company's 1996 Stock Option Plan, (iii) 500,000 shares
reserved for the exercise of options granted to Mr. Pidorenko in connection
with his employment agreement exercisable at $4.00 for 5 years. Also
reflects the conversion of $1,498,500 convertible notes plus accrued
interest into 901,230 shares of Common Stock.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEVELOPMENTAL STAGE ACTIVITIES
The Company had been a developmental stage enterprise during its initial
three years of operation. During this period, management devoted the majority of
its efforts to research and development, financing, purchasing and activities
related to starting up production and marketing. These activities were funded by
investments from stockholders and borrowings from unrelated third parties. The
Company has not generated sufficient revenues during its limited operating
history to fund its ongoing operating expenses, repay its outstanding
indebtedness or to fund its product development activities. In fiscal year 1994,
the Company completed the development of its first product line.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Total revenue for the year ended November 30, 1996, was $626,845 compared to
$43,691 for the same period of 1995, which represents an increase of $583,154.
The increase was a result of expanded sales of paint products and coatings
produced by the Company's paint manufacturing facility acquired in the 1995
fiscal year. The increased sales were a direct result of increased marketing
efforts and production capabilities. The net loss and the net loss per share
were $1,033,553 and $1.34 per share respectively, for the year ended November
30, 1996, as compared to a net loss and net loss per share of $78,100 and $.13,
respectively, for the same period of 1995. As discussed below under "Liquidity
and Capital Resources", the Company plans to institute a marketing campaign upon
the closing of this offering to cover the sunbelt region of the United States.
For the year ended November 30, 1996, total selling, general and
administrative expenses were $1,280,339, as compared to $376,919 for the same
period of the previous year, an increase of $903,420. The increases were due to
expenses incurred with the initial production of the Company's proprietary
products in its newly acquired manufacturing facility, expenses incurred in
relation to the refinement of the formulations of the paint and paint coatings
being manufactured, as well as costs associated with increased marketing
efforts, staffing and other expenses associated with the Company's expanded
operations.
In June 1996 the Company opened a new retail location in Sarasota, FL, based
upon the prospects of completing a public offering in the near term. Due to the
failure of the prior offering the Company is experiencing negative cash flow. In
a effort to streamline operations and cut costs, management closed the Sarasota
location in January 1997. The effect of this closure is an anticipated reduction
of $10,000 per month in the Company's operating costs. In addition to the above
retail store closure, the Company also closed its executive offices in Tampa, FL
and relocated all operations to the manufacturing facility in New Port Richey,
FL. This closure will result in a monthly reduction of $7,000 per month in
operating costs. Additionally, the Company executives have reduced their pay by
a cumulative amount of $6,500 per month. The total cost savings of these actions
reduced company operatings costs by $23,500 per month or $282,000 on an annual
basis.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
During the period from inception through November 30, 1994, the Company
realized revenues of $17,800. The Company was a developmental stage company and
was continuing the development of its first products.
Net revenues of $43,700 for the fiscal year ended November 30, 1995,
represent an increase of 145% over the prior year, resulting primarily from
increased sales of the Company's roof products. While the revenue volume of the
1994 and 1995 fiscal years is indicative of the Company's developmental state,
the Company is expected to become fully operational in fiscal year 1996.
18
<PAGE>
Cost of sales for the 12 months ended November 30, 1994 and 1995 were
approximately $25,300 and $15,400, respectively. Management expects the cost of
sales as a percentage of sales to decrease due to better utilization of
production capabilities and improved purchasing methods. Cost of sales for
fiscal year 1995 and 1994 were higher than normal in relation to sales due to
the need to give samples to prospective customers, as well as the necessity to
pay third parties to manufacture and sell the Company's product. If the Company
obtains increased market recognition and curtails the voluminous testing
required during the developmental stage, the volume of samples to be provided
may decrease, therefore reducing the cost of sales.
Operating expenses totaled $617,600 for the period from inception through
November 30, 1995. Total operating expenses were $377,000 in fiscal year 1995
and $239,700 in fiscal year 1994. Expenses in 1994 were primarily incurred in
connection with product research and development activities. In 1995, the
Company incurred significant expenses related to sales activities of introducing
the initial products to the marketplace, as well as legal fees and financing
costs incurred in seeking and obtaining funding and in acquiring Darling Paint,
a paint manufacturing company.
The Company has accumulated net operating losses of $640,944 for the period
from inception through November 30, 1995.
DARLING PAINT
Development of roof and wall coatings has been an ongoing process that has
progressed from the Company's product being manufactured by a third party to its
current capability of manufacturing its own paint and coating products. The
acquisition of the operating assets of Darling Paint, effective November 30,
1995 for $251,016, provides the Company with the production equipment and
initial distribution channels for its products.
The Company has improved its purchasing procedures, by buying to support
larger production volumes and expanding its supplier base. As a result, the cost
of manufactured products has dropped significantly. The reduced costs are
expected to continue to be realized or improved during fiscal year 1997.
However, increased costs associated with marketing and expansion are expected to
offset any cost savings associated with improved cost of goods due to the
Darling Paint acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its initial capital operations and product
development activities with funds provided by the sale of its securities and
from borrowings.
During fiscal years 1994 and 1995, the Company raised approximately $184,900
through issuance of its Common Stock. During fiscal years 1995 and 1996, the
Company raised approximately $1,898,500 through the private placement of its
convertible notes, notes and Common Stock. $1,498,500 of certain convertible
notes plus accrued interest thereon were exchanged in to 901,230 shares of
Common Stock as a condition to this Offering required by the Underwriter. The
Company anticipates satisfying or has satisfied all indebtedness relating to
these obligations either through the payment of such notes with the proceeds of
this offering or the conversion of certain of these notes into shares of the
Company's Common Stock and the undertaking of the Company's chief executive
officer to personally assume certain of these obligations. See "Certain
Transactions" and "Financial Statements--Note 16."
The Company's operating losses have resulted in working capital and
stockholders' equity deficits of approximately $2,444,417 and $1,363,939 at
November 30, 1996, respectively. The Company is not presently generating
sufficient revenues from operations to fund capital requirements. The ability of
the Company to alleviate its working capital deficit and obtain capital adequate
to fund future costs associated with operations and expansion plans is dependent
upon (i) successful completion of the public offering; and (ii) realization of
projected increases in sales of new product lines.
19
<PAGE>
In the opinion of management, the net proceeds from the Offering will
provide sufficient working capital to enable the Company to finance planned
expansion for the next twelve months without the need for additional capital.
However, the Company will require substantial revenues from the sale of
ThermaCool-TM- products in addition to the proceeds of this offering in order to
fund anticipated operations for the twenty-four months after the closing of this
offering. There is no assurance that such revenues will be generated or that
other funding will be available to the Company.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company believes it will experience stronger demand for its products in
the spring, summer and fall of each year. By directing its marketing efforts to
the warmer states, the Company feels that fluctuations resulting from
seasonality will be minimized.
INFLATION
Inflation has not proven to be a factor in the Company's business since its
inception and is not expected to have a material impact on the Company's
business in the foreseeable future.
20
<PAGE>
BUSINESS
GENERAL
The Company was incorporated in Florida in August, 1993, for the purpose of
developing, manufacturing and marketing insulating materials and coatings using
partially evacuated glass microspheres (sometimes referred to as "shells"). The
process of evacuation removes air and other gases from the sphere, thereby
creating a vacuum. A shell is a very small glass sphere (generally the size of a
grain of salt) made by crushing glass particles. The insertion of shells into
various materials and products ("shell technology") can substantially improve
the thermal resistive characteristics of such materials and products resulting
in improved insulation ("R") values. The more a shell is evacuated, the higher
the thermal resistive characteristics of the product or material to which the
shells are added.
Management of the Company believes that there is a broad range of
applications for introduction in products of evacuated or partially evacuated
shells, the effect of which is improved energy efficiency of such products
because of the inherent insulating characteristics provided by the glass
spheres. The Company's strategy is to commercially exploit the use of its shell
technology to improve the "R" values of a number of products. In fiscal year
1995, the Company completed the development of its first product line which
consists of paints and coatings containing shells in order to reduce heat
transmission and improve the insulation values of the products. The products are
marketed under the ThermaCool-TM- label.
On November 30, 1995, the Company acquired the assets of C.F. Darling Paint
& Chemicals, Inc., a paint manufacturing company, located in New Port Richey,
Florida ("Darling Paint") for $251,016 in cash. The Company also assumed the
real estate lease for the Darling Paint Facility. The Company acquired these
assets and assumed this real estate lease so that it would have a facility to
produce and develop paints and coatings for its ThermaCool-TM- product line
which incorporate its shell technology. Prior to this acquisition, the Company
was required to purchase paints and coatings from independent paint and coating
manufacturers.
The Company's business strategy is to (i) expand the marketing and
distribution of ThermaCool-TM- paints and coatings (ii) develop and manufacture
the Company's own shells and (iii) expand the shell technology to other
products, such as drywall, gypsum board, home siding materials and space foam
insulation. Other markets may include refrigeration and cooling systems,
automotive and transportation applications and cups and thermoses. There is no
assurance that the Company will be successful in penetrating any markets for the
ThermaCool-TM- product lines, developing commercially viable manufacturing
techniques or addressing other markets.
BUSINESS STRATEGY
The Company's business strategy to become profitable by commercially
exploiting its shell technologies is dependent upon the successful
implementation of the following:
(i) EXPAND THE MARKETING AND DISTRIBUTION OF THERMACOOL-TM- PAINTS AND
COATINGS. The use of shells in paints and coatings is the Company's initial
attempt to commercially apply its shell technology. Although the ultimate
objective of the Company is to commercially exploit fully evacuated shells
in a variety of products, management believes that the use of partially
evacuated shells properly combined with paints and coatings can improve the
insulating properties of these products. Management believes that the
acquisition of the assets of Darling Paint combined with the proceeds of
this offering which are earmarked for expanding and improving the Company's
painting and coating capacities and implementing a marketing program will
enable the Company to generate revenues from the sale of its ThermaCool-TM-
painting and coating products.
The initial ThermaCool-TM- product is a roof coating material which
incorporates the partially evacuated microspheres into a roof coating
mixture which the Company is able to manufacture through the assets it
acquired from Darling Paint. This product can be used to coat new roofs as
well as on the top
21
<PAGE>
of existing tiles, shingles and flat roofs. The coating can also be applied
by manufacturers of concrete and ceramic tiles. The Company is also
marketing a ThermaCool-TM- exterior wall coating which it believes can also
reduce emissivity and thermal conductivity.
Coatings are characterized as a protective barrier that is applicable to
various surfaces for protection from the elements. Paint is characterized as
a product to change the color of a particular surface. By this definition,
some paints may be classified as coatings, such as a semi-gloss enamel,
while flat wall paint would not. The basic difference between a roof and a
wall coating is that the viscosity or thickness of the product. A roof,
being less vertical than a wall, can accept a thicker coating without the
product running or sagging. A thicker coat for a roof is preferable due to
its exposure to the elements. The application of shell technology to the
Company's products is limited to the ThermaCool-TM- roof and exterior wall
coatings where the insulative and energy efficiency characteristics of the
product are most beneficial. To date, in excess of 90% of the Company's
sales of ThermaCool-TM- products relate to roof products. The Company has
not yet developed an interior paint using its ThermaCool-TM- process. There
is no assurance that the Company will be able to develop products other than
roof and exterior wall coatings utilizing its ThermaCool-TM- process.
(ii) DEVELOP AND MANUFACTURE THE COMPANY'S OWN SHELLS. The Company has
applied for a patent involving the production of insulating microspheres in
a manner which enables the evacuation of gases in the shells. Such
evacuation results in lower gas pressure within the shells which can reduce
thermal conductivity, thus providing improved insulation qualities. The
manufacturing procedure involves the formation of water vapor in the shells
and then the subsequent evacuation of the shells by heating the shells which
causes out-permeation of the water vapor. Other patents have been granted
relating to various processes to evacuate glass shells. To the best of
management's knowledge, no one has been able to develop a commercially
viable process for the production of fully evacuated glass shells, due to
among other factors, manufacturing and technical restraints. Currently, the
Company is aware of three large multinational companies which manufacture
shells. The essential difference between the manufacturing process for
partially evacuated shells as compared to substantially or fully evacuated
shells are the techniques employed to evacuate gases from the shell which
improve its thermal conductivity or insulating value. Management of the
Company believes that the facilities and equipment currently exist which the
Company can use to manufacture highly or partially evacuated shells. The
Company intends to utilize $1,500,000 of the offering proceeds to locate a
suitable production facility and to equip this facility with the necessary
machinery, tooling, furnaces, and other items necessary to manufacture
highly or partially evacuated shells. There is no assurance that the Company
will be successful in its efforts to manufacture shells.
(iii) EXPAND THE SHELL TECHNOLOGY TO OTHER PRODUCTS. Management of the
Company believes the potential exists to commercially exploit other markets
suitable for the Company's shell technologies. Since 1992, the Company's
founders have been investigating the possibility of using evacuated glass
microspheres in a variety of products. Management has identified
construction components such as drywall, gypsum board, home siding materials
and space foam insulation as potential markets. Other potential markets
include refrigeration and cooling systems, automotive and transportation
applications, cups and thermoses. There is no assurance the Company will be
successful in penetrating other markets. The Company will only be able to
achieve this strategy if it is able to manufacture its own highly or
partially evacuated shells on an economical basis.
SHELL TECHNOLOGY
The Company has the rights to certain patent applications relating to
evacuated shells. The first involves a technique for manufacturing insulating
microspheres in a manner which enables the evacuation of retained gases within
the shells. This evacuation results in low gas pressure within the shell which
can
22
<PAGE>
reduce the thermal conductivity, thus improving insulation qualities. Evacuated
shells are capable of forming vacuums which limits heat transfer. The use of
evacuated glass microspheres as an important component of improved insulation
and the use of a reflective layer within or outside of the shells has also been
referred to in prior patents. The Company's patent application describes a
procedure that which through the use of water vapor and heat combined with the
introduction of certain gases results in the evacuation or substantial
evacuation of the gases contained in the interior of the shells.
The Company's other patent application uses evacuated shells introduced into
a coating. Such coatings may be used for roofs, exterior paints, interior paints
and other uses. The addition of evacuated or substantially evacuated spheres
into a coating provides the following characteristics: (i) a reduction in
radiant heat transfer by use of reflective coatings, (ii) the reduction of heat
transfer between shells by restricting the transfer to point contact and (iii) a
reduction in the heat transfer across a shell by a use of a partial or full
vacuum. Although patent counsel to the Company believes that patent protection
is available for these inventions, there is no assurance that such patents will
be granted. Although management believes that the processes described in the
patent applications are grounded upon sound scientific principles and the
machinery and equipment are available to implement the production techniques
necessary to manufacture evacuated shells on a commercial basis, there is no
assurance the Company will be able to economically and profitably manufacture
evacuated shells or otherwise exploit these inventions. The ThermaCool-TM-
product line currently offered by the Company does not rely upon these
inventions because ThermaCool-TM- paintings and coatings use partially, rather
than fully or substantially evacuated shells.
MANUFACTURING FACILITIES AND TECHNIQUES
Management intends to use $1,700,000 of the offering proceeds to acquire a
suitable production facility and to equip this facility with the necessary
machinery, tooling, furnaces and other items necessary to manufacture evacuated
shells. Management anticipates the Company will lease this facility on a three
to five year term and acquire the equipment necessary to manufacture shells.
Internal cost estimates prepared by management indicate that the Company will
require at least $5,000,000 for the initial 24 months of operations to develop
and operate its ThermaCool-TM- production facility and shell manufacturing
facility. Management anticipates that revenues generated from the sale of
ThermaCool-TM- products along with the offering proceeds allocated to these
facilities will be sufficient to absorb these anticipated production and
operating costs. These estimates are based solely upon management's prior
experience and no independent engineering or other outside consultants' data,
has been utilized to determine these amounts. If these estimates prove to be
incorrect or if the sale of ThermaCool-TM- products does not generate sufficient
revenues, the Company's ability to develop and operate these facilities will be
adversely affected. See "Use of Proceeds."
The basic process for manufacturing glass shells involves heating glass and
then partially drying and crushing the glass composition. The glass composition
is then size separated for different applications. Glass shells are then formed
and blown at high temperatures with the use of heat in a vertical furnace. The
completed glass shells are then separated from the shell residue. Management is
aware of three other companies that currently manufacture glass shells. These
glass shells are primarily used as filler material for plastics and ceramics.
The unevacuated glass shells are used in such material because they provide an
improved "ball bearing" effect for better flow and as a low cost filler material
in compounding. The manufacturing techniques proposed by the Company would be
similar to those currently utilized to manufacture shells, except that the
Company would also employ procedures which evacuate or substantially evacuate
the shells in the final stages of the production process. See "Risk Factors --
Uncertain Manufacturing Techniques and Technology."
The Company currently produces its ThermaCool-TM- product line at the
Darling Paint facility it acquired in November, 1995. The Company also continues
to sell general paint products using conventional grinding and mixing methods
with the exception of the addition of spheres acquired from other
23
<PAGE>
sources necessary to formulate ThermaCool-TM- products. The Darling Paint
facility currently accommodates production of 360,000 gallons per year. The
current plant facility is capable of producing up to $5,000,000 in gross product
sales. There is no assurance that the Company will generate such revenues. The
Company intends to utilize approximately $200,000 of the offering proceeds to
automate and retool the Darling Paint facility.
COMPETITION
The Company's ThermaCool-TM- products compete in the special purpose
coatings market which is an extremely competitive market principally composed of
large multinational companies which have significantly greater assets, working
capital and marketing personnel than the Company. Special purpose coatings are
similar to architectural coatings such as normal house paints but differ in that
they are formulated for special applications or environmental conditions, such
as extreme temperatures, chemicals or corrosive conditions. Major producers of
special purpose coatings include PPG Industries, DuPont, Sherwin-Williams, RPM,
Inc., Inmont, Courtaulds, PLC, Glidden, Azkon.V. and Valspar Corp. The U.S.
Bureau of Census values the special purpose coatings market at approximately $3
billion in 1995. The roofing, coating and industrial construction coating market
segment represents approximately 15% of the total "special purpose coatings"
market, or 28,000,000 gallons valued at approximately $454,000,000.
Management believes that the primary competitive factors in the special
coatings product segment are quality, ease of use, service, warranty,
availability and price. The cost per gallon of ThermaCool-TM- is at the high end
of the price spectrum for paints and coatings ($17.00 to $25.00 per gallon).
Although management believes that the improved insulating characteristics of
ThermaCool-TM- add significant value and justify the higher cost, there is no
assurance that the Company's products will be accepted because of the higher
cost. The Company will be competing with larger, better capitalized and
nationally recognized competitors. The Company's current supply sources of
shells could become competitors. The Company expects that if its products become
successful, competitors will be more likely to develop and introduce into the
market place comparable products and technologies. There is no assurance that
the Company will be able to compete in the special purpose coatings or other
markets. See "Risk Factors -- Competition."
MARKETING AND DISTRIBUTION
The Company intends to market its ThermaCool-TM- products to roofers,
painters, distributors and manufacturers of special purpose coatings. The
Company's initial target markets include industrial and residential
construction, maintenance, storage tanks and roof coatings. The Company intends
to place advertisements in trade journals for the plastics, glass and
construction industries. In addition, the Company intends to participate in
trade shows and intends to aggressively promote the energy saving
characteristics of its ThermaCool-TM- product lines.
Currently, management believes that contractors, who purchase from
distributors, will be the primary customers for the Company's products. The
Company also intends to solicit established contractor distribution centers as a
source of marketing its ThermaCool-TM- products. It is anticipated that the
Company will add between two to four marketing and sales personnel after the
closing of this offering to implement its marketing strategy. Management's
strategy is to attract individuals that have significant contacts in the special
purpose coatings industry. There is no assurance that the Company will be able
to attract individuals or that such individuals will be successful in their
marketing efforts. Currently, the Company has a limited sales staff which is
concentrating on direct sales until such time as the Company has adequate funds
to expand its sales force.
The Company currently has a retail outlet in New Port Richey, Florida. The
Company intends to utilize a portion of the offering proceeds to open additional
retail outlets in the West Central Florida area. Such expansion may occur
through the acquisition of an existing retail outlet, such as Darling Paint or
the opening of a new retail store through the assumption of a lease of a former
paint and coatings retail outlet
24
<PAGE>
such as the Sarasota location. In addition to new retail outlets, the Company
plans to market directly to specialty industries such as the RV motor home
industry and manufacturing housing industry. The Company will also target chains
such as Home Depot and Builder's Square as point of sale distribution outlets
for its products. The Company believes that viable business opportunity,
franchising and distribution relationships with existing painting and coating
contractors are additional marketing and distribution strategies which can
expand the sale of the Company's products. The Company also believes that its
products may be distributed through private label arrangements with other
distributors. There is no assurance that any of these marketing or distribution
strategies will be successful.
NEW PRODUCT APPLICATIONS AND DEVELOPMENT.
The Company anticipates using $465,000 from the proceeds of this offering
for the research and development of new products and applications utilizing
shell technologies beyond paintings and coatings. Management has identified
construction components such as drywall, gypsum board, home siding materials and
space foam insulation as potential markets. Other potential markets include
refrigeration and cooling systems, automotive transportation applications and
cups and thermoses. This research and development will primarily focus on the
techniques and procedures necessary to combine evacuated shells into materials
which can benefit from improved insulation and "R" values. There is no assurance
that the Company will be successful developing any new applications for
evacuated shells. See "Use of Proceeds."
PRODUCT LIABILITY INSURANCE AND WARRANTIES
The Company currently has product liability insurance in force with limits
of $1,000,000 per occurrence and $2,000,000 aggregate limit. There is no
assurance the Company can maintain this coverage or that it will be adequate to
protect the Company.
The Company supplies the following warranties for its products: (1) All
ThermaCool-TM- products have eight year warranties; (2) #44000 Acrylic House
Paint has a nine year warranty; (3) #4000 Acrylic House Paint has a seven year
warranty; (4) #2400 Acrylic Latex House Paint has a five year warranty; (5)
#2200 100% Vinyl Acrylic House Paint has a five year warranty. No other
warranties are issued by the Company. All remedies as to warranty failures
require only replacement of the product.
PROPERTIES AND EMPLOYEES
The Company currently leases and occupies 18,000 sq. ft. of space in New
Port Richey, Florida which lease expires in 1998 where C.F. Darling formerly
operated. This real estate lease was assumed in connection with the November 30,
1995, agreement to acquire Darling Paint's assets. The Company did not acquire
any real property in connection with the Darling Paint acquisition. Rather, the
Company assumed the real estate lease for the Darling Paint facility. Current
payments are $2,800 per month. The facility consists of approximately 5,000
square feet of office and retail space with the balance being used for
warehousing and manufacturing. The prior owners of C.F. Darling Paint &
Chemicals, Inc. were Frank and Anita Darling, unrelated parties to the Company.
In January 1997, the Company vacated its 2,500 square foot executive office
in the Interstate Business Park at 8306 Laurel Fair Circle, Suite 240, Tampa,
Florida. This lease expires on October 31, 1998 and requires monthly rent of
approximately $3,000.00. In addition, the Company closed its Sarasota, Florida
retail location located at 4215 South Tamiami Trail, Sarasota, Florida. Monthly
lease payments were $4,000.00 and the lease expires on April 30, 1999. The
Company is currently negotiating with the landlords for each of these properties
to terminate these leases on mutually agreeable terms. The landlord of the
Sarasota location has agreed to accelerate the expiration date to February 28,
1997. As part of such arrangements, the Company may reoccupy these premises.
Management of the Company believes that the proceeds generated from this
offering will enable the Company to negotiate acceptable lease termination
provisions. Management further believes that there are other suitable locations
in the Tampa Bay area to
25
<PAGE>
locate its executive offices after the closing of this Offering and that there
are other suitable retail outlets in Sarasota, Florida and other areas to expand
its distribution capacity. The failure of the Company to negotiate with the
landlords of the vacated premises acceptable lease termination terms could
result in the Company having to pay such landlords the estimated remaining
amounts due under such leases of $67,500 plus attorneys fees and court costs. If
the Company were required to pay such amounts, the Company would not be able to
utilize a portion of the offering proceeds for their intended uses and the
financial position of the Company could be adversely affected.
The Company intends to use approximately $200,000 from the proceeds of this
offering to automate and modernize the current production facility acquired from
Darling Paint in November, 1995. Although the Company's current lease expires on
October 31, 1998, management, may, if the terms are acceptable, terminate this
lease and transfer the assets currently utilized at the Darling Paint facility
to the new production facility the Company intends to occupy using the proceeds
of this offering. See "Use of Proceeds."
The Company intends to use a substantial portion of the proceeds of this
offering to acquire a production facility suitable for the manufacture and
production of evacuated spheres. It is anticipated that this facility will be
located in the Tampa Bay area. Management has not yet identified a suitable
site, although it believes that a suitable site is available. There is no
assurance that a suitable site and facility will be available on terms
acceptable to Company. See "Use of Proceeds."
The Company currently has eleven employees and one independent sales
representative, all residing in the west central part of Florida. Currently two
of the employees are in management positions. None of the Company's employees
belong to a labor union and the Company believes its relations with employees
are satisfactory.
RAW MATERIALS AND GOVERNMENT REGULATIONS
The Company's current ThermaCool-TM- and paint production facilities are
subject to compliance with all regulatory requirements of federal, state and
municipal authorities, 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. The process of formulating paints and coatings
involves the mixing of resins and other substances, which if spilled could
potentially contaminate the soil or ground water at or surrounding the Company's
facilities. The Company believes that it is in substantial compliance with all
applicable laws and regulations. However, changes to current laws or regulations
or an unforeseen spill or accident at the Company's Darling Paint facility could
have a material adverse effect on the Company.
LEGAL PROCEEDINGS
To the knowledge of the officers and directors of the Company, other than as
disclosed in the notes to the financial statements, there are no material legal
proceedings now pending or threatened against the Company.
26
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
INITIAL DATE OF
NAME OFFICE AGE SERVICE
- -------------------------- --------------------------------------------- --- ----------------------
<S> <C> <C> <C>
John J. Pidorenko Chairman of the Board, President, Chief 55 August 12, 1993
Executive Officer
John R. Trusty Secretary, Treasurer, Chief Financial 41 January, 1995
Officer, Chief Accounting Officer, Director
Kendall B. Stiles, M.D. Director 40 April 4, 1996
Michael Hankins, Sr. Director 55 April 4, 1996
Darryl Riley Director 33 August 12, 1993
</TABLE>
Executive officers are elected by the Board of Directors and serve until
their successors are duly elected and qualify, subject to earlier removal by the
Board of Directors. Directors are elected at the annual meeting of shareholders
to serve for their term and until their respective successors are duly elected
and qualify, or until their earlier resignation, removal from office, or death.
The remaining directors may fill any vacancy in the Board of Directors for an
unexpired term. Directors serve for a one year term of office.
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
JOHN J. PIDORENKO is the founder of the Company and is currently its
Chairman of the Board, President and Chief Executive Officer. From 1990 through
August 1993, Mr. Pidorenko was an independent marketing consultant for
telemarketing strategies employed by large companies, such as Beneficial
Insurance. Mr. Pidorenko was employed as an Executive Vice President of
Fiberoptic Sensor Technologies according monitoring medical equipment
manufacturer for the years 1985 to 1989. Mr. Pidorenko was the founder, in 1983,
of Micro Technologies, which was sold to Fiberoptic Sensor Technologies in 1985.
JOHN R. TRUSTY has been the Company's Secretary and Chief Financial Officer
since January, 1995. Prior to his employment with the Company, Mr. Trusty was a
Certified Public Accountant sole practitioner from July 1992 through December
1994. During 1994, Mr. Trusty was involved with the Company as an independent
consultant. From April 1986 through July 1992, Mr. Trusty served as Controller
for Westshore Glass Corp., a glass, mirror and aluminum storefront wholesaler.
KENDALL B. STILES, M.D. has been a director of the Company since April 4,
1996. Dr. Stiles has been employed as an emergency room physician for the last
five years in the State of Virginia and is the officer, director and sole
shareholder of American Medical Emergency Services, Inc. located in Virginia.
Dr. Stiles is the brother-in-law of John Pidorenko.
MICHAEL HANKINS, SR. has been a director of the Company since April 4, 1996.
Since 1990, Mr. Hankins has been the owner/operator of the Southern Hotel, which
is a historic inn located in Missouri. From 1978 through 1990, Mr. Hankins was a
lead project analyst for Ralston Purina Company.
DARRYL RILEY has been a director of the Company since August 12, 1993. For
the last five years he has owned a general contracting company in the Central
Florida area.
MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES
During 1996, the Board of Directors held three meetings.
27
<PAGE>
There are no committees of the Board of Directors at the present time. In
order to meet NASDAQ SmallCap Market listing qualifications, the Board of
Directors of the Company intends to establish a compensation and audit
committee, each to be comprised of three members, following the completion of
this offering. Two of the three members on each committee shall be independent
directors. The Audit Committee functions will include recommending to the Board
of Directors the engagement of the Company's independent public accountants,
reviewing with such accountants the plan for and the results and scope of their
auditing engagement and certain other matters relating to their services as
provided to the Company. The Compensation Committee will make recommendations to
the Board of Directors regarding the compensation of executive officers,
including the bonus pool arrangement, and administer the Company's employee
benefit plans.
DIRECTOR COMPENSATION
A director who is an employee of the Company receives no additional
compensation for services as director or for attendance at or participation in
meetings. A director who is not an employee of the Company is paid $100 for each
Board or Committee meeting which the director attends, in person or otherwise. A
director who is not an employee is also reimbursed for out-of-pocket
expenditures incurred in attending or otherwise participating in meetings.
The Company currently has no other arrangements regarding compensation for
services as a director.
EXECUTIVE COMPENSATION
The following table shows the compensation paid or accrued by the Company
for the fiscal years ended November 30, 1996, to or for the account of the Chief
Executive Officer. No executive officer of the Company received compensation in
excess of $100,000 or more during the stated periods. Accordingly, the summary
compensation table does not include compensation of other executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ LTIP
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------------------- --------- --------- --------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John Pidorenko(1) 1996 120,481 35,000 -- -- 500,000(2) --
President, Chief 1995 50,000 -- -- -- -- --
Executive Officer 1994 -0- -- -- -- -- --
<CAPTION>
ALL OTHER
NAME AND COMPENSATION (1)
PRINCIPAL POSITION ($)
- ------------------------------- ------------------
<S> <C>
John Pidorenko(1) $ 31,103
President, Chief 15,000
Executive Officer 12,500
</TABLE>
- ------------------------
(1) Represents the net amount due the Company for advances. See "Certain
Transactions".
(2) See "Employment Agreements".
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
There were no options which were exercised by any executive officers during
fiscal 1996. There are further, no options which were granted to executive
officers which could have been exercised during fiscal 1996. Accordingly, the
aggregated options table has been omitted from this Prospectus.
EMPLOYMENT AGREEMENTS
On April 4, 1996, Mr. Pidorenko entered into an Employment Agreement with
the Company, which provides for his employment as President, and Chief Executive
Officer for a five year. Under this Agreement, Mr. Pidorenko will receive a base
salary of $150,000. As an additional inducement for entering into the Agreement,
the Board of Directors awarded Mr. Pidorenko a $35,000 bonus. Mr. Pidorenko was
also awarded options exercisable for five years which entitle him to acquire up
to 500,000 shares of the
28
<PAGE>
Company's Common Stock at the initial public offering price of $4.00. Mr.
Pidorenko has agreed with the Underwriter to reduce his base salary from
$150,000 to $90,000 annually, effective upon the closing of this offering. Mr.
Pidorenko has also agreed that so long as any current shareholders are subject
to a "lock-up" agreement with the Underwriter he shall not be paid a bonus or
granted a salary increase under his Employment Agreement.
The Compensation Committee will meet periodically, as the results of each
fiscal year are available, to consider awarding additional compensation to Mr.
Pidorenko above his salary. Mr. Pidorenko's employment agreement contains a
restrictive covenant not to compete for the term of the Agreement and for two
years following termination of service. The employment agreement also provides
for a car allowance and also requires the Company to indemnify Mr. Pidorenko to
the maximum extent provided under the laws of the State of Florida. This
Agreement provides for severance payments equal to 299% of the annual base
compensation, or a maximum of $270,000, due under this agreement in the event
there is a "change of control" of the Company, as defined therein, and he is
subsequently terminated without cause.
On April 4, 1996, Mr. Trusty entered into an Employment Agreement with the
Company, which provides for his employment as Chief Financial Officer for a one
year term. The Agreement is automatically renewable for an additional one year
period unless either party decides to terminate. Under the Agreement, Mr. Trusty
receives a base salary of $55,000 and was paid a $10,000 bonus. If the Agreement
is extended beyond one (1) year, Mr. Trusty's salary increases 10% in each year.
The Company and Mr. Trusty have agreed to extend his employment agreement until
April 1998. The Compensation Committee will meet periodically, as the results of
each fiscal year are available to consider awarding additional compensation to
Mr. Trusty above his salary. The Agreement contains a restrictive covenant not
to compete for the term of the Agreement and for two years following termination
of service. The Agreement provides for a car allowance and also requires the
Company to indemnify Mr. Trusty to the maximum extent provided under the laws of
the State of Florida. This Agreement also provides for severance payments equal
to 299% of the annual base compensation due under the Agreement in the event
there is a "change of control" of the Company, as defined therein, and he is
subsequently terminated without cause.
STOCK OPTION PLAN
The Company intends to adopt a stock option plan which will authorize the
grant of stock options under Section 422 of the Internal Revenue Code. A total
of 350,000 shares have been reserved for issuance under the plan. The plan will
provide that the exercise price of options granted under the plan shall not be
less than the fair market value of the shares on the date on which the option is
granted unless an employee, immediately before the grant owns more than 10% of
the total combined voting power of all classes of stock of the Company or any
subsidiaries, whereupon the exercise price shall be at least 110% of the fair
market value of the Shares on the date on which the option is granted. The term
of each option and the manner in which it may be exercised is determined by the
Board of Directors, or a committee appointed by the Board of Directors, provided
that no option may be exerciseable more than 10 years after the date of grant,
and, in the case of an incentive option granted to an eligible employee owning
more than 10% of the common stock, no more than five years. Options may be
granted to officers, directors, employees, and consultants. In the event of
death or disability, options may be exercised during a twelve month period
following such event. In the event that an optionholder is terminated other than
pursuant to death, disability or retirement, all options must be exercised by
the date of termination. Options are not transferable, except upon death of
optionee.
INDEMNIFICATION
The Company's Bylaws provide, in general, that the Company shall indemnify
its directors and officers under the circumstances specified under applicable
Florida law and gives authority to the Company to purchase insurance with
respect to such indemnification.
29
<PAGE>
Mr. Pidorenko and Mr. Trusty's employment agreements provide, among other
things, for: (i) indemnification by the Company of such individual to the
fullest extent permitted by law against any and all expenses, judgments, fines
and amounts paid in settlement of any claim against an indemnified party (the
"Indemnitee") unless it is determined that the indemnification is not permitted
under the law; and (ii) the prompt advancement of expenses to any Indemnitee in
connection with his defense against any threatened or pending claim. Similar
indemnification arrangements may from time to time be entered into with
additional officers of the Company or certain other employees or agents of the
Company. All directors of the Company are also parties to indemnification
agreements which provide for similar rights of indemnification.
The Company has been advised that it is the position of the Commission that
insofar as the foregoing provision may be invoked to disclaim liability for
damages arising under the Securities Act, that such provisions are against
public policy as expressed in the Securities Act and are therefore
unenforceable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership as of February 15, 1997, of the Company's Common Stock by the
directors and executive officers, individually and as a group. The table also
sets forth the only persons who, to the Company's knowledge, are the beneficial
owners of more than five (5%) percent of the outstanding voting securities of
the Company. Each person has sole voting and investment power with respect to
the shares reported, except as otherwise noted. The address of each individual
is in care of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENT OWNED (2)(8)
BEFORE -------------------------------------
NAME OF BENEFICIAL OWNER OFFERING (1)(7) BEFORE OFFERING AFTER OFFERING
- ----------------------------------------------------------------- -------------------- ------------------- ----------------
<S> <C> <C> <C>
John Pidorenko (3)(4)............................................ 916,067 50% 16.3%
John R. Trusty (3)............................................... 20,000 1% --%
Michael Hankins, Sr. (5)......................................... 143,490 8% 4.7%
Kendall B. Stiles, M.D. (6)...................................... 71,452 4% 2.3%
Darryl Riley (3)(7).............................................. 122,766 7% 4.0%
All Directors and Officers (as a group).......................... 1,273,775 70% 27.9%
</TABLE>
- ------------------------
(1) The amount and percentage of securities beneficially owned by an individual
are determined in accordance with the definition of beneficial ownership set
forth in the regulations of the Securities and Exchange Commission to the
Securities Exchange Act of 1934 and, accordingly, may include securities
owned by or for the spouse and/or minor children of the individual and any
other relative who has the same home as an individual, as well as other
securities as to which the individual has shares voting or investment power
or has the right to acquire within 60 days of the date of this Prospectus.
Beneficial ownership may be disclaimed as to certain of the securities.
Unless otherwise indicated, all shares listed are owned both of record and
beneficially.
(2) Based upon 1,882,210 shares of Common Stock issued and outstanding as of
February 15, 1977, and securities not outstanding which are subject to such
options, warrants, rights or conversion privileges shall be deemed to be
outstanding for the purpose of computing the percentage of outstanding
securities of the class owned by such person but shall not be deemed to be
outstanding for the purpose of computing the percentage of the class by any
other person.
(3) May be deemed to be a "founder" of the Company for the purpose of the
Securities Act of 1933, as amended.
(4) 416,067 shares of the Company's Common Stock currently held by Mr. Pidorenko
are being registered under the Securities Act as part of this Prospectus.
The above amount also includes options to acquire up to 500,000 shares
granted to Mr. Pidorenko in connection with his employment agreement
exercisable at $4.00 for 5 years. If the options are excluded, Mr. Pidorenko
currently owns approximately 23% of the outstanding shares of Common Stock
and would own approximately 16% of the outstanding shares of Common Stock
upon the closing of the offering. The above amount excludes 5,000,000 shares
of Voting Preferred Stock held by Mr. Pidorenko. Each share of Voting
Preferred Stock is entitled to a one-half ( 1/2) vote. Upon the closing of
this offering, and assuming the 416,067
30
<PAGE>
shares of Common Stock currently held by Mr. Pidorenko are sold, he would
control 45% of the voting equity securities of the Company through the
voting Preferred Stock. See "Certain Transactions", "Description of
Securities" and "Selling Security Holder."
(5) Includes 122,600 shares of Common Stock issued in exchange for cancelling a
$225,000 convertible note, plus accrued interest thereon. See "Certain
Transactions."
(6) Includes 54,570 shares of Common Stock issued in exchange for cancelling a
$100,000 convertible note, plus accrued interest thereon. Dr. Stiles is the
brother-in-law of Mr. Pidorenko. See "Certain Transactions."
(7) Includes 56,171 shares of Common Stock issued in exchange for cancelling a
$100,000 convertible note, plus accrued interest thereon. See "Certain
Transactions."
(8) Excludes (i) the Warrants, (ii) the Underwriter's Warrants, (iii) 350,000
shares reserved for issuance under the Company's 1996 Stock Option Plan.
Also reflects the conversion of $1,498,500 convertible notes, plus accrued
interest into 901,230 shares of Common Stock. See "Certain Transactions."
SELLING SECURITY HOLDER
The following table sets forth certain information with respect to the
Selling Security Holder for whom the Company is registering the Shares for
resale to the public. The Company will not receive any of the proceeds from the
sale of the Shares by the Selling Security Holder. Beneficial ownership of the
Shares by such Selling Security Holder after this Offering will depend on the
number of shares sold by the Selling Security Holder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ NUMBER OF ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT (1) SHARES OFFERED NUMBER PERCENT (2)
- ------------------------------------------------ --------- ------------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
John Pidorenko(1) 916,067 50% 416,067 500,000 16.3%
c/o 5419 Provost Drive
New Port Richey, Florida 34690-2939
</TABLE>
- ------------------------
(1) See Note (4) to "Security Ownership of Certain Beneficial Owners and
Management."
In connection with the formation of the Company, Mr. Pidorenko received
416,067 shares of Common Stock and he currently owns 5,000,000 of voting
Preferred Stock. Mr. Pidorenko has also entered into an employment agreement
with the Company that provides for the issuance of options to acquire up to
500,000 shares of the Company's Common Stock at the public offering price of
$4.00 per share for a five (5) year period. The Selling Security Holder agreed
not to sell his shares for a period of at least two (2) years from the date of
this Prospectus, without the Underwriter's consent. The Underwriter has the
right to extend this lock-up period for one (1) additional year if the Company
has not achieved during any 12 consecutive month period a cumulative pre-tax
profit on income, calculated in accordance with GAAP, of least $3,000,000.
Subject to this lock-up restriction, the Selling Security Holder have
advised the Company that sales of the Shares may be effected from time to time
in transactions (which may include block transactions) in the over-the-counter
market, in negotiated transaction, through the writing of options on the Common
Stock or a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Security Holder may effect such transactions by selling the
Common Stock directly to purchasers or through broker-dealers that may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers of shares of Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The Selling Security Holder and any broker-dealers that act in connection
with the sale of the shares of Common Stock as principals may be deemed to be
"underwriters" within the meaning of the
31
<PAGE>
Section 2(11) of the Securities Act and any commissions received by them and any
profit on the resale of the shares of Common Stock as principals might be deemed
to be underwriting discounts and commissions under the Securities Act. The
Selling Shareholders may agree to indemnify any agent, dealer, or broker-dealer
that participates in transactions involving sales of the shares of Common Stock
against certain liabilities arising under the Securities Act. The Company will
not receive any proceeds from the sales of the Shares by the Selling
Shareholders. Sales of the Shares by Security Holder, or even the potential of
such sales, would likely have an adverse effect on the market price of the
Common Stock.
At the time a particular offer of Shares is made by or on behalf of the
Selling Security Holder, to the extent required, a Prospectus will be
distributed which will set forth the number of Shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for Shares
purchased from the Selling Shareholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Exchange Act, and the regulations thereto, any person engaged in a
distribution of the securities of the Company offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling off" period (two to
nine days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rule 10b-6 and 10b-7, in connection
with transactions involving such securities, which provisions may limit the
timing of purchases and sales of such securities by the Selling Security Holder.
CERTAIN TRANSACTIONS
In September 1995, the Company commenced a private placement offering of
securities in the form of convertible notes in order to obtain funds to be used
for working capital, to pay operating expenses, to acquire a complementary paint
company or equipment necessary to manufacture the Company's insulative coatings,
and to pay the organizational and underwriting costs to be incurred in an
initial public offering of the Company's stock. A second offering of unsecured
notes and common stock was commenced January 1996 to obtain additional funds for
the purposes stated above. The selling agents received up to ten percent (10%)
of the amounts raised.
Included in notes payable at November 30, 1995 and 1996 are $740,203 and
$1,898,500, respectively, representing the aggregate amount raised by the
Company in various debt related offering as of those dates. Included in those
amounts are $740,203 and $1,898,500 at November 30, 1995 and 1996, respectively,
raised by the selling agents through the issuance of the securities under
private placement offerings described above. The notes bear interest at the rate
of twelve percent (12%), with principal and interest due on the earlier of the
date of the closing of the public offering or one year from the date of the
notes, which were executed during the period October 15 through July 26, 1996.
The notes were convertible, at the option of the holder, to an amount of common
stock based between 50% to 60% of the price of the shares of the Company's
common stock to be offered in the public offering. The option to convert was
conditioned upon the closing of the initial public offering of the Company's
stock. Because the closing did not occur, the notes are payable at the original
one year maturity date. At November 30, 1996, $505,000 of these notes were in
default.
As a condition to this offering, the holders of $1,498,500 of these notes
payable agreed to convert such notes plus accrued interest thereon into an
aggregate of 901,230 shares of Common Stock. 749,250 shares were issued in
exchange for a principal debt reduction of $1,498,500 and 151,980 shares of
Common Stock were issued to satisfy approximately $303,960 of accrued interest
due on all outstanding notes. Dr. Stiles, Mr. Hankins and Mr. Riley, each of
whom are directors of the Company converted $225,000, $100,000 and $100,000
notes respectively, plus accrued interest thereon into 143,490, 58,252 and
32
<PAGE>
66,171 shares of the Company's Common Stock as part of this exchange. In
connection with the conversion such holders have agreed not to sell their shares
for a period of at least two (2) years from the date of this Prospectus, without
the Underwriter's consent. The Underwriter has the right to extend this lock-up
period for one (1) additional year if the Company does not achieve during any 12
consecutive month period a cumulative pre-tax profit on income, calculated in
accordance with GAAP of at least $3,000,000. The holders of $400,000 of the
principal amount of the $1,898,500 notes described above will be paid off in
cash at the closing of this offering.
On February 13, 1997 the Company entred into a settlement agreement with
Consolidated Financial Management, Inc. ("Consolidated"). Consolidated was a
maker of a certain promissory note in the principal amount of $200,000 payable
to the Company, which was secured by 60,000 shares of Meadow Valley Corporation
common stock. Consolidated is the current holder of $300,000 face amount of
notes issued by the Company in favor of two bridge investors, who subsequently
assigned their notes to Consolidated. The Company was in default under its notes
due to the investors now held by Consolidated. Consolidated was in default under
its $200,000 note due to the Company, which is secured by the Meadow Valley
Corporation shares.
On February 13, 1997, Consolidated obtained a temporary restraining order in
the Superior Court, State of Arizona in and for the County of Mariposa which
prohibits ThermaCell from selling the Meadow Valley shares. The settlement
agreement that provides ThermaCell will release the Meadow Valley Corporation
shares to Consolidated upon ThermaCell receiving $100,000 from Consolidated.
ThermaCell will then agree to pay Consolidated either upon the closing of this
offering or 90 days the remaining sum of $258,789.01. Of this amount,
Consolidated has agreed to accept [$158,789.01] in cash and [50,000] shares of
Common Stock in substitution of this obligation. The parties have executed
mutual releases and made appropriate representations in connection with this
settlement agreement.
To induce certain stockholders to enter into the Lock-Up arrangements
required by the Underwriter, the Company issued 264,967 shares of Common Stock
so that such stockholders would have a $2.00 cost basis in their shares of
Common Stock, which is the same cost basis offered to the converting
noteholders.
Through all private placements of the notes described above, Company relied
upon exemptions from registration under the Securities Act pursuant to Sections
3(b) and 4(2) and Regulation D promulgated thereunder. Of the 55 investors, 40
represented to the Company that they were "accredited" as that term is defined
under Regulation D. All purchasers represented, in a manner satisfactory to the
Company, that they were sophisticated and otherwise understood the risks
associated with the offering.
In connection with the formation of the Company, Mr. Pidorenko received
416,067 shares of Common Stock and 5,000,000 shares of Preferred Stock. The
Preferred Stock has one-half vote per share on all matters submitted to the vote
of the holders of Common Stock, but did not originally have any conversion
rights. The voting Preferred Stock was entitled to one vote per share but was
reduced by one-half vote per share.
In order to provide Mr. Pidorenko a long-term financial incentive for the
Company's success, Mr. Pidorenko has the option to convert all or part of his
Voting Preferred Stock into shares of the Company's Common Stock. To the extent
the Company has generated at least one fiscal quarter of positive net income
during any subsequent fiscal year after this offering, Mr. Pidorenko would be
entitled to convert up to one half (1/2) of his shares of Voting Preferred Stock
into shares of Common Stock at a conversion ratio of four shares of Voting
Preferred Stock for one share of Common Stock, or up to 625,000 shares of Common
Stock. The other half of Mr. Pidorenko's Voting Preferred Stock is convertible
into an additional 625,000 shares of Common Stock at the same conversion ratio
provided that the Company generates at least one complete fiscal year with
positive net income. The issuance of the Voting Preferred Stock to Mr. Pidorenko
constitutes an anti-takeover device.
33
<PAGE>
Mr. Pidorenko also entered into an employment agreement with the Company
that provided for a $35,000 cash payment upon execution, which he has deferred,
and the issuance of options to acquire up to 500,000 shares of the Company's
Common Stock at the public offering price of $4.00 per share for a five year
period. John R. Trusty, the Company's Chief Financial Officer, owns 20,000
shares of the Company's Common Stock which he received as nominal consideration
for his services to the Company at a salary below market levels. Mr. Trusty
received a $10,000 bonus upon execution of his employment agreement which
provides for a minimum annual base salary of $55,000. See "Management --
Employment Agreement".
From time to time Mr. Pidorenko has advanced funds to the Company and the
Company has advanced funds to Mr. Pidorenko. During the year ended November 30,
1996, the Company advanced Mr. Pidorenko $31,103 in excess of funds he advanced
to the Company. At November 30, 1996, the net amount payable by the Company to
Mr. Pidorenko was $5,723. Mr. Pidorenko also agreed to defer his $35,000 bonus
due upon execution of his Employment Agreement and a portion of his base salary.
As of February 15, 1997, Mr. Pidorenko owed the Company approximately $47,000.
Mr. Pidorenko has agreed to defer portions of his monthly salary over the next
year to repay these advances. Mr. Pidorenko's daughter and son-in-law are
employed by the Company in administrative and clerical functions. The Company
paid these individuals approximately $37,000 in fiscal 1996. These individuals
do not have employment agreements.
The Company believes that all transactions with officers, directors or
affiliates to date are on terms no less favorable than those available from
unaffiliated third parties. Although no other transactions were contemplated, it
is the Company's policy that all future transactions with its officers,
directors or affiliates will be approved by the independent members of the
Company's Board of Directors not having an interest in the transaction and will
be on terms no less favorable than could be obtained from unaffiliated third
parties.
DESCRIPTION OF SECURITIES
GENERAL
The following description is qualified in all respects by reference to the
Company's Certificate of Incorporation and Bylaws, as amended, and the Warrant
Agreement, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus is a part.
The Company's certificate of incorporation, as amended, authorizes
20,000,000 shares of Common Stock, $0.0001 par value and 5,000,000 shares of
preferred stock, $0.0001 par value. Of this total, 1,822,210 shares of Common
Stock have been issued and are outstanding at February 15, 1997. Additionally,
the Company has reserved 850,000 shares of the Company's Common Stock for
issuance upon exercise of outstanding warrants or options or options available
under certain stock option plans. If all of the Warrants and other outstanding
options and warrants were exercised after completion of this offering, the
Company would have outstanding approximately 5,172,210 shares of Common Stock.
The Company has 5,000,000 shares of Preferred Stock outstanding designated as
the Series A Convertible Voting Preferred Stock (the "Voting Preferred stock").
Mr. Pidorenko is the holder of 5,000,000 shares of Voting Preferred Stock. Each
share of Voting Preferred Stock is entitled to one vote per share on all matters
submitted to a vote of Common Stockholders.
UNITS
The Common Stock and Warrants offered hereby will be sold only in Units.
Each Unit consists of one Share of Common Stock and one Warrant. The Common
Stock and Warrants will be separately transferable 90 days after the date of
this Prospectus, or such shorter period, as determined by the Underwriter.
34
<PAGE>
COMMON STOCK
Holders of shares of Common Stock are entitled to dividends when and as
declared by the Board of Directors from funds legally available therefor and
upon liquidation are entitled to share ratably in any distribution to
stockholders. All holders of Common Stock are entitled to one vote per share on
any matter coming before the stockholders for a vote, including the election of
directors. In keeping with stockholder democracy rights, the Company's
Certificate of Incorporation permits the stockholders to remove any director or
the entire board of directors, with or without cause, upon a vote of a majority
of the outstanding shares.
All issued and outstanding shares of Common Stock are validly issued, fully
paid and non-assessable. Holders of the Common Stock do not have pre-emptive
rights or other rights to subscribe for unissued or treasury shares or
securities convertible into shares.
Under the Florida General Corporation Law, the Company has availed itself of
the provisions permitting the limitation of liability through the
indemnification of officers, directors, employees and agents of Florida
corporations. See "Risk Factors -- Limitation of Directors'
Liability/Indemnification."
PREFERRED STOCK
As of the closing of this offering, the Company will have outstanding
5,000,000 shares of Voting Preferred Stock, all of which were held by Mr.
Pidorenko. The Voting Preferred Stock has the right to cast one-half vote per
share on each and any matter on which the Common Stock is entitled to vote.
Accordingly, Mr. Pidorenko, will be able to control the affairs and operations
of the Company including, but not limited to, election of directors, sale of
assets or other business opportunities upon the closing of this offering.
In addition to preferential voting rights, the Voting Preferred Stock held
by Mr. Pidorenko is subject to conversion into shares of Common Stock if the
Company meets certain earning targets after the closing of this offering. The
Voting of Preferred Stock has no dividend rights, redemption provisions or
preemptive rights.
WARRANTS
The Warrants will be issued subject to the terms and conditions of a Warrant
Agreement between the Company and Corporate Stock Transfer, Denver, Colorado, as
Warrant Agent. The following description of the Warrants is not complete and is
qualified in all respects by the Warrant Agreement which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
Each Warrant shall entitle the holder thereof to purchase one (1) share of
Common Stock during the period commencing twelve (12) months from the date of
this Prospectus and expiring at the close of business on the last day of the
four (4) year period following the date of this Prospectus. The exercise price
of the Warrants shall be $4.25 per share. The Company may call the Warrants for
a redemption price of $.10 per Warrant commencing eighteen (18) months after the
date of this Prospectus (or earlier at the sole discretion of the Underwriter)
if notice of not less than thirty (30) days is given and the closing sale price
of the Common Stock has been at least 250% of the then exercise price of the
Warrants on all twenty (20) of the trading days ending on the third day prior to
the day on which notice is given.
The exercise price of the Warrants has been determined by negotiations
between the Company and the Underwriter. In determining the price, the Company
and the Underwriter considered a number of factors, including the prospects of
the Company and the industry in which it competes, an assessment of the
Company's management and the general conditions of the securities market. The
Company may, at the sole discretion of its Board of Directors, reduce the
exercise price (upon effectiveness of a post-effective amendment to the
registration statement under the Securities Act), increase the number of shares
that
35
<PAGE>
may be purchased upon exercise of a Warrant and/or extend the expiration date of
the Warrants should it deem that such actions are in the best interests of the
Company.
The Warrants contain adjustment provisions to avoid dilution of the equity
interest represented by the underlying shares upon the occurrence of certain
events, such as share dividends or splits. The Warrants do not have
anti-dilution protection if the Company issues equity securities at a price
below the Warrant exercise price. In the event of liquidation, dissolution or
winding up of the Company, Warrant Holders will not be entitled to receive any
assets of the Company available for distribution to the holders of Common Stock.
Warrants Holders will have no voting, pre-emptive, liquidation or other rights
of a stockholder, and no dividends will be declared on the Warrants.
The Warrants may be exercised upon surrender of the applicable Warrant
certificate on or prior to the expiration of the Warrant exercise period,
accompanied by payment in full of the exercise price for the number of Warrants
being exercised.
The Company has agreed to use its best efforts to maintain the effectiveness
of the Registration Statement under the Securities Act for the Common Stock
underlying the Warrants and to take such other actions under the laws of various
States as may be required to cause the lawful sale of securities upon the
exercise of Warrants if, in the opinion of the Board of Directors, upon advice
of counsel, the sale of securities upon such exercise would be unlawful. In
addition to the 1,250,000 Warrants included in the Units offered hereby, the
Company may issue up to 125,000 Warrants included in the Units issuable upon
exercise of the Underwriter's Warrants.
CERTAIN FEDERAL INCOME TAX MATTERS
The following is a brief summary of certain federal income tax consequences
associated with the purchase and ownership of the Units, the Common Stock and
Warrants included in the Units and the exercise of the Warrants. Prospective
investors are urged to consult with their individual tax advisors concerning the
tax aspects of the Units in their own particular circumstances.
For federal income tax purposes, the issue price of a Unit must be allocated
between the Common Stock and the Warrant included in the Units in proportion to
their respective fair market values at the time of issuance. The amount
allocated to each component element in the Unit will constitute the tax basis of
that element. Upon exercise of a Warrant, the basis of the Warrant plus the
amount paid on the exercise of the Warrant will be the basis of the new share of
Common Stock issued with respect thereto.
No gain or loss will be recognized upon the exercise of a Warrant (nor will
the Company recognize any income upon the exercise of a Warrant). The holding
period of a share of Common Stock acquired upon the exercise of a Warrant will
commence upon the exercise date of the Warrant. Any gain or loss recognized by a
holder upon the sale of a share of Common Stock will generally constitute a
capital gain or capital loss. Any loss recognized upon the lapse of a Warrant
would ordinarily constitute a capital loss.
The federal income tax considerations discussed above are based upon the
current provisions of the Internal Revenue Code, and there can no assurance that
such provisions will not be changed in the future, either prospectively or
retroactively.
TRANSFER AGENT AND WARRANT AGENT
Upon the closing of this offering, the transfer agent and warrant agent for
the Company's securities will be Corporate Stock Transfer, Inc., Denver,
Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company had outstanding 1,822,210
shares of its Common Stock. Of this amount, 416,067 shares of Common Stock are
being registered on behalf of the Selling
36
<PAGE>
Security Holder. Holders of shares of Common Stock ( % of current
outstanding shares) have agreed not to sell their shares for a period of at
least two (2) years from the date of this Prospectus, without the Underwriter's
consent. The Underwriter has the right to extend this lock-up period for one (1)
additional year if the Company has not achieved during any 12 consecutive month
period a cumulative pre-tax profit or income, calculated in accordance with
GAAP, of at least $3,000,000. Approximately shares of the Company's common
stock will be available for resale pursuant to Rule 144 after the closing of
this offering. The possibility of future sales by existing stockholders under
Rule 144 or otherwise may, in the future, have a depressive effect on the market
price of the Common Stock, and such sales, if substantial, might also adversely
affect the Company's ability to raise additional capital. See "Description of
Securities," and "Underwriting."
Generally under Rule 144, a person holding restricted securities for a
period of two years may, if there is adequate public information available
concerning the Company, sell every three months in ordinary brokerage
transactions or transactions with a market maker an amount equal to the greater
of (a) 1% of the Company's then outstanding stock or (b) the average weekly
volume of sales during the four calendar weeks preceding the sale 90 days after
the date of this Prospectus. Rule 144 does not limit the amount of restricted
securities which a person who is not an affiliate of the Company may sell after
three years. Affiliate sales under Rule 144 are subject to such volume
limitations regardless of the length of the holding period. Sales under Rule 144
may, in the future, have a depressive effect on the market price of the
Company's securities should a public market develop.
Future sales of the Common Stock underlying the Warrants, the Underwriter's
Warrants, and options granted for issuance under stock option plans, or to Mr.
Pidorenko pursuant to Rule 144 or otherwise, could depress the market price of
Common Stock. The Company is unable to predict when such options, warrants or
other commitments to purchase the Common Stock of the Company would in fact be
exercised. See "Risk Factors."
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
by and between the Company and the Underwriter (the "Underwriting Agreement"),
the Underwriter has agreed to purchase from the Company, and the Company has
agreed to sell to the Underwriter, an aggregate of 1,250,000 Units, at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of certificates representing the Units is subject
to certain conditions precedent, and that the Underwriter will purchase all of
the Units offered hereby on a "firm commitment" basis if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Units directly to the public at the initial public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $.20 per Unit. After the initial public offering,
the public offering price and concession may be changed.
The Company has granted to the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase up to an aggregate
of 187,500 additional Units at the initial per Unit public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. The Underwriter may exercise this option only to cover
over-allotments, if any, made in connection with the sale of the Units offered
hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds of this offering, including any
Units purchased pursuant to the Underwriter's over-allotment option, no portion
of which has been paid to date.
37
<PAGE>
The Company and the Underwriter have agreed to indemnify each other against
certain civil liabilities in connection with this offering, including
liabilities under the Securities Act.
The Company and all current officers and directors, who hold 773,775 shares
of Common Stock, and the holders of shares of common stock issued by the
Company in various private offerings have agreed not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or rights to acquire
shares of Common Stock without the prior written consent of the Underwriter for
a period of 24 months after the date of this Prospectus and up to an additional
12 months if the Company does not achieve certain performance goals.
The Company has agreed to sell to the Underwriter, for an aggregate price of
$10, the right to purchase up to an aggregate of 125,000 Units (the
"Underwriter's Options"). The Underwriter's Options will be exercisable for a
four-year period commencing one year after the date of the Prospectus, at a per
Unit exercise price equal to 165% of the initial per Unit public offering price
of the Units being offered hereby. The warrants underlying the Underwriter's
Options have the same terms and conditions as the Warrants to be sold to the
public in this Offering, except that they are not subject to redemption by the
Company until the Underwriter's Options have been exercised and the underlying
warrants are outstanding. The Underwriter's Options may not be sold, assigned,
transferred, pledged or hypothecated for a period of 12 months from the date of
the Prospectus except to the Underwriter or its officers.
The Company has agreed to file, during the four-year period beginning one
year from the date of the Prospectus, at the request of the holders of a
majority of the Underwriter's Options and the underlying shares of Common Stock
and Warrants, and to use its best efforts to cause to become effective, a post-
effective amendment to the Registration Statement or a new registration
statement under the Securities Act, as required to permit the public sale of the
shares of Common Stock and Warrants issued or issuable upon exercise of the
Underwriter's Options. In addition, the Company has agreed to give advance
notice to holders of the Underwriter's Options of its intention to file certain
registration statements commencing one year and ending six years after the date
of the Prospectus, and in such case, holders of such Underwriter's Options or
underlying shares of Common Stock and warrants shall have the right to require
the Company to include all or part of such shares of Common Stock and Warrants
underlying such Underwriter's Options in such registration statement at the
Company's expense.
For the life of the Underwriter's Options, the holders thereof are given the
opportunity to profit from a rise in the market price of the shares of Common
Stock and Warrants, which may result in a dilution of the interests of other
shareholders. As a result, the Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Underwriter's Options are outstanding. The holders of the
Underwriter's Options might be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain additional equity capital on
terms more favorable to the Company than those provided by the Underwriter's
Options. Any profit realized on the sale of the shares of Common Stock issuable
upon the exercise of the Underwriter's Options may be deemed additional
underwriting compensation.
As part of the Underwriting arrangements, the Company has agreed to enter
into an agreement retaining the Underwriter as a financial consultant to the
Company for a two-year period commencing on the date of the completion of this
offering at a fee of 1% of the gross proceeds of this offering, to be paid in
full on the completion of this offering. The underwriting agreement will also
provide for a finder's fee, ranging from 5% of the first $3,000,000 down to 1%
of the excess over $10,000,000 of the consideration involved in any capital
business transaction (including mergers and acquisitions) consummated by the
Company in which the Underwriter introduced the other party to the Company
during the five-year period following the completion of the offering.
Additionally, the Underwriting Agreement provides that the Underwriter shall
have the right for a period of two years to either designate an observer to the
Company's Board of Directors or to cause the Company to elect a designee of the
Underwriter to the Company's Board of Directors.
38
<PAGE>
Upon the exercise of the Warrants, the Company will pay the Underwriter a
fee of 5% of the aggregate exercise price if (i) the market price of its Common
Stock on the date the Warrant is exercised is greater than the then exercise
price of the Warrants; (ii) the exercise of the Warrant was solicited by a
member of the NASD and the customer states in writing that the transaction was
solicited and designates in writing the broker-dealer to receive compensation
for the exercise; (iii) the Warrant is not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of exercise of the Warrants; (v) the solicitation of
exercise of the Warrant was not in violation of Rule 10b-6 promulgated under the
Securities Exchange Act of 1934; and (vi) no fee will be paid on non-solicited
exercises. The Underwriter as well as another broker-dealer must cease bidding
for or purchasing the Company's securities for up to nine business days prior to
such solicitation efforts until the later of the termination of such efforts or
the waiver of such fee. There will not be a Warrant solicitation for 12 months
from the date of this Prospectus.
Prior to this offering there has been no public trading market for the
Company's securities. The initial public offering price of the Units and the
exercise price and the terms of the Warrants have been determined by
negotiations between the Company and the Underwriter. Factors considered in
determining the initial public offering price, in addition to prevailing market
conditions, included the history of and prospects for the industry in which the
Company competes, and assessment of the Company's management, the prospects of
the Company, its capital structure and such other factors as were deemed
relevant.
The foregoing is a summary of the material terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Underwriter has informed the Company that no sales will be made to any
account over which the Underwriter exercises discretionary authority.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement filed
by the Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act, omits certain information contained in the
Registration Statement. Statements contained herein concerning provisions of any
documents are not necessarily complete, and each statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
The Company will provide without charge to each person who receives a Prospectus
upon written or oral request of such person a copy of any information
incorporated by reference.
The obligation to file certain periodic reports arises under Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as a
result of the effectiveness of a registration statement under the Securities Act
as well as a registration under the Exchange Act. The Company's registration of
its securities under Section 12(g) of the Exchange Act will obligate the Company
to file proxy statements and triggers other reports. The Company intends to
furnish its stockholders with annual reports containing audited financial
statements. The Company intends to register securities offered in this offering
under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act").
The Registration Statement, reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 5th Street, NW,
Washington, DC 20549-1004, and at the regional offices of the Commission at 7
World Trade Center, 13th Floor, New York, New York 10048 and at the Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. The
Registration Statement, including the exhibits thereto, may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 at prescribed rates.
39
<PAGE>
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Clearwater, Florida. This
law firm owns 60,000 shares of the Company's Common Stock. Singer Zamansky LLP,
New York, New York, is acting as counsel for the Underwriter in connection with
this offering.
EXPERTS
The financial statements of the Company as of November 30, 1995 and 1996 and
for each of the years then ended and for the period from August 12, 1993
(inception) to November 30, 1995, have been included herein and in the
registration statement in reliance upon the report of Cherry, Bekaert & Holland,
L.L.P., independent certified public accountants, appearing elsewhere herein and
upon the authority of said firm as experts in accounting and auditing. The
report of Cherry, Bekaert & Holland, L.L.P., covering the financial statements
contains an explanatory paragraph that, based upon operating losses and working
capital deficiency, substantial doubt about the Company's ability to continue as
a going concern exists. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
40
<PAGE>
THERMACELL TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1996
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ThermaCell Technologies, Inc.:
Report of Independent Certified Public Accountants................................................... F-2
Balance Sheets....................................................................................... F-3
Statements of Loss................................................................................... F-4
Statements of Changes in Stockholders' Equity........................................................ F-5
Statements of Cash Flows............................................................................. F-6
Notes to Financial Statements........................................................................ F-7-14
C.F. Darling Paint & Chemicals, Inc.:
Report of Independent Certified Public Accountants................................................... F-15
Balance Sheets....................................................................................... F-16
Statements of Income................................................................................. F-17
Statements of Stockholders' Equity................................................................... F-18
Statements of Cash Flows............................................................................. F-19
Notes to Financial Statements........................................................................ F-20-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Board of Directors
ThermaCell Technologies, Inc.
Tampa, Florida
We have audited the accompanying balance sheets of ThermaCell Technologies,
Inc. as of November 30, 1995 and 1996 and the related statements of loss,
changes in stockholders' equity, and cash flows for the years then ended and the
period from August 12, 1993 (inception) to November 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ThermaCell Technologies,
Inc. as of November 30, 1995 and 1996 and the results of its operations and its
cash flows for the years ended and the period from August 12, 1993 (inception)
to November 30, 1995 in conformity with generally accepted accounting
principles.
As described in Note 2 to the financial statements, the accompanying
financial statements have been prepared assuming the Company will continue as a
going concern. As shown in the financial statements, the Company's accumulated
deficit at November 30, 1996 was $1,548,840. At November 30, 1996, the Company's
current liabilities exceeded current assets by $2,444,417. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding these matters are further described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Clearwater, Florida
January 15, 1997
except for Note 17 as to which
the date is February 7, 1997
F-2
<PAGE>
THERMACELL TECHNOLOGIES, INC.
BALANCE SHEETS
NOVEMBER 30, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash.................................................................................... $ 90,773 $ 3,512
Notes receivable........................................................................ 213,750
Accounts receivable
Trade, net of allowance for uncollectible accounts of $21,000 for 1996................ 2,677 64,006
Employees............................................................................. 224 --
Officers.............................................................................. 18,582 4,637
Other................................................................................. -- 6,000
--------- ----------
21,483 74,643
--------- ----------
Inventories............................................................................. 71,016 150,872
Prepaid assets.......................................................................... -- 7,695
Deposits................................................................................ 7,543 6,323
--------- ----------
TOTAL CURRENT ASSETS................................................................ 190,815 456,795
--------- ----------
PROPERTY AND EQUIPMENT.................................................................... 114,373 322,979
Less accumulated depreciation........................................................... 11,011 41,060
--------- ----------
103,362 281,919
--------- ----------
OTHER ASSETS
Note receivable......................................................................... 100,000 --
Restricted cash......................................................................... -- 15,000
Organizational costs, net............................................................... 2,445 2,604
Patents................................................................................. 10,058 14,271
Trademark............................................................................... -- 3,036
Agreement not to compete, net........................................................... 25,000 16,667
Deferred offering costs................................................................. 16,590 297,648
Deferred Loan Costs, net................................................................ 79,985 36,550
Deferred income tax benefit, net........................................................ 125,657 337,350
Goodwill, net........................................................................... 80,821 75,433
--------- ----------
440,556 798,559
--------- ----------
$ 734,733 $1,537,273
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable
Bridge financing........................................................................ $ 740,203 $1,898,500
Stockholders............................................................................ 203,304 135,000
Other................................................................................... -- 24,323
--------- ----------
943,507 2,057,823
Accounts payable and accrued expenses
Trade accounts.......................................................................... 16,181 444,537
Accrued payroll and payroll taxes....................................................... 55,024 175,696
Accrued interest........................................................................ 29,396 223,156
Commissions payable..................................................................... 21,020 --
--------- ----------
TOTAL CURRENT LIABILITIES........................................................... 1,065,128 2,901,212
--------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.0001.......................................................
5,000,000 shares authorized, issued and outstanding, 1995 and 1996.................... 500 500
Common stock, par value $.0001.
Authorized 20,000,000 shares, outstanding 667,472 and 869,899 shares, 1995 and 1996,
respectively......................................................................... 66 87
Additional paid-in capital.............................................................. 184,326 184,314
Accumulated deficit:
During developmental stage............................................................ (515,287) (515,287)
Subsequent to developmental stage..................................................... -- (1,033,553)
--------- ----------
Total accumulated deficit........................................................... (515,287) (1,548,840)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY........................................................ (330,395) (1,363,939)
--------- ----------
$ 734,733 $1,537,273
--------- ----------
--------- ----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
THERMACELL TECHNOLOGIES, INC.
STATEMENTS OF LOSS
<TABLE>
<CAPTION>
PERIOD FROM FOR THE YEARS ENDED
AUGUST 12, 1993 NOVEMBER 30,
(INCEPTION) TO --------------------------
NOVEMBER 30, 1995 1995 1996
----------------- ----------- -------------
<S> <C> <C> <C>
REVENUE...........................................................
Sales........................................................... $ 61,473 $ 43,691 $ 615,845
LESS COST OF SALES................................................ 40,722 15,431 394,867
----------------- ----------- -------------
GROSS PROFIT.................................................. 20,751 28,260 220,978
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...................... 616,594 376,919 1,280,339
----------------- ----------- -------------
LOSS FROM OPERATIONS.......................................... (595,843) (348,659) (1,059,361)
----------------- ----------- -------------
OTHER INCOME (EXPENSE)
Commissions..................................................... 20,448 2,272 --
Interest income................................................. -- -- 24,763
Interest expense................................................ (65,549) (47,645) (207,147)
Loss on sale of fixed assets.................................... -- -- (3,500)
----------------- ----------- -------------
TOTAL OTHER INCOME (EXPENSE).................................. (45,101) (45,373) (185,884)
----------------- ----------- -------------
LOSS BEFORE INCOME TAXES...................................... (640,944) (394,032) (1,245,245)
INCOME TAXES
Deferred income tax benefit..................................... 125,657 79,175 211,692
----------------- ----------- -------------
NET LOSS...................................................... $ (515,287) $ (314,857) $ (1,033,553)
----------------- ----------- -------------
----------------- ----------- -------------
Loss per common share............................................. $ (0.50) $ (1.34)
----------- -------------
----------- -------------
Weighted average number of common share outstanding............... 626,191 771,154
----------- -------------
----------- -------------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THERMACELL TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------ ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash..... 5,669,551 $ 567 -- $ -- $ 177,383 $ -- $ 177,950
Issuance of preferred stock for
cash................................. -- -- 4,975,000 497 45 -- 542
Issuance of common stock under
employment contracts................. 60,000 6 -- -- (6) -- --
Issuance of common stock to directors
for services......................... 31,400 3 -- -- (3) -- --
Effect of reverse stock split:
Common -- one for ten shares........ (5,184,855) (519) -- -- 519 -- --
Issuance of stock as perquisite for
providing services................... 30,000 3 -- -- (3) -- --
Net loss for the year ended November
30, 1994............................. -- -- -- -- -- (200,430) (200,430)
----------- ----- ----------- ----- ----------- ------------ ----------
Balance November 30, 1994......... 606,096 60 4,975,000 497 177,935 (200,430) (21,938)
Issuance of common stock for cash..... 11,400 1 -- -- 6,399 -- 6,400
Issuance of common stock under
employment contracts................. 300,000 30 -- -- (30) -- --
Issuance of stock as a perquisite for
providing bridge loan financing...... 52,364 5 -- -- (5) -- --
Issuance of stock to a promoter as a
perquisite........................... 250,000 25 -- -- (25) -- --
Effect of reverse stock split:
Common -- one for ten shares........ (552,388) (55) -- -- 55 -- --
Net loss for the year ended November
30, 1995............................. -- -- -- -- -- (314,857) (314,857)
----------- ----- ----------- ----- ----------- ------------ ----------
Balance November 30, 1995......... 667,472 $ 66 4,975,000 $ 497 $ 184,329 $ (515,287) $ (330,395)
Issuance of common stock as incentive
to employees......................... 19,000 2 -- -- (2) -- --
Issuance of stock as a perquisite for
providing financing/capital.......... 153,227 16 -- -- (7) -- 9
Issuance of stock to a promoter as a
perquisite........................... 20,000 2 -- -- (2) -- --
Issuance of stock as a credit for
services............................. 10,200 1 -- -- (1) -- --
Net loss for the year ended November
30, 1996............................. -- -- -- -- -- (1,033,553) (1,033,553)
----------- ----- ----------- ----- ----------- ------------ ----------
Balance November 30, 1996......... 869,899 $ 87 4,975,000 $ 497 $ 184,317 $(1,548,840) $(1,363,939)
----------- ----- ----------- ----- ----------- ------------ ----------
----------- ----- ----------- ----- ----------- ------------ ----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
THERMACELL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM FOR THE YEARS ENDED
AUGUST 12, 1993 NOVEMBER 30,
(INCEPTION) TO ---------------------------
NOVEMBER 30, 1995 1995 1996
----------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash used in operating
activities
Net loss..................................................... $ (515,287) $ (314,857) $ (1,033,553)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation............................................... 11,011 6,606 30,049
Amortization............................................... 810 486 171,930
Loss on sale of capital asset.............................. -- -- 3,500
Deferred income tax benefit................................ (125,657) (79,175) (211,692)
(Increase) decrease in accounts receivable................. (21,483) 8,926 (53,160)
Increase in inventories.................................... (71,016) (71,016) (79,856)
(Increase) decrease in prepaid assets...................... -- -- (7,695)
(Increase) decrease in deposits............................ (7,543) (7,543) 1,220
Increase in other assets................................... (119,134) (110,736) (7,249)
Increase (decrease) in accounts payable.................... 16,181 (8,372) 428,356
Increase in accrued expenses............................... 105,440 105,440 293,412
----------------- ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES.................... (726,678) (470,241) (464,738)
----------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................... (114,373) (92,349) (213,606)
Proceeds from sale of capital asset............................ -- -- 1,500
Issuance of note receivable.................................... (100,000) (100,000) (115,000)
Collections on notes receivable................................ -- -- 1,250
----------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES.................... (214,373) (192,349) (325,856)
----------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock......................... 184,892 6,400 68
Proceeds from issuance of notes payable........................ 1,137,707 1,037,707 1,192,822
Principal payments on notes payable............................ (194,200) (194,200) (10,202)
Principal payments on stockholder loans........................ -- -- (68,304)
Costs associated with obtaining financing...................... (96,575) (96,575) (396,051)
----------------- ------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................ 1,031,824 753,332 718,333
----------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH.......................... 90,773 90,742 (72,261)
CASH BEGINNING................................................... -- 31 90,773
----------------- ------------ -------------
CASH ENDING...................................................... $ 90,773 90,773 $ 18,512
----------------- ------------ -------------
----------------- ------------ -------------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company was formed August 12, 1993. For the year ended November 30,
1995, the Company was in the developmental stage. During the first three
quarters of fiscal year end 1996 significant manufacturing and sales efforts
began ushering the company out of the development stage by the beginning of the
fourth quarter of that year. Operations prior to that time were devoted
primarily to developing products, raising capital, obtaining financing,
acquiring manufacturing and sales facilities, marketing, and administrative
functions.
INVENTORIES
Inventories are valued using the first-in, first-out (FIFO) method. All
inventories are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of assets.
INTANGIBLE ASSETS
Intangible assets subject to amortization include organization costs,
agreement not to compete, loan costs, trademark, goodwill and patents.
Organizational costs and agreement not to compete are being amortized on a
straight-line basis over five years and three years, respectively. Loan costs
are being amortized using the interest method over the lives of the related
loans. Trademark and goodwill are being amortized on a straight-line basis over
ten and fifteen years, respectively. Amounts attributable to patents will be
amortized over the useful life of the patent (but not more than 20 years)
beginning the month the patent becomes effective.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's cash, trade accounts receivable
and payable approximated their carrying value at year end. It is not practicable
to estimate the fair value of other financial instruments held or owned by the
Company including, but not limited to, other receivables and payables due to the
lack of readily available information regarding the marketability of such
instruments and the effect of credit risk on the measurement of fair value for
such instruments.
F-7
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER COMMON SHARE
Primary loss per common share equals net loss divided by the weighted
average number of common shares outstanding. The convertible securities are not
included in the fully diluted earnings per share calculation for November 30,
1995 because they are anti-dilutive. There were no convertible securities at
November 30, 1996 as discussed in Note 7. Consequently, there is no separate
presentation of fully dilutive loss per share.
ADVERTISING
The Company expenses advertising costs as they are incurred.
INCOME TAXES
Income taxes are accounted for by an asset and liability approach for
financial accounting and reporting purposes. Deferred income taxes are provided
based on the estimated future tax effects of differences between financial
statement carrying amounts and the tax bases of existing assets and liabilities,
and are adjusted for changes in tax laws and tax rates when those changes are
enacted. The provision for income taxes represents the total of income taxes
paid or payable for the current year, plus the change in deferred taxes during
the year.
NOTE 2--GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as a going concern. However, the Company has sustained substantial
operating losses since its inception. At November 30, 1996, the Company's
accumulated deficit was $1,548,840, and current liabilities exceeded current
assets by $2,444,417.
The history of reoccurring losses from operations and insufficient cash
resources to fund operations raise substantial doubt as to the Company's ability
to continue as a going concern. Management, however, believes the following
actions which are being taken to revise the Company's operating and financial
requirements provide the opportunity for the Company to continue as a going
concern, although no assurance to that effect can be given.
Management is actively seeking an underwriter for a second attempt at an
initial public offering. Management believes the proceeds expected to be
received from the offering will be sufficient to satisfy its anticipated cash
needs for approximately twelve months following the completion of the offering.
Also, management plans to negotiate extensions on all the notes payable.
Management believes that these actions, as well as the implementation of
organizational and operational changes, will enable the Company to continue as a
going concern, although no assurance can be given as to the ultimate success of
any of these actions. The Company is also currently investigating options to
merge with an existing public company or to sell to interested buyers, should
the offer fail to close.
F-8
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INVENTORIES
Inventories consist of the following at November 30, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Raw Materials.................................................................... $ 36,633 76,374
Finished goods (manufactured and purchased)...................................... 34,383 74,498
--------- ----------
$ 71,016 $ 105,872
--------- ----------
--------- ----------
</TABLE>
NOTE 4--RESTRICTED CASH
Cash restricted for payment to former note holder and held in agency by the
Company was $15,000 at November 30, 1996.
NOTE 5--NOTES RECEIVABLE
A note receivable of $200,000 at November 30, 1996 is from an unrelated
third party. Quarterly payments of interest at twelve percent commenced March 6,
1996, with full payment due by December 17, 1996. The note is collateralized by
equity securities. Subsequent to fiscal year end November 30, 1996, the note
went into default. However, no allowance for uncollectible amount has been
recorded because of the settlement agreement as discussed in Note 16.
An unsecured, non-interest bearing note receivable of $13,750 at November
30, 1996 is from a customer of the Company. Monthly principal payments commended
in November 1996, and full payment is due September 17, 1997.
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at November 30, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Furniture and fixtures.......................................................... $ 34,732 $ 38,233
Equipment....................................................................... 78,991 255,473
Vehicles........................................................................ -- 26,023
Leasehold improvements.......................................................... 650 3,250
---------- ----------
Total cost...................................................................... 114,373 322,979
Accumulated depreciation........................................................ 11,011 41,060
---------- ----------
Property and equipment, net..................................................... $ 103,362 $ 281,919
---------- ----------
---------- ----------
</TABLE>
NOTE 7--BRIDGE FINANCING
In September 1995, the Company commenced a private placement offering of
securities in the form of convertible unsecured notes in order to obtain funds
to be used for working capital, to pay operating expenses, to acquire a
complementary paint company or equipment necessary to manufacture the Company's
insulative coatings, and to pay the organizational and underwriting costs to be
incurred in an initial public offering of the Company's stock. A second offering
of unsecured notes and common stock
F-9
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--BRIDGE FINANCING (CONTINUED)
was commenced January 1996 to obtain additional funds for the purposes stated
above. The selling agents received up to ten percent (10%) of the amounts
raised.
Included in notes payable at November 30, 1995 and 1996 are $740,203 and
$1,898,500, respectively, representing the aggregate amount raised by the
Company in various debt related offerings as of those dates. Included in those
amounts are $740,203 and $1,898,500 at November 30, 1995 and 1996, respectively,
raised by the selling agents through the issuance of the securities under
private placement offerings described above. The notes bear interest at the rate
of twelve percent (12%), with principal and interest due on the earlier of the
date of the closing of the public offering or one year from the date of the
notes, which were executed during the period October 15, 1995 through July 26,
1996. The notes contain a provision for penalty upon default. The notes were
convertible, at the option of the holder, to an amount of common stock based
between 50% to 60% of the price of the shares of the Company's common stock to
be offered in the public offering. The option to convert was conditioned upon
the closing of the initial public offering of the Company's stock. Because the
closing did not occur, the notes are payable at the original one year maturity
date. At November 30, 1996, $505,000 of these notes were in default. As of the
date of the auditors' report, approximately $1.3 million of the notes were in
default.
NOTE 8--RELATED PARTY TRANSACTIONS
The Company leased vehicles from an individual who is its president and
stockholder. Total lease expense for 1995 was $9,600.
The Company has notes payable to stockholders at November 30, 1995 and 1996
of $203,304 and $135,000, respectively. The notes were issued on varying dates
and are due one year from the date of issuance, plus interest at 12% to 15%. The
notes were in default at November 30, 1996.
The Company had sales of $83,339 during fiscal year 1996 with individuals
and companies which are stockholders. The Company had sales of $12,164 during
fiscal year 1996 with individuals and companies which are both stockholders and
directors.
The Company had bridge financing notes payable held by stockholders of
$117,500 at November 30, 1995 and 1996.
The Company received $121,060 in legal services from a law firm which is a
stockholder and had an account payable of $11,589 and $110,470 at November 30,
1995 and 1996, respectively.
During fiscal year 1996, the Company purchased a vehicle from an individual
who is its president and stockholder. The vehicle was subsequently sold by the
Company to a third party for a loss of $3,500.
During fiscal year 1996, the Company advanced $257,134 and received payment
of advances of $226,031 to an individual who is its president and stockholder.
The balance due to the Company at November 30, 1996 was $4,277.
NOTE 9--STOCK TRANSACTIONS
In April 1996, the Company effected a one-for-ten reverse stock split and
increased the number of common shares authorized from 10,000,000 shares to
20,000,000 shares. All references in the 1995 financial statements to numbers of
common shares and loss per share amounts have been restated to give retroactive
effect to the reverse stock split.
F-10
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK TRANSACTIONS (CONTINUED)
The Company has two employment contracts which provide for granting shares
of stock for years of service to an officer and a key employee. The Company's
president was awarded options exercisable for five years which entitle him to
acquire up to 500,000 shares of the Company's common stock at a price to be
determined upon closing of the Company's initial public offering. In addition,
the Company from time to time grants stock incentive awards to officers and
other key employees. There were no awards outstanding under the Company's
various agreements at November 30, 1995 and 1996.
NOTE 10--OPERATING LEASES
The Company leases a building, office space, office equipment, and a vehicle
under operating leases. The leases expire at various dates through 1999. Rental
expense under these leases was $6,069 and $100,944 for 1995 and 1996,
respectively.
The following is a schedule by years of minimum rentals under the above
lease agreements as of November 30, 1996.
<TABLE>
<S> <C>
Year ending November 30
1997............................................................ $ 114,207
1998............................................................ 108,062
1999............................................................ 19,727
---------
$ 241,996
---------
---------
</TABLE>
NOTE 11--RESEARCH AND DEVELOPMENT COSTS
Research and development cost included in the statements of loss totaled
$557 and $9,500 for the year ended November 30, 1995 and 1996, respectively.
NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid totaled $17,887 and $13,198 for the years ended November 30,
1995 and 1996, respectively.
NOTE 13--CONCENTRATION OF CREDIT RISK
The Company operates from two locations in West Central Florida and
manufactures and sells paint and related products. The Company extends credit to
its customers substantially without collateral. The business operations are
influenced by the general economic conditions of the surrounding area.
NOTE 14--ACQUISITION OF PAINT MANUFACTURING COMPANY
The Company entered into an agreement to purchase the operating assets of
C.F. Darling Paint & Chemicals, Inc. (Paint Company), a paint manufacturing
company in West Central Florida, effective November 30, 1995. The total purchase
price of $251,016 was paid in cash at time of closing. The acquisition was
accounted for as a purchase. Accordingly, the purchase price was allocated to
the assets acquired based upon their estimated fair market values. The excess of
the purchase price over the estimated fair market value of assets acquired
amounted to $105,821, of which $25,000 has been accounted for as the estimated
value of the agreement not to compete, and $80,821 is accounted for as goodwill.
F-11
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--ACQUISITION OF PAINT MANUFACTURING COMPANY (CONTINUED)
The operating results of Paint Company have not been included in the
Company's statement of loss for 1995 since the acquisition was completed
effective November 30, 1995. Had the operations of Paint Company been included
in the Company's financial statements for the year ended November 30, 1995, the
pro forma effect on the Company's operating results would have been as follows:
<TABLE>
<CAPTION>
1995 (UNAUDITED)
-----------------------------------------
THERMACELL
TECHNOLOGIES, PAINT
INC. COMPANY TOTAL
---------------- ---------- -----------
<S> <C> <C> <C>
Net Sales............................................................. $ 43,691 $ 414,350 $ 458,041
Cost of sales......................................................... 15,431 209,056 224,487
---------------- ---------- -----------
Gross profit.......................................................... 28,260 205,294 233,554
Selling, general & administrative..................................... 376,919 187,526 564,445
---------------- ---------- -----------
Operating income (loss)............................................... (348,659) 17,768 (330,891)
Interest expense...................................................... (47,645) (1,258) (48,903)
Commissions income.................................................... 2,272 -- 2,272
Other income.......................................................... -- 344 344
Gain on sale of assets................................................ -- 40,000 40,000
---------------- ---------- -----------
Income (loss) before income taxes..................................... (394,032) 56,854 (337,178)
Income taxes - current expense........................................ -- 10,986 10,986
Income taxes - deferred benefit....................................... 79,175 -- 79,175
---------------- ---------- -----------
Net income (loss)..................................................... $ (314,857) $ 45,868 $ (268,989)
---------------- ---------- -----------
---------------- ---------- -----------
Loss per share........................................................ $ (.43)
-----------
-----------
Weighted average number of common shares outstanding.................. 626,191
-----------
-----------
</TABLE>
These pro forma results have been prepared for comparative purposes only.
They do not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect on December 1, 1994 or of
future results of operations of the consolidated entities.
NOTE 15--INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109) ("Accounting for Income Taxes"), the Company recorded deferred tax assets
to reflect the future tax benefits of financial operating loss carryforwards in
1995 and 1996.
The Company has a net operating loss carryforward of $1,886,189 at November
30, 1996 which expires in 2009 through 2011. Management's determination of an
adequate valuation allowance is based upon its current estimates of future
taxable income. If the Company is unable to generate sufficient taxable income
in the future through operating results, increases in the valuation allowance
will be required through a charge to expense. However, if the Company achieves
sufficient profitability to utilize a greater portion of the deferred tax asset,
the valuation allowance will be reduced through a credit to income.
A valuation allowance is required by SFAS 109 if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The need for the
F-12
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--INCOME TAXES (CONTINUED)
valuation allowance is evaluated periodically by management. Based on available
evidence, management concluded that a valuation allowance of 50 percent is
sufficient at November 30, 1995 and 1996.
Significant components of the Company's net deferred tax assets are as
follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred taxes................................................................ $ 251,312 $ 674,700
Less: Valuation allowance................................................... (125,655) (337,350)
----------- -----------
Net deferred tax assets................................................... $ 125,657 $ 337,350
----------- -----------
----------- -----------
</TABLE>
Based on management's assessment, it is more likely than not that the net
deferred tax assets will be realized through future taxable earnings.
NOTE 16--SUBSEQUENT EVENTS
On January 13, 1997, a nonbinding letter of intent was received from
Ecological Technologies, Inc. proposing to negotiate an exclusive distribution
agreement for the Company's products in Japan. Consummation of the agreement is
subject to a number of conditions including test results in Japan confirming
product performance and agreement by the Company to secure patents in Japan for
the technology. Purchases, based on aforementioned conditions, were proposed in
the following volume:
<TABLE>
<S> <C>
1997............................................ $ 800,000
1998............................................ $1,000,000
1999............................................ $1,100,000
2000............................................ $1,210,000
2001............................................ $1,331,000
2002 through 2006, 10% increase of prior year.
</TABLE>
Either party may terminate the discussions. Due to the contingencies
involved, the Company is unable to predict whether or when a transaction with
Ecological Technologies, Inc. will be consummated.
On December 17, 1996, the collateralized note receivable of $200,000 became
due and was not paid. The Comapny entered into a settlement agreement with the
maker of the note receivable providing for temporary financing to the Company
and offsets of amounts owed. The agreement resulted in the extinguishment of the
note receivable and a net increase in the Company's liabilities of approximately
$258,000.
On December 6, 1996, the Company borrowed $200,000 from an unrelated third
party. The note bears interest at the rate of one percent (1%) per month, with
principal and interest due on December 17, 1996. The Company is required to pay
all cost of collection for the note payable. The holder of the note, subsequent
to November 30, 1996, made a demand upon the Company for repayment. The Company
is in the process of settling this claim which includes an undertaking by the
Company's chief executive officer to assume all obligations under this note.
F-13
<PAGE>
THERMACELL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
On January 13, 1997, the initial public offering failed to close, as
scheduled. If this event had occurred on or prior to November 30, 1996 it would
have increased the loss by $247,048, the amount capitalized as cost related to
the initial public offering, net of related tax benefit.
The following proforma presentation shows the effect on the Company's
financial statements:
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
----------------------------
AS REPORTED PRO FORMA
------------- -------------
<S> <C> <C>
Total other assets........................................................ $ 798,559 $ 551,511
------------- -------------
Total assets.............................................................. $ 1,537,273 $ 1,290,225
------------- -------------
------------- -------------
Total stockholders' equity................................................ $ (1,363,939) $ (1,610,987)
------------- -------------
Total liabilities and stockholders' equity................................ $ 1,537,273 $ 1,290,225
------------- -------------
------------- -------------
<CAPTION>
FOR THE YEAR ENDED
NOVEMBER 30, 1996
----------------------------
AS REPORTED PRO FORMA
------------- -------------
<S> <C> <C>
Total other income (expense).............................................. $ (185,884) $ (483,532)
------------- -------------
Loss before income taxes.................................................. $ (1,245,245) $ (1,542,893)
------------- -------------
Deferred income tax benefit............................................... $ 211,692 $ 262,292
------------- -------------
Net loss.................................................................. $ (1,033,553) $ (1,280,601)
------------- -------------
------------- -------------
Loss per common share..................................................... $ (1.34) $ (1.66)
------------- -------------
------------- -------------
</TABLE>
Subsequent to the Company's year end, $200,000 was advanced to an individual
who is its president and stockholder.
NOTE 17--EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
On February 7, 1997, the Company closed the corporate office and the retail
outlet that had opened in the first quarter of 1996. The Company may have a
contingent liability for leases of these premises up to a maximum amount of
$67,500. Management anticipates these actions will represent substantial savings
to the Company in the form of reduced operating costs.
F-14
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
ThermaCell Technologies, Inc.
We have audited the accompanying balance sheets of C.F. Darling Paint &
Chemicals, Inc. as of November 30, 1995 and July 31, 1995 and the related
statements of income, stockholders' equity, and cash flows for the years ended
July 31, 1995 and 1994 and the four months ended November 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C. F. Darling Paint &
Chemicals, Inc. as of November 30, 1995 and July 31, 1995 and the results of its
operations and its cash flows for the years ended July 31, 1995 and 1994 and the
four months ended November 30, 1995 in conformity with generally accepted
accounting principles.
CHERRY, BEKAERT & HOLLAND, L.L.P.
Clearwater, Florida
January 3, 1996
F-15
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
BALANCE SHEETS
NOVEMBER 30, 1995 AND JULY 31, 1995
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30 JULY 31
------------ ---------
<S> <C> <C>
CURRENT ASSETS
Cash................................................................................... $ 119,064 $ 22,276
Accounts receivable.................................................................... 23,312 14,461
Inventories............................................................................ -- 58,009
------------ ---------
TOTAL CURRENT ASSETS................................................................. 142,376 94,746
Property and equipment, net.............................................................. -- --
Deposits................................................................................. 2,502 2,502
------------ ---------
$ 144,878 $ 97,248
------------ ---------
------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................................................... $ 13,137 $ 14,318
Accrued expenses....................................................................... 3,658 3,003
Income taxes payable................................................................... 9,587 1,761
------------ ---------
TOTAL CURRENT LIABILITIES............................................................ 26,382 19,082
LOANS FROM STOCKHOLDERS.................................................................. 24,131 24,131
------------ ---------
TOTAL LIABILITIES.................................................................... 50,513 43,213
------------ ---------
STOCKHOLDERS' EQUITY
Common stock, 100 shares authorized, issued and outstanding in 1995 and 1994........... 1,000 1,000
Retained earnings...................................................................... 93,365 53,035
------------ ---------
TOTAL STOCKHOLDERS' EQUITY........................................................... 94,365 54,035
------------ ---------
$ 144,878 $ 97,248
------------ ---------
------------ ---------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
STATEMENTS OF INCOME
YEARS ENDED JULY 31, 1995 AND 1994
AND THE FOUR MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
NOVEMBER 30, JULY 31, JULY 31,
1995 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Net sales.................................................................. $ 122,862 $ 420,329 $ 407,062
Cost of sales.............................................................. 58,198 230,466 241,807
------------ ---------- ----------
Gross profit............................................................... 64,664 189,863 165,255
Selling, general and administrative expenses............................... 54,716 175,385 166,788
------------ ---------- ----------
Net operating income (loss)................................................ 9,948 14,478 (1,533)
Other income (expense)
Gain on sale of assets................................................... 40,000 -- --
Interest expense......................................................... (150) (1,108) (744)
Other income............................................................. 119 409 7,261
------------ ---------- ----------
Income before income taxes................................................. 49,917 13,779 4,984
Income taxes............................................................... 9,587 2,511 750
------------ ---------- ----------
Net income................................................................. $ 40,330 $ 11,268 $ 4,234
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See notes to financial statements.
F-17
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1995 AND 1994
AND THE FOUR MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
----------- ---------
<S> <C> <C>
BALANCE AT JULY 31, 1993..................................................................... $ 1,000 $ 37,533
NET EARNINGS................................................................................. -- 4,234
----------- ---------
BALANCE AT JULY 31, 1994..................................................................... 1,000 41,767
NET EARNINGS................................................................................. -- 11,268
----------- ---------
BALANCE AT JULY 31, 1995..................................................................... $ 1,000 $ 53,035
NET EARNINGS................................................................................. -- 40,330
----------- ---------
BALANCE NOVEMBER 30, 1995.................................................................... $ 1,000 $ 93,365
----------- ---------
----------- ---------
</TABLE>
See notes to financial statements.
F-18
<PAGE>
C.F. DARLING PAINT & CHEMICALS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED JULY 31, 1995 AND 1994
AND THE FOUR MONTHS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
NOVEMBER 30, JULY 31, JULY 31,
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................. $ 40,330 $ 11,268 $ 4,234
Adjustments to reconcile net income to net cash from operating activities:
Gain on sale of assets................................................... (40,000) -- --
(Increase) decrease in accounts receivable............................... (8,851) (2,606) 2,096
(Increase) decrease in inventories....................................... (13,007) (4,849) (323)
Increase (decrease) in accounts payable.................................. (1,181) 789 (287)
Increase (decrease) in accrued expenses.................................. 655 (712) 533
Increase (decrease) in income taxes payable.............................. 7,826 2,411 (611)
------------ --------- ---------
NET CASH FROM OPERATING ACTIVITIES..................................... (14,228) 6,301 5,642
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets............................................... 111,016 -- --
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from stockholders.................................................... -- -- 1,487
Repayment of loans from stockholders....................................... -- (1,060) --
------------ --------- ---------
NET CASH FROM FINANCING ACTIVITIES..................................... -- (1,060) 1,487
------------ --------- ---------
Net changes in cash.......................................................... 96,788 5,241 7,129
Cash at beginning of year.................................................... 22,276 17,035 9,906
------------ --------- ---------
Cash at end of year.......................................................... $ 119,064 $ 22,276 $ 17,035
------------ --------- ---------
------------ --------- ---------
Supplemental disclosure of amounts paid for
Interest................................................................... $ 150 $ 1,108 $ 744
------------ --------- ---------
------------ --------- ---------
Income taxes............................................................... $ 1,761 $ 100 $ 1,134
------------ --------- ---------
------------ --------- ---------
</TABLE>
See notes to financial statements.
F-19
<PAGE>
C.F. DARLING PAINT AND CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995 AND NOVEMBER 30, 1995
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company's primary business is the manufacture and sale of paint for
commercial and residential applications.
INVENTORIES
Inventories are valued using the first-in, first-out (FIFO) method. All
inventories are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of assets.
INCOME TAXES
Income taxes are accounted for by an asset and liability approach for
financial accounting and reporting purposes. Deferred income taxes are provided
based on the estimated future tax effects of differences between financial
statement carrying amounts and the tax bases of existing assets and liabilities,
and are adjusted for changes in tax laws and tax rates when those changes are
enacted. The provision for income taxes represents the total of income taxes
paid or payable for the current year, plus the change in deferred taxes during
the year.
2 INVENTORY
Inventories consisted of the following at July 31, 1995:
<TABLE>
<S> <C>
Raw Materials.............................................. $ 28,530
Finished goods (manufactured and purchased)................ 29,479
---------
$ 58,009
---------
---------
</TABLE>
3 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31, 1995:
<TABLE>
<S> <C>
Furniture and fixtures..................................... $ 23,194
Equipment.................................................. 1,442
Vehicles................................................... 13,917
Leasehold improvements..................................... 240
---------
Total cost................................................. 38,793
Accumulated depreciation................................... 38,793
---------
Property and equipment, net................................ $ --
---------
---------
</TABLE>
F-20
<PAGE>
C.F. DARLING PAINT AND CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1995 AND NOVEMBER 30, 1995
4 OPERATING LEASES
The Company leases its facilities under an operating lease which has an
original term of six years, and expires September 30, 1998. See Note 6.
5 CONCENTRATION OF CREDIT RISK
The Company operates from one location in West Central Florida and
manufactures and sells paint and related products. The Company extends credit to
its customers substantially without collateral. The business operations are
influenced by the general economic conditions of the surrounding area.
6 SALE OF CORPORATE ASSETS
The Company and C.F. Darling entered into an agreement to sell the operating
assets of the Company to ThermaCell Technologies, Inc. effective November 30,
1995. The Company's inventory, property and equipment, as well as intangible
assets were sold for $111,016. Of this amount, $71,016 represents the amount
received for inventory, with the remaining $40,000 recognized as gain on the
sale. The Company discontinued its operations effective November 30, 1995. The
Company's lease was subsequently assigned to ThermaCell Technologies, Inc.
7 INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current:
Federal.................................................... $ 2,019 $ 750
State...................................................... 492 --
--------- ---------
Total income tax expense................................. $ 2,511 $ 750
--------- ---------
--------- ---------
</TABLE>
F-21
<PAGE>
[LOGO]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THE COMPANY HAS AGREED TO AMEND AND UPDATE
THIS PROSPECTUS IN THE EVENT OF A FUNDAMENTAL CHANGE IN ITS AFFAIRS OR BUSINESS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Summary Financial Information.................. 5
Risk Factors................................... 6
Use of Proceeds................................ 13
Dividend Policy................................ 14
Dilution....................................... 15
Selected Financial Data........................ 16
Capitalization................................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 21
Management..................................... 27
Security Ownership of Certain Beneficial Owners
and Management................................ 30
Selling Security Holder........................ 31
Certain Transactions........................... 32
Description of Securities...................... 34
Shares Eligible for Future Sale................ 36
Underwriting................................... 37
Available Information.......................... 38
Legal Matters.................................. 39
Experts........................................ 39
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
1,250,000 UNITS
---------------------
PROSPECTUS
---------------------
MONROE PARKER SECURITIES
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
(800) 743-2555
------------------------
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation (the "Certificate") provides that a
Director shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except, (i) for any
breach of the duty of loyalty; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of laws; (iii) for
liability under Section 607.0850 of the Florida General Corporation Law (the
"Florida GCL") (relating to certain unlawful dividends, stock repurchases or
stock redemptions); or (iv) for any transaction from which the Director derived
any improper personal benefit. The Certificate also provides that the Company
shall indemnify each Director and such of the Company's officers, employees and
agents as the Board of Directors shall determine from time to time to the
fullest extent provided by the Florida GCL.
The Company's Bylaws provides, in general, that the Company shall indemnify
its directors and officers under the circumstances specified in the Florida GCL
and gives authority to the Company to purchase insurance with respect to such
indemnification.
Upon consummation of the offering, the Company will enter into
indemnification agreements (the "Indemnification Agreement") with certain
officers and directors. Each Indemnification Agreement will provide, among other
things, for: (i) indemnification by the Company of such individual to the
fullest extent permitted by law as of the date of the Indemnification Agreement
against any and all expenses, judgments, fines and amounts paid in settlement of
any claim against an indemnified party (the "Indemnitee") unless it is
determined, as provided in the Indemnification Agreement, that the
indemnification is not permitted under the law; and (ii) the prompt advancement
of expenses to any Indemnitee in connection wit his or her defense against any
threatened or pending claim. Similar Indemnification Agreements may from time to
time be entered into with additional officers of the Company or certain other
employees or agents of the Company.
Following this offering, the Company intends to use its reasonable efforts
to obtain directors and officers liability insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby, other than underwriting discounts and
commissions, are itemized below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 7,045
NASD Fees................................................................. 3,400
NASDAQ application and listing fees....................................... 10,000
Accounting fees and expenses.............................................. 70,000
Legal fees and expenses................................................... 150,000
Printing and engraving expenses........................................... 70,000
Blue Sky fees and expenses (including legal fees)......................... 30,000
Transfer Agent and Registrar fees and expenses............................ 5,000
Miscellaneous............................................................. 4,555
---------
TOTAL................................................................. $ 350,000
---------
---------
</TABLE>
- ------------------------
The Registrant will bear all expenses listed above.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information describes sales of unregistered securities by the
Registrant since November 1991:
a. Organization and Capitalization of the Company. Since inception, the
Company has been involved in organizational and capital raising efforts. The
following is a table listing of all shares of Common Stock issued by the
Company, including the paid in amounts in cash or if issued in consideration of
services rendered on behalf of the Company is indicated by a "0":
SCHEDULE OF COMMON STOCK ISSUE
<TABLE>
<CAPTION>
COMMON AMOUNT
STOCKHOLDER SHARES PAID IN CERT. DATE
- --------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Pidorenko, John.................................................................. 416,067 500 2/10/94
Sherrill, F. L. Trustee.......................................................... 278 1,000 2/10/94
Wise, Edmond..................................................................... 694 2,500 2/10/94
Cooler, Roy...................................................................... 694 2,500 2/10/94
Riley, Darryl.................................................................... 1,389 5,000 2/10/94
Fielding, Clay................................................................... 2,500 0 2/10/94
Johnson, Blakely................................................................. 30,000 0 2/10/94
Ries, Larry...................................................................... 2,500 0 2/10/94
Sherrill, Fred L. Jr............................................................. 1,667 6,000 2/10/94
Sherrill, Gwen................................................................... 1,667 6,000 2/10/94
Sherrill, Fred L................................................................. 1,667 6,000 2/10/94
Sherrill, Augusta................................................................ 1,667 6,000 2/10/94
Sherrill, Charles................................................................ 1,667 6,000 2/10/94
Sherrill, F.L. III............................................................... 278 1,000 2/10/94
Sypinewski, Frank................................................................ 556 2,000 3/5/94
Wade, Richard.................................................................... 4,167 15,000 3/29/94
Ashburn, Marvin.................................................................. 139 500 4/20/94
Stockley, Russell................................................................ 3,333 12,000 4/21/94
Murphy, R.C...................................................................... 1,556 5,600 5/3/94
Watts, Robert G.................................................................. 250 0 5/3/94
Baumgardner, Lloyd............................................................... 250 0 5/3/94
Bell, Virgil..................................................................... 500 0 5/3/94
Frasier, Donald.................................................................. 1,570 0 5/3/94
Riley, Darryl.................................................................... 1,570 0 5/3/94
Williams, S.A.................................................................... 1,389 5,000 5/3/94
Royse, Christine................................................................. 1,389 5,000 5/9/94
Butters, Jeffrey................................................................. 279 1,000 5/13/94
Emerson, James................................................................... 1,389 5,000 5/13/94
Williams, S.A.................................................................... 1,931 6,950 5/16/94
Williams, Jackie................................................................. 5,556 20,000 5/19/94
Wood, Patricia................................................................... 1,389 5,000 5/27/94
Kelly, Warren.................................................................... 5,556 20,000 5/27/94
Milano, Gloria................................................................... 1,389 5,000 5/30/94
May, Dorothy..................................................................... 1,389 5,000 5/30/94
Marquis, Dan..................................................................... 500 1,400 6/4/94
Peters, Cecil.................................................................... 1,667 5,000 6/5/94
Stiles, Kendall.................................................................. 3,200 0 7/20/94
Harrington, Sharon............................................................... 2,800 7,000 8/1/94
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
COMMON AMOUNT
STOCKHOLDER SHARES PAID IN CERT. DATE
- --------------------------------------------------------------------------------- --------- --------- -----------
Patton, Lucia.................................................................... 0 0 8/1/94
<S> <C> <C> <C>
Patton, Lucia.................................................................... 10,000 0 8/1/94
McKibbin, John................................................................... 5,556 20,000 8/10/94
Bryan, Diedre.................................................................... 833 3,000 8/29/94
Crowe, William III............................................................... 389 1,400 2/1/95
Riley, Darryl.................................................................... 50,000 0 2/3/95
Donald Frasier................................................................... 50,000 0 2/3/95
Hundhausen, Betty................................................................ 1,000 1,400 2/3/95
Murphy, R.C...................................................................... 1,050 0 2/3/95
Murphy, R.C...................................................................... 0 0 2/3/95
Fielding, James C................................................................ 1,000 0 2/3/95
Trusty, John..................................................................... 2,500 0 2/3/95
May, Dorothy Janet............................................................... 600 0 3/23/95
To, Vincent K.................................................................... 500 0 6/30/95
Murphy, R.C...................................................................... 1,000 0 8/3/95
Murphy, R.C...................................................................... 6,450 0 8/9/95
Murphy, R.C...................................................................... 500 0 8/9/95
Murphy, R.C...................................................................... 5,000 0 8/9/95
Murphy, R.C...................................................................... 2,000 0 8/9/95
Trusty, John..................................................................... 5,000 0 8/9/95
Barrs, Howard L.................................................................. 500 0 8/14/95
Fielding, James C................................................................ 2,500 0 8/25/95
Rasmussen, Ray................................................................... 25,000 0 8/29/95
Martin, Al....................................................................... 2,500 0 8/29/95
Ackerman, Keith.................................................................. 500 0 8/29/95
Riley, Darryl.................................................................... 3,635 0 11/1/95
Fielding, James C................................................................ 2,500 0 1/1/96
Trusty, John..................................................................... 2,500 0 1/1/96
Walte, Dean...................................................................... 200 0 2/10/94
Garcia, Julian................................................................... 1,600 0 2/14/96
Dumont, Allen.................................................................... 8,000 0 2/26/96
Flovin, Jim...................................................................... 200 0 2/26/96
Trusty, John..................................................................... 10,000 0 3/21/96
Duff, John....................................................................... 500 0 3/21/96
Abrams, Scottee.................................................................. 500 0 3/21/96
Smorshok, Richard................................................................ 500 0 3/21/96
Costenbader, Terry............................................................... 500 0 3/21/96
Duff, Amy........................................................................ 500 0 3/21/96
Kyle, Larry...................................................................... 500 0 3/21/96
Walte, Dean...................................................................... 500 0 3/21/96
Dulgley, James................................................................... 500 0 3/21/96
Seligson, Leslie................................................................. 10,000 0 3/21/96
Eden Group, The.................................................................. 20,000 0 3/21/96
Stiles, Kendal................................................................... 10,000 0 3/21/96
Lang, Mike....................................................................... 33,333 0 3/21/96
Smith, Mickey.................................................................... 27,778 0 3/21/96
Zattriott/CRG.................................................................... 100,000 0 3/21/96
</TABLE>
For all such transactions, the Company relied upon Sections 4(2) and 3(b) of
the Securities Act and Regulation D promulgated thereunder as an exemption
available from the registration requirements of
II-3
<PAGE>
Section 5 of the Securities Act for transactions by an issuer not involving a
public offering. The securities were issued to a purchaser who represented, in a
manner satisfactory to the Company, that it had acquired the securities for
investment and not with the view of the distribution thereof. No advertising or
general solicitation was employed by the Company in offering the securities. The
securities of the Company issued to the purchasers have been embossed with the
legend restricting transfer of such securities. A stop transfer order concerning
the transfer of the certificates representing all the common stock issued and
outstanding as indicated above has been noted on the Company's stock transfer
ledger.
In September 1995, the Company commenced a private placement offering of
securities in the form of convertible notes in order to obtain funds to be used
for working capital, to pay operating expenses, to acquire a complementary paint
company or equipment necessary to manufacture the Company's insulative coatings,
and to pay the organizational and underwriting costs to be incurred in an
initial public offering of the Company's stock. A second offering of unsecured
notes and common stock was commenced January 1996 to obtain additional funds for
the purposes stated above. The selling agents received up to ten percent (10%)
of the amounts raised.
Included in notes payable at November 30, 1995 and 1996 are $740,203 and
$1,898,500, respectively, representing the aggregate amount raised by the
Company in various debt related offering as of those dates. Included in those
amounts are $740,203 and $1,898,500 at November 30, 1995 and 1996, respectively,
raised by the selling agents through the issuance of the securities under
private placement offerings described above. The notes bear interest at the rate
of twelve percent (12%), with principal and interest due on the earlier of the
date of the closing of the public offering or one year from the date of the
notes, which were executed during the period October 15 through July 26, 1996.
The notes were convertible, at the option of the holder, to an amount of common
stock based between 50% to 60% of the price of the shares of the Company's
common stock to be offered in the public offering. The option to convert was
conditioned upon the closing of the initial public offering of the Company's
stock. Because the closing did not occur, the notes are payable at the original
one year maturity date. At November 30, 1996, $505,000 of these notes were in
default.
As a condition to this offering, the holders of $1,498,500 of these notes
payable agreed to convert such notes plus accrued interest thereon, into an
aggregate of 901,230 shares of Common Stock. In connection with the conversion
such holders have agreed not to sell their shares for a period of at least two
(2) years from the date of this Prospectus, without the Underwriter's consent.
The Underwriter has the right to extend this lock-up period for one (1)
additional year if the Company does not achieve during any 12 consecutive month
period a cumulative pre-tax profit on income, calculated in accordance with GAAP
of at least $3,000,000. The holders of $400,000 of the notes described above,
will be paid off in cash at the closing of this offering.
Through all private placements of the notes described above, Company relied
upon exemptions from registration under the Securities Act pursuant to Sections
3(b) and 4(2) and Regulation D promulgated thereunder. Of the 55 investors, 40
represented to the Company that they were "accredited" as that term is defined
under Regulation D. All purchasers represented, in a manner satisfactory to the
Company, that they were sophisticated and otherwise understood the risks
associated with the offering. The Company relied upon Section 3(a)(9) and
Section 4(2) in the conversion of $1,498,500 of notes plus accrued interest
thereon into 901,230 shares of Common Stock as condition to this offering
required by the Underwriter.
II-4
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --------- ------------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
1.1 Revised Form of Underwriting Agreement**
1.2 Revised Form of Underwriter's Warrants**
1.3 Revised Form of Selected Dealers Agreement**
1.4 Financial Consulting Agreement**
1.5 [Reserved]
3.1 Certificate of Incorporation and Amendment to Certificate of Incorporation of the Company*
3.1(a) Certificate of Amendment to Certificate of Incorporation to reflect 1 for 10 reverse stock
split*
3.1(b) Form of Certificate of Amendment to Certificate of Rights, Designation and Preferences of
Series A Preferred Stock*
3.2 Bylaws of the Company*
3.3 Amendment to Bylaws*
4.1 Specimen of Common Stock Certificate*
4.2 Specimen of Warrant Certificate*
4.3 Revised Form of Warrant Agreement**
4.4 Conversion Notice and Election Form for Convertible Note Holder*
5.1 Opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. as to legality of issuance
of Units**
10 Employment Agreement (4/4/96) John Pidorenko*
10(A) Employment Agreement (4/4/96) John Trusty*
10(B) Form of Convertible Note*
10(C) Trademark Registration for ThermaCool-TM-*
10(D) Published International Patent Application*
10(E) Stock Option Plan*
10(F) Asset Purchase Agreement for Darling Paint and Coatings effective November, 1995*
10(G) Lease for Executive Offices*
10(H) Lease for Darling Paint*
10(I) Lease for Sarasota Store*
10(J) Promissory Note (3/6/96)*
10(K) Agreement between Consolidated Financial Management, Inc. and the Company**
10(L) Debt for Equity Exchange Agreement**
10(M) Lock-Up Letter Form**
10(N) Addendum to Employment Agreement--John Pidorenko
23.1 Consent of Cherry, Bekaert & Holland, C.P.A.'s, Clearwater, Florida**
23.2 Consent of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Clearwater, Florida
(included in its opinion filed as Exhibit 5.1)**
</TABLE>
- ------------------------
* Previously filed. See File No. 333-4864-1
** Filed herewith
II-5
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing, specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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
Securities 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 Securities Act of 1933, as amended,
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(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
Securities Act of 1933, as amended (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 thereto) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(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.
(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 that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filled by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Form SB-2 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Tampa, Florida, on
this 19th day of February, 1997.
THERMACELL TECHNOLOGIES, INC.
By: /s/ JOHN PIDORENKO
-----------------------------------
John Pidorenko,
CHIEF EXECUTIVE OFFICER, PRESIDENT,
CHAIRMAN OF THE BOARD
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 indicated, on the dates stated.
<TABLE>
<C> <S> <C>
SIGNATURE CAPACITY DATE
- ------------------------------------------------------ ----------------------------------- --------------------
/s/ JOHN PIDORENKO
------------------------------------------- Chairman of the Board, President, February 19, 1997
John Pidorenko Chief Executive Officer
/s/ KENDALL B. STILES, M.D.
------------------------------------------- Director February 19, 1997
Kendall B. Stiles, M.D.
/s/ MICHAEL HANKINS, SR.
------------------------------------------- Director February 19, 1997
Michael Hankins, Sr.
/s/ DARRYL RILEY
------------------------------------------- Director February 19, 1997
Darryl Riley
/s/ JOHN TRUSTY
------------------------------------------- Chief Financial Officer, Chief February 19, 1997
John Trusty Accounting Officer, Director
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --------- ------------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
1.1 Revised Form of Underwriting Agreement**
1.2 Revised Form of Underwriter's Warrants**
1.3 Revised Form of Selected Dealers Agreement**
1.4 Financial Consulting Agreement**
1.5 [Reserved]
1.6 Executed Escrow Agreement and Amendment thereto entered into by First of America, Bank of
Michigan, N.A., the Company and Underwriters*
3.1 Certificate of Incorporation and Amendment to Certificate of Incorporation of the Company*
3.1(a) Certificate of Amendment to Certificate of Incorporation to reflect 1 for 10 reverse stock
split*
3.1(b) Form of Certificate of Amendment to Certificate of Rights, Designation and Preferences of
Series A Preferred Stock**
3.2 Bylaws of the Company*
3.3 Amendment to Bylaws*
4.1 Specimen of Common Stock Certificate*
4.2 Specimen of Warrant Certificate*
4.3 Revised Form of Warrant Agreement**
4.4 Conversion Notice and Election Form for Convertible Note Holder*
5.1 Opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A. as to legality of issuance
of Units**
10 Employment Agreement (4/4/96) John Pidorenko*
10(A) Employment Agreement (4/4/96) John Trusty*
10(B) Form of Convertible Note *
10(C) Trademark Registration for ThermaCool-TM-*
10(D) Published International Patent Application*
10(E) Stock Option Plan*
10(F) Asset Purchase Agreement for Darling Paint and Coatings effective November, 1995*
10(G) Lease for Office*
10(H) Lease for Darling Paint*
10(I) Lease for Sarasota Store*
10(J) Promissory Note (3/6/96)*
10(K) Agreement between Consolidated Financial Management, Inc. and the Company**
10(L) Debt for Equity Exchange Agreement**
10(M) Lock Up Letter Form**
10(N) Addendum to Employment Agreement--John Ledinske**
23.1 Consent of Cherry, Bekaert & Holland, C.P.A.'s, Clearwater, Florida**
23.2 Consent of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Clearwater, Florida
(included in its opinion filed as Exhibit 5.1)**
</TABLE>
- ------------------------
* Previously filed
** Filed herewith
<PAGE>
EXHIBIT 1.1
1,250,000 Units (each Unit consisting of one (1) share of Common Stock,
$.0001 par value per share and one (1) Warrant for Common Stock)
THERMACELL TECHNOLOGIES, INC.
UNDERWRITING AGREEMENT
New York, New York
__________, 1997
Monroe Parker Securities, Inc.
2500 Westchester Avenue
Purchase, New York 10577
ThermaCell Technologies, Inc., a Florida corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter"), an aggregate of 1,250,000
Units ("Units"), each Unit consisting of one (1) share of Common Stock, $.0001
par value per share ("Common Stock"), and one (1) Redeemable Class A Common
Stock Purchase Warrant ("Warrant"). The Units, Common Stock and Warrants may be
collectively referred to hereinafter as the "Securities". Each Warrant entitles
the registered holder thereof to purchase one (1) share of Common Stock at an
exercise price of $4.25 per share for a period of three (3) years, commencing
__________, 1998 (one (1) year from the Effective Date) through __________,
2001. The Warrants are subject to redemption by the Company upon not less than
thirty (30) days' notice at any time after ___________, 1998 (eighteen (18)
months from the Effective Date) or earlier with the consent of the Underwriter,
at $.10 per warrant, if the closing sale price per share of Common Stock has
equaled or exceeded 250% of the then exercise price of the Warrants on all 20
business days ending on the third day prior to the written notice of redemption.
In addition, the Company proposes to grant to the Underwriter the option
referred to in Section 2(b) to purchase all or any part of an aggregate of
187,500 additional Units.
Unless the context otherwise requires, the aggregate of 1,250,000 Units
to be sold by the Company and the shares of Common Stock and the Warrants
comprising the Units, are herein called the "Units." The Common Stock to be
outstanding after giving effect to the sale of the Units are also called the
"Shares."
<PAGE>
You have advised the Company that you desire to purchase the Units. The
Company confirms the agreements made by it with respect to the purchase of
the Units by the Underwriter as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-_______) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the prospectus
as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the First
Closing Date (as hereinafter defined) or the Option Closing Date, as the case
may be, (i) the Registration Statement and Prospectus will in all
2
<PAGE>
respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and
in conformity with, written information furnished to the Company by or on
behalf of the Underwriter specifically for use in the preparation thereof.
It is understood that the statements set forth in the Prospectus with respect
to stabilization, under the heading "Underwriting", the Risk Factor entitled
"Underwriter's Limited Underwriting Experience" and the identity of counsel
to the Underwriter under the heading "Legal Matters" constitute for purposes
of this Section and Section 6(b) the only information furnished in writing by
or on behalf of the Underwriter for inclusion in the Registration Statement
and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation with full corporate power and authority to own its properties
and conduct its business as described in the Prospectus and is duly qualified
or licensed to do business as a foreign corporation and is in good standing
in each other jurisdiction in which the nature of its business or the
character or location of its properties requires such qualification, except
where the failure to so qualify will not materially adversely affect the
Company's business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, is as set forth the
Company's financial statements contained in the Registration Statement; the
shares of issued and outstanding capital stock of the Company set forth therein
have been duly authorized, validly issued and are fully paid and nonassessable;
except as set forth in the Prospectus, no options, warrants, or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company; and the capital stock
conforms to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Units and the shares of Common Stock, when paid for, issued
and delivered pursuant to this Agreement, will have been duly authorized, issued
and delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and entitled to the
rights and preferences provided by the Certificate of Incorporation, which will
be in the form filed as an exhibit to the Registration Statement. The terms of
the Common Stock conform to the description thereof in the Registration
Statement and Prospectus.
The Warrants, when paid for, issued and delivered pursuant to this
Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding
3
<PAGE>
obligations of the Company enforceable in accordance with their terms, except
as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the right of creditors generally or by general equitable
principles, and entitled to the benefits provided by the warrant agreement
pursuant to which such Warrants are to be issued (the "Warrant Agreement"),
which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable upon exercise of
the Warrants have been reserved for issuance upon the exercise of the
Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized validly issued, fully
paid and non-assessable and free of preemptive rights. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, assuming due authorization, execution and delivery by the transfer
agent, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles. The Warrants and Warrant Agreement conform to
the respective descriptions thereof in the Registration Statement and
Prospectus.
The Purchase Option (as defined in the Registration Statement), when
paid for, issued and delivered pursuant to this Agreement will constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms and entitled to the benefits provided by the Purchase Option, except
as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Securities issuable upon exercise of the Purchase Option (and the shares of
Common Stock issuable upon exercise of the Warrants) when issued and paid for in
accordance with this Agreement, the Purchase Option and the Warrant Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights.
(f) This Agreement has been duly and validly authorized, executed
and delivered by the Company. The Company has full power and authority to
authorize, issue and sell the Units to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of any governmental authority is required in connection with such
authorization, execution and delivery or in connection with the authorization,
issuance and sale of the Units or the Purchase Option, except such as may be
required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not have a
material adverse effect on the condition (financial or otherwise), business
prospects, net worth or properties of the Company (a "Material Adverse Effect"),
the Company is not in violation, breach or default of or under, and consummation
of the transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company pursuant to the terms of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company may be
4
<PAGE>
bound or to which any of the property or assets of the Company is subject,
nor will such action result in any violation of the provisions of the
certificate of incorporation or the by-laws of the Company, as amended, or
any statute or any order, rule or regulation applicable to the Company of any
court or of any regulatory authority or other governmental body having
jurisdiction over the Company.
(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company is not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been asserted
by anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company owns or leases all
such properties described in the Prospectus as are necessary to its operations
as now conducted and, except as otherwise stated in the Prospectus, as proposed
to be conducted as set forth in the Prospectus.
(i) Cherry, Bekaert & Holland, L.L.P., which has given its report on
certain financial statements filed with the Commission as a part of the
Registration Statement, is with respect to the Company, independent public
accountants as required by the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flow
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved except as disclosed in the Prospectus and
Registration Statement.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company has not incurred any liabilities
or obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which would
have a Material Adverse Effect, and there has not been any change in the capital
stock of, or any incurrence of short-term or long-term debt by, the Company or
any issuance of options, warrants or other rights to purchase the capital stock
of the Company or any material adverse change or any development involving, so
far as the Company can now reasonably foresee
5
<PAGE>
a prospective adverse change in the condition (financial or otherwise), net
worth, results of operations, business, key personnel or properties of it
which would have a Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened, any action, suit or proceeding
to which the Company is a party before or by any court or governmental agency or
body, which might result in any material adverse change in the financial
condition, business prospects, net worth, or properties of the Company, nor are
there any actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company exist or to the knowledge
of the Company, are threatened which might be expected to have a Material
Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns required
to be filed as of the date hereof and have paid all taxes shown as due thereon;
and there is no tax deficiency which has been, or to the knowledge of the party,
may be asserted against the Company.
(n) Except as disclosed in the Registration Statement or Prospectus,
the Company has sufficient licenses, permits and other governmental
authorizations currently necessary for the conduct of its business or the
ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights
to use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights
and licenses necessary for the conduct of such business and has not received
any notice of conflict with the asserted rights of others in respect thereof.
To the best knowledge of the Company, none of the activities or business of
the Company are in violation of, or cause the Company to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
or of any agency or body of the United States or of any state, county or
locality, the violation of which would have a Material Adverse Effect.
(o) The Company has not, directly or indirectly, at any time (i)
made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or other
taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the
6
<PAGE>
Securities to the Underwriter hereunder will have been fully paid or provided
for by the Company and all laws imposing such taxes will have been complied
with in all material respects.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the Company
has no Subsidiaries.
(s) Except as disclosed in the Registration Statement, the Company
has not entered into any agreement pursuant to which any person is entitled
either directly or indirectly to compensation from the Company for services as a
finder in connection with the proposed public offering.
(t) Except as previously disclosed in writing by the Company to the
Underwriter or as disclosed in the Registration Statement, no officer, director
or stockholder of the Company has any National Association of Securities
Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to underwrite
an offering of any of the Company's securities.
2. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties, and agreements herein contained,
the Company agrees to issue and sell to the Underwriter and the Underwriter
agrees to buy from the Company at $4.00 per Unit, at the place and time
hereinafter specified, 1,250,000 Units (the "First Units").
Delivery of the First Units against payment therefor shall take place
at the offices of Singer Zamansky LLP, 40 Exchange Place, New York, New York
10005 (or at such other place as may be designated by agreement between the
Underwriter and the Company) at 10:00 a.m., New York time, on __________, 1997,
or at such later time and date as the Underwriter may designate in writing to
the Company at least two business days prior to such purchase, but not later
than __________, 1997 such time and date of payment and delivery for the First
Units being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 187,500 Units to cover over allotments at the same price per Unit as
the Underwriter shall pay for the First Units being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Units being
referred to herein as the "Option Units"). This
7
<PAGE>
option may be exercised within 45 days after the effective date of the
Registration Statement upon written notice by the Underwriter to the Company
advising as to the amount of Option Units as to which the option is being
exercised, the names and denominations in which the certificates for such
Option Units are to be registered and the time and date when such
certificates are to be delivered. Such time and date shall be determined by
the Underwriter but shall not be earlier than four nor later than ten full
business days after the exercise of said option (but in no event more than 55
days after the Effective Date), nor in any event prior to the First Closing
Date, and such time and date is referred to herein as the "Option Closing
Date." Delivery of the Option Units against payment therefor shall take
place at the offices of Singer Zamansky LLP, 40 Exchange Place, New York, NY
10005 (or at such other place as may be designated by agreement between the
Underwriter and the Company). The option granted hereunder may be exercised
only to cover over-allotments in the sale by the Underwriter of First Units
referred to in subsection (a) above. No Option Units shall be delivered
unless all First Units shall have been delivered to the Underwriter as
provided herein.
(c) The Company will make the certificates for the Units to be
purchased by the Underwriter hereunder available to you for checking at least
two full business days prior to the First Closing Date or the Option Closing
Date (which are collectively referred to herein as the "Closing Dates"). The
certificates shall be in such names and denominations as you may request, at
least three full business days prior to the Closing Dates. Delivery of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Units to be
purchased by the Underwriter hereunder will be delivered by the Company to you
for the account of the Underwriter against payment of the respective purchase
prices by the Underwriter, by wire transfer or certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Units shall be made to or
upon the order of the Company by wire transfer or certified or bank cashier's
checks payable in New York Clearing House funds at the offices of Singer
Zamansky LLP, 40 Exchange Place, New York, N.Y. 10005, at the time and date of
delivery of such Units as required by the provisions of subsection (b) above,
against receipt of the certificates for such Units by you for your account
registered in such names and in such denominations as you may reasonably
request.
It is understood that the Underwriter proposes to offer the Units to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriter that:
8
<PAGE>
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you or your counsel shall
have reasonably objected in writing or which is not in compliance with the Act
and the Rules and Regulations. At any time prior to the later of (A) the
completion by the Underwriter of the distribution of the Units contemplated
hereby (but in no event more than nine months after the date on which the
Registration Statement shall have become or been declared effective) and (B) 25
days after the date on which the Registration Statement shall have become or
been declared effective, the Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel to the Company and the
Underwriter, may be reasonably necessary or advisable in connection with the
distribution of the Units.
As soon as the Company is advised thereof, the Company will advise
you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective amendment
to the Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for an
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Units for such period as in the opinion of counsel to the
Underwriter and the Company the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriter or dealer of any
event of which the Company has knowledge and which materially affects the
Company or the securities of the Company, or which in the opinion of counsel for
the Company and counsel for the Underwriter should be set forth in an amendment
of the Registration Statement or a supplement to the Prospectus in order to make
the statements therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Units or in case it shall be necessary to amend or
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supplement the Prospectus to comply with law or with the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request,
in order that the Prospectus, as so amended or supplemented, will not contain
any untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of
the circumstances under which they are made, not misleading. The preparation
and furnishing of any such amendment or supplement to the Registration
Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter, except that in case
the Underwriter is required, in connection with the sale of the Units to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense
of the Underwriter, amend or supplement the Registration Statement and
Prospectus and furnish the Underwriter with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will furnish such information as may be required and
to otherwise cooperate and use its best efforts to qualify or register the Units
for sale under the securities or "blue sky" laws of such jurisdictions as you
may designate and will make such applications and furnish such information as
may be required for that purpose and to comply with such laws, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent of service of process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Units. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the counsel to the Company and the Underwriter
deem reasonably necessary.
(c) If the sale of the Units provided for herein is not consummated
as a result of the Company not performing its obligations hereunder in all
material respects, the Company shall pay all costs and expenses incurred by it
which are incident to the performance of the Company's obligations hereunder,
including but not limited to, all of the expenses itemized in Section 8,
including the accountable expenses of the Underwriter, (including the reasonable
fees and expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a registration
statement under the Exchange Act to be declared effective concurrently with the
completion of this offering and will notify you in writing immediately upon the
effectiveness of such registration statement, and (ii) to obtain and keep
current a listing in the Standard & Poors or Moody's OTC Industrial Manual.
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(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense, will
furnish to its stockholders an annual report (including financial statements
audited by independent public accountants), in reasonable detail and at its
expense, will furnish to you during the period ending five (5) years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, but
no earlier than the filing of such information with the Commission a balance
sheet of the Company as at the end of such fiscal year, together with statements
of income, surplus and cash flow of the Company for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, but no earlier than the
filing of such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are publicly available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First Closing
Date two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto, and will
deliver to the Underwriter such number of conformed copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the Underwriter may reasonably request. The Company will
deliver to or upon your order, from time to time until the effective date of the
Registration Statement, as many copies of any Preliminary Prospectus filed with
the Commission prior to the effective date of the Registration Statement as you
may reasonably request. The Company will deliver to the Underwriter on the
effective date of the Registration Statement and thereafter for so long as a
Prospectus is required to be delivered under the Act, from time to time, as many
copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request.
(h) The Company will make generally available to its security holders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable to do so but in no event later than 90 days after the end of
twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
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(i) The Company will apply the net proceeds from the sale of the
Securities substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus and, except as set forth therein, shall not use any proceeds to
pay any (i) debt for borrowed funds, or (ii) debt or obligation owed to any
insider outside of salary in the ordinary course of business.
(j) The Company will promptly prepare and file with the Commission
any amendments or supplements to the Registration Statement, Preliminary
Prospectus or Prospectus and take any other action, which in the opinion of
counsel to the Underwriter and counsel to the Company, may be reasonably
necessary or advisable in connection with the distribution of the Securities,
and will use its best efforts to cause the same to become effective as promptly
as possible.
(k) The Company will reserve and keep available the maximum number of
its authorized but unissued securities which are issuable upon exercise of the
Purchase Option outstanding from time to time.
(l)(1) For a period of thirty six (36) months from the First
Closing Date, no officer, director or shareholder of any securities prior to the
offering will, directly or indirectly, offer, sell (including any short sale),
grant any option for the sale of, acquire any option to dispose of, or otherwise
dispose of any shares of Common Stock without the prior written consent of the
Underwriter, other than as set forth in the Registration Statement. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the securities owned by every shareholder prior to the offering until
the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to
comply with any applicable Blue-sky Law, the shares held by such shareholders
will be escrowed with counsel for the Company or otherwise as required.
(2) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options to
purchase up to 500,000 shares of Common Stock pursuant to an incentive and non-
qualified stock option plan disclosed in or issued or granted pursuant to plans
disclosed in the Registration Statement, the Company shall not, for a period of
thirty six (36) months following the First Closing Date, directly or indirectly,
offer, sell, issue or transfer any shares of its capital stock, or any security
exchangeable or exercisable for, or convertible into, shares of the capital
stock or (including stock options) register any of its capital stock (under any
form of registration statement including Form S-8), without the prior written
consent of the Underwriter upon at least 30 days' notice. Options granted
pursuant to plans must be exercisable at the fair market value on the date of
grant. Notwithstanding the foregoing provisions, the Company may issue
securities during said thirty six (36) month period in connection with
acquisitions by the Company which would have a positive effect on the Company's
income statement based upon generally accepted accounting principles.
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<PAGE>
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Units, Common Stock and the Warrants in the Nasdaq SmallCap
system, and will use its best efforts to effect and maintain such listing for at
least five years from the date of this Agreement.
(n) Except for the transactions contemplated by this Agreement and as
disclosed in the Prospectus, the Company represents that it has not taken and
agrees that it will not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any of the Securities.
(o) On the First Closing Date and simultaneously with the delivery of
the Units, the Company shall execute and deliver to you the Purchase Option.
The Purchase Option will be substantially in the form filed as an Exhibit to the
Registration Statement.
(p) On the First Closing Date, the Company will have in force key
person life insurance on the life of Mr. Pidorenko in an amount of not less than
$1,000,000, payable to the Company, and will use its best efforts to maintain
such insurance during the three year period commencing with the First Closing
Date.
(q) So long as any Warrants are outstanding and the exercise price of
the Warrants is less than the market price of the Common Stock, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter as many
copies of each such Prospectus as such Underwriter or dealer may reasonably
request. The Company shall not call for redemption of any of the Warrants
unless a registration statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least until
the date fixed for redemption.
(r) For a period of five (5) years following the Effective Date, the
Company will maintain registration with the Commission pursuant to Section 12(g)
of the Exchange Act and will provide to the Underwriter copies of all filings
made with the Commission pursuant to the Exchange Act. In the event that the
Company fails to maintain registration with the Commission pursuant to Section
12(g) during such five year period, the Company will provide reasonable access
to an independent accountant designated by the Underwriter, to all books,
records and other documents or statements that reflect the Company's financial
status at least once each quarter, at the Company's expense.
(s) The Company agrees to pay the Underwriter a warrant solicitation
fee of 5% of the exercise price of any of the Warrants exercised beginning one
(1) year after the Effective Date (not including warrants exercised by the
Underwriter) if (a) the market price of the
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<PAGE>
Company's Common Stock on the date the Warrant is exercised is greater than the
exercise price of the Warrant, (b) the exercise of the Warrant was solicited by
the Underwriter and the holder of the warrant designates the Underwriter in
writing as having solicited such Warrant, (c) the Warrant is not held in a
discretionary account, (d) disclosure of the compensation arrangement is made
upon the sale and exercise of the Warrants, (e) soliciting the exercise is not
in violation of Rule 10b-6 under the Securities Exchange Act of 1934, and (f)
solicitation of the exercise is in compliance with the NASD Notice to Members
81-38 (September 22, 1981).
(t) For a period of two years from the Effective Date, at the request
of the Underwriter, the Company shall provide promptly, at the expense of the
Company, copies of the Company's monthly transfer sheets furnished to it by its
transfer agent and copies of the securities position listings provided to it by
the Depository Trust Company.
(u) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the Underwriter,
equal to five percent (5%) of the first $3,000,000 of the consideration
involved in any transaction, 4% of the next $3,000,000 of consideration involved
in the transaction, 3% of the next $2,000,000, 2% of the next $2,000,000 and 1%
of the excess, if any, for future consummated transactions, if any, introduced
by the Underwriter (including mergers, acquisitions, joint ventures, and any
other business for the Company introduced by the Underwriter) consummated by the
Company (an "Introduced Consummated Transaction"), in which the Underwriter
introduced the other party to the Company during a period ending five years
following the First Closing Date; and
(ii) Any finder's fee due hereunder will be paid in cash or other
consideration that is acceptable to the Underwriter, at the closing of the
particular Introduced Consummated Transaction for which the finder's fee is due.
(v) Upon the first Closing Date and simultaneously with the delivery
of the Securities, the Company shall execute and deliver to the Underwriter, a
two year financial consulting agreement in the form attached as an Exhibit to
the Registration Statement which shall require the Company to pay the
Underwriter 1% of the gross proceeds of the Offering. (the "Financial Consulting
Agreement").
(w) For a period of two (2) years following the Effective Date the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders,
provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission. The Company will
retain its present legal counsel and independent certified public accountants
for at least one year from the Closing Date.
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(x) For the two (2) year period commencing on the First Closing Date,
the Company shall recommend and use its best efforts to elect a designee of the
Underwriter as a member of the Company's Board of Directors. Such designee shall
serve on the Compensation Committee of the Board of Directors so long as such
designee would qualify as disinterested for the purpose of Section 162(m) of the
Internal Revenue Code of 1986, as amended. Alternatively, the Underwriter may
appoint an advisor who will be able to attend all meetings of the Board of
Directors. However, the Board of Directors shall have the right to require such
advisor to execute a confidentiality agreement satisfactory to the Company. The
Underwriter shall also have the right to written notice no later than notice to
other directors of each meeting and to obtain copies of the minutes, if
requested, from all Board of Directors meetings for two (2) years following the
Effective Date of the Registration Statement, whether or not a nominee of the
Underwriter attends or participates in any such Board meeting. To the extent
permitted by law, the Company will indemnify the Underwriter and its designee
for the actions of such designee as a director of the Company. The Company will
use its best efforts to obtain liability insurance not to exceed $50,000 per
year in premiums to cover acts of officers and directors, including said
designee. The Company agrees to reimburse the Underwriter immediately upon the
Underwriter's request therefor of any reasonable travel and lodging expenses
directly incurred by the Underwriter in connection with its designee or
representative attending Company Board meetings on the same basis for other
Board members.
(y) For a period of thirty (30) days from and after the Effective
Date, the Company will not issue a press release or engage in any publicity
other than promotion by the Company of its products and services and other press
releases in the ordinary course of its business, without the Underwriter's prior
written consent, unless required by law.
4. CONDITIONS OF UNDERWRITER'S OBLIGATION. The obligations of the
Underwriter to purchase and pay for the Units which it has agreed to purchase
hereunder, are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 A.M., New York time, on
the day following the date of this Agreement, or at such later time or on such
later date as to which you may agree in writing; on or prior to the Closing
Dates no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that or a similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the satisfaction of the Commission; and no stop order shall be
in effect denying or suspending effectiveness of such qualification nor shall
any stop order proceedings with respect thereto be instituted or pending or
threatened. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act.
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(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Johnson, Blakely, Pope, Bokor, Ruppel &
Burns, P.A., counsel for the Company, in form and substance satisfactory to
counsel for the Underwriter, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its organization, with all requisite corporate power and authority to own its
properties and conduct its business as described in the Registration Statement
and Prospectus and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business requires such
qualification except where the failure to qualify or be licensed will not have a
Material Adverse Effect;
(ii) the authorized capitalization of the Company as of November
30, 1996 is as set forth in the Registration Statement; the Securities as set
forth in the Registration Statement have been duly authorized and upon payment
of consideration therefor, will be validly issued, fully paid and non-assessable
and conform in all material respects to the description thereof contained in the
Prospectus; to such counsel's knowledge the outstanding shares of capital stock
of the Company have not been issued in violation of the preemptive rights of any
shareholder and to such counsel's knowledge the shareholders of the Company do
not have any preemptive rights or other rights to subscribe for or to purchase,
nor are there any restrictions upon the voting or transfer of any of the capital
stock except as provided in the Prospectus or as required by law. The
Securities, the Purchase Option and the Warrant Agreement conform in all
material respects to the respective descriptions thereof contained in the
Prospectus; the shares of Common Stock, and the shares of Common Stock issuable
upon exercise of Warrants, the Purchase Option, and the Warrant Agreement will
have been duly authorized and, when issued and delivered in accordance with
their respective terms, will be duly and validly issued, fully paid, non-
assessable, free of preemptive rights to the best of their knowledge; to the
best of their knowledge, all prior sales by the Company of the Company's
securities, have been made in compliance with or under an exemption from
registration under the Act and applicable state securities laws; a sufficient
number of shares of Common Stock has been reserved for issuance upon exercise of
the Warrants and Common Stock has been reserved for issuance upon exercise of
the Warrants contained in the Purchase Option and to the best of such counsel's
knowledge, neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to any
registration rights other than those which have been waived or satisfied for or
relating to the registration of any shares of Common Stock;
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company;
(iv) the certificates evidencing the Securities as described in
the Registration Statement comply in all material respects with the descriptions
set forth therein, and comply with the Florida Business Corporation Act, as in
effect on the date hereof; each Warrant
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<PAGE>
will be exercisable for one share of the Common Stock of the Company,
respectively, and at the prices provided for in the Warrant Agreement;
(v) except as otherwise disclosed in the Registration Statement,
such counsel knows of no pending or threatened legal or governmental proceedings
to which the Company is a party which would materially adversely affect the
business, property, financial condition or operations of the Company; or which
question the validity of the Securities, this Agreement, the Warrant Agreement
or the Purchase Option, or of any action taken or to be taken by the Company
pursuant to this Agreement, the Warrant Agreement or the Purchase Option; to
such counsel's knowledge there are no governmental proceedings or regulations
required to be described or referred to in the Registration Statement which are
not so described or referred to;
(vi) the execution and delivery of this Agreement, the Purchase
Option or the Warrant Agreement and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or therein
contemplated, will not result in a breach or violation of, or constitute a
default under the certificate of incorporation or by-laws of the Company, or to
the best knowledge of counsel after due inquiry, in the performance or
observance of any material obligations, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or in
any material contract, indenture, mortgage, loan agreement, lease, joint venture
or other agreement or instrument to which the Company is a party or by which it
or any of its properties is bound or in violation of any order, rule,
regulation, writ, injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign the result of which would have a
Material Adverse Effect;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for that purpose have been instituted or are pending before, or threatened by,
the Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) as of the Effective
Date comply as to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any information
which gives such counsel reason to believe that the Registration Statement or
any amendment thereto at the time it became effective contained any untrue
statement of a material fact required to be stated therein or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment
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thereto and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information (including without
limitation, the pro forma financial information) and schedules contained
therein, as to which such counsel need express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company is a party are accurate and fairly present in
all material respects the information required to be shown, and such counsel is
familiar with all contracts and other agreements referred to in the Registration
Statement and the Prospectus and any such amendment or supplement or filed as
exhibits to the Registration Statement, and such counsel does not know of any
contracts or agreements to which the Company is a party of a character required
to be summarized or described therein or to be filed as exhibits thereto which
are not so summarized, described or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Securities by the
Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky laws and
registration under the Act; and
(xi) the Units, shares of Common Stock and the Warrants have been
duly authorized for quotation on the Nasdaq SmallCap System ("Nasdaq").
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of Florida upon opinions of counsel
satisfactory to you, in which case the opinion shall state that they have no
reason to believe that you and they are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Singer Zamansky, LLP, counsel to
the Underwriter.
(e) You shall have received a letter prior to the Effective Date and
again on and as of the First Closing Date from Cherry, Bekaert & Holland,
L.L.P., independent public accountants for the Company, substantially in the
form reasonably acceptable to you, providing you with such "cold comfort" as you
may reasonably require.
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(f) At the Closing Dates, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing Dates
taking into account for the Option Closing Dates the effect of the transactions
contemplated hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given, no material
adverse change, or to the Company knowledge, any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the effective date of the
Registration Statement, and the Company shall not have incurred any material
liabilities or entered into any material agreement not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus;
(iv) except as set forth in the Prospectus, no action, suit or proceeding at law
or in equity shall be pending or threatened against the Company which would be
required to be set forth in the Registration Statement, and no proceedings shall
be pending or threatened against the Company before or by any commission, board
or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, property, condition (financial or otherwise), results of
operations or general affairs of the Company, and (v) you shall have received,
at the First Closing Date, a certificate signed by each of the President and the
principal operating officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this subsection (f).
(g) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Units referred to therein will be subject (as of the date hereof and
as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any reasonable request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of the Commission.
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(ii) At the Option Closing Date there shall have been delivered
to you the signed opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns,
P.A., counsel to the Company, dated as of the Option Closing Date, in form and
substance reasonably satisfactory to Singer Zamansky, LLP, counsel to the
Underwriter, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date pursuant to
Sections 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Securities.
(iii) At the Option Closing Date there shall have be delivered to
you a certificate of the President and the principal operating officer of the
Company, dated the Option Closing Date, in form and substance reasonably
satisfactory to Singer Zamansky, LLP, counsel to the Underwriter, substantially
the same in scope and substance as the certificate furnished to you at the
First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have been delivered
to you a letter in form and substance satisfactory to you from Cherry, Bekaert &
Holland, L.L.P., dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(e) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units shall be reasonably
satisfactory in form and substance to you, and you and Singer Zamansky, LLP,
counsel to the Underwriter, shall have been furnished with all such documents,
certificates, and opinions as you may reasonably request in connection with this
transaction in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its compliance with
any of the covenants or conditions contained herein.
(h) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Securities and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission or the NASD. The Company and
the Underwriter represent that at the date hereof each has no knowledge that any
such action is in fact contemplated against it by the Commission or the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be canceled at, or at any time prior to, each Closing Date by the Underwriter
notifying the Company of such cancellation in writing or by telegram at
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or prior to the applicable Closing Date. Any such cancellation shall be without
liability of the Underwriter to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY, The obligation of
the Company to sell and deliver the Units is subject to the following
conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 A.M. New York time, on the day following the date of this Agreement,
or on such later date as the Company and the Underwriter may agree in writing.
(b) At the Closing Dates, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Units on exercise of the Over-
Allotment Option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities; insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim,
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damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of the Underwriter specifically for use in the preparation of
the Registration Statement or any such amendment or supplement thereof or any
such Blue Sky Application or any such preliminary Prospectus or the
Prospectus or any such amendment or supplement thereto, provided, further
that the indemnity with respect to any Preliminary Prospectus shall not be
applicable on account of any losses, claims, damages, liabilities or
litigation arising from the sale of Securities to any person if a copy of the
Prospectus was not delivered to such person at or prior to the written
confirmation of the sale to such person. This indemnity will be in addition
to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Securities of any applicable state or federal
law or any rule, regulation or instruction thereunder relating to violations
based on unauthorized statements by Underwriter or its representative; provided
that such violation is not based upon any violation of such law, rule or
regulation or instruction by the party claiming indemnification or inaccurate or
misleading information furnished by the Company or its representatives,
including information furnished to the Underwriter as contemplated herein. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to
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participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, subject
to the provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed
the defense of the action with counsel reasonably satisfactory to the
indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party or (ii) the named parties to any such action (including
any impleaded parties) include both the indemnified party and the
indemnifying party and in the reasonable judgment of the counsel to the
indemnified party, it is advisable for the indemnified party to be
represented by separate counsel (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for
the indemnified party, which firm shall be designated in writing by the
indemnified party). No settlement of any action against an indemnified party
shall be made without the consent of the indemnified party, which shall not
be unreasonably withheld in light of all factors of importance to such
indemnified party. If it is ultimately determined that indemnification is
not permitted, then an indemnified party will return all monies advanced to
the indemnifying party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act
in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, then the Company and each
person who controls the Company, in the aggregate, and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that the Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount for each of the Units appearing on the cover page of the
Prospectus bears to the public offering price appearing thereon and the Company
shall be responsible for the remaining portion; provided, however, that if such
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allocation is not permitted by applicable law then allocated in such proportion
as is appropriate to reflect relative benefits but also the relative fault of
the Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages or by any other method of allocation
that does not take account of the equitable considerations referred to in this
Section 7. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons, and the Company, its officers, directors and controlling
persons shall be entitled to contribution from the Underwriter to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of
the Securities to the Underwriter is consummated, the Company will pay all costs
and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Units contemplated hereby; all expenses,
including reasonable fees not to exceed $25,000 and disbursements of counsel to
the Underwriter, in connection with the qualification of the Securities under
the state securities or blue sky laws which the Underwriter shall designate; the
cost of printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Units, Common Stock
and Warrants on Nasdaq or any other securities exchange,
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<PAGE>
the cost of printing the certificates representing the Securities; fees for
bound volumes and prospectus memorabilia and the fees of the transfer agent
and warrant agent. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction)
on sales to the Underwriter hereunder. The Company will also pay all costs
and expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to the Underwriter a non-accountable expense allowance of
$150,000. In the event the overallotment option is exercised, the Company
shall pay to the Underwriter at the Option Closing Date an additional amount in
the aggregate equal to 3% of the gross proceeds received upon exercise of the
overallotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained herein or because any other condition to the Underwriter's
obligations hereunder required to be fulfilled by the Company is not fulfilled)
the Company shall not be liable for any expenses of the Underwriter, including
the Underwriter's legal fees. In the event the transactions contemplated hereby
are not consummated by reason of the Company being unable to perform its
obligations hereunder in all material respects, the Company shall be liable for
the actual accountable out-of-pocket expenses of the Underwriter, including
reasonable legal fees.
(c) Except as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter, against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees), to which the Underwriter or person may become subject insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution except that
you may, at your option, delay its effectiveness until 11:00 A.M., New York time
on the first full business day following the effective date of the Registration
Statement, or at such earlier time on such business day after the effective date
of the Registration Statement as you in your discretion shall first commence the
public offering of the Units. The time of the initial public offering shall
mean the time of release by you of the first newspaper advertisement with
respect to the Securities, or the time when the Securities are first generally
offered by you to dealers by letter or telegram,
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<PAGE>
whichever shall first occur. This Agreement may be terminated by you at any
time before it becomes effective as provided above, except that Sections
3(c), 6, 7, 8, 12, 13, 14 and 15 shall remain in effect notwithstanding such
termination.
10. TERMINATION.
(a) After this Agreement becomes effective, this Agreement, except
for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated at any
time prior to the First Closing Date, by you if in your judgment (i) trading
in securities on the New York Stock Exchange or the American Stock Exchange
having been suspended or limited, (ii) material governmental restrictions have
been imposed on trading in securities generally (not in force and effect on the
date hereof), (iii) a banking moratorium has been declared by federal or New
York state authorities, (iv) an outbreak of major international hostilities
involving the United States or other substantial national or international
calamity has occurred, (v) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification has been received by the Company of the threat of any such
proceeding or action, which would materially adversely affect the Company; (vi)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Underwriter to have a material adverse impact on the business,
financial condition or financial statements of the Company; or (vii) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 10, the Company shall be
promptly notified by you, by telephone or telegram, confirmed by letter.
11. PURCHASE OPTION.
At or before the First Closing Date, the Company will sell the
Underwriter or its designees for a consideration of $10, and upon the terms and
conditions set forth in the form of Purchase Option annexed as an exhibit to
the Registration Statement, a Purchase Option to purchase an aggregate of
125,000 Units. In the event of conflict in the terms of this Agreement and the
Purchase Option with respect to language relating to the Purchase Option, the
language of the Purchase Option shall control.
12. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER.
The Underwriter represents and warrants to the Company that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Units and that it will comply with
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all applicable state or federal laws relating to the sale of the Units,
including but not limited to, violations based on unauthorized statements by
the Underwriter or its representatives.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties
and other statements of the Company and the Underwriter and the undertakings set
forth in or made pursuant to this Agreement will remain in full force and effect
until three years from the date of this Agreement, regardless of any
investigation made by or on behalf of the Underwriter, the Company or any of its
officers or directors or any controlling person and will survive delivery of and
payment of the Securities and the termination of this Agreement.
14. NOTICE.
Any communications specifically required hereunder to be in writing,
if sent to the Representative, will be mailed, delivered or telecopied and
confirmed to them at Monroe Parker Securities, Inc., 2500 Westchester Avenue,
Purchase, New York 10577, with a copy sent to Singer Zamansky LLP, 40 Exchange
Place, New York, New York 10005, Attention: Gregory Sichenzia, or if sent to the
Company, will be mailed, delivered or telecopied and confirmed to it at 8306
Laurel Fair Circle, Suite 240, Tampa, FL 33610, with a copy sent to Johnson,
Blakely, Pope, Bokor, Ruppel & Burns, P.A., 911 Chestnut Street, Clearwater, FL
34617. Notice shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication.
15. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
Underwriter, the Company, any person controlling the Company or the Underwriter,
and directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from the Underwriter of the Units.
16. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with,
of the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
17. COUNTERPARTS.
This agreement may be executed in one or more counterparts each of
which shall be deemed to constitute an original and shall become effective when
one or more counterparts have been signed by each of the parties hereto and
delivered to the other parties (including by fax, followed by original copies by
overnight mail).
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18. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement constitutes the entire agreement of the parties hereto
and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Underwriter and the Company.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
THERMACELL TECHNOLOGIES, INC.
By:
-----------------------------------
Name: John Pidorenko
Title: President
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
MONROE PARKER SECURITIES, INC.
By:
-----------------------------------
Name: Stephen J. Drescher
Title: Director Corporate Finance
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Option to Purchase
125,000 Units
THERMACELL TECHNOLOGIES, INC.
PURCHASE OPTION
Dated: __________, 1997
THIS CERTIFIES that Monroe Parker Securities, Inc., 2500 Westchester
Avenue, Purchase, NY 10577 (hereinafter sometimes referred to as the "Holder"),
is entitled to purchase from THERMACELL TECHNOLOGIES, INC. (hereinafter referred
to as the "Company"), at the prices and during the periods as hereinafter
specified, up to 125,000 Units ("Units"), each Unit consisting of one (1) share
of Common Stock, $.0001 par value per share ("Common Stock"), and one (1)
Redeemable Class A Common Stock Purchase Warrant ("Warrant"). Each Warrant
entitles the registered holder thereof to purchase one (1) share of Common Stock
at an exercise price of $4.25 per share. The Warrants (hereinafter, the
"Warrants") are exercisable for a three year period, commencing __________,
1998(one (1) year from the Effective Date). Hereinafter, the Units, shares of
Common Stock and Warrants shall be referred to as an "Option Securities" or
"Securities."
The Securities have been registered under a Registration Statement on
Form SB-2 (File No. 333-________) declared effective by the Securities and
Exchange Commission on __________, 1997 (the "Registration Statement"). This
Option (the "Option") to purchase 125,000 Units was originally issued pursuant
to an underwriting agreement between the Company and Monroe Parker Securities,
Inc. as underwriter (the "Underwriter"), in connection with a public offering of
1,250,000 Units (collectively, the "Public Securities") through the Underwriter,
in consideration of $10 received for the Option.
Except as specifically otherwise provided herein, the Common Stock and the
Warrants issued pursuant to this Option shall bear the same terms and conditions
as described under the caption "Description of Securities" in the Registration
Statement, and the Warrants shall be governed by the terms of the Warrant
Agreement dated as of __________, 1997, executed in connection with such public
offering (the "Warrant Agreement"), except that the holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Option, the Units, the Common Stock and the Warrants included in the
Option, and the shares of Common Stock underlying the Warrants, as more fully
described in paragraph 6 of this Option. In the event of any reduction of the
exercise price of the Warrants included in the Public Securities, the same
changes to the Warrants included in the Option and the components thereof shall
be simultaneously effected.
<PAGE>
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between __________, 1998 (one (1) year from the Effective Date)
and __________, 2002, inclusive, the Holder shall have the option to purchase
Units hereunder at a price of $6.60 per Unit (subject to adjustment pursuant to
paragraph 8 hereof) (the "Exercise Price").
(b) After __________, 2002, the Holder shall have no right to
purchase any Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Option Securities
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the purchase form to the effect
that such person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. This Option shall be
deemed to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the date this Option is
surrendered and payment is made in accordance with the foregoing provisions of
this paragraph 2, and the person or persons in whose name or names the
certificates for shares of Common Stock and Warrants shall be issuable upon such
exercise shall become the holder or holders of record of such Common Stock and
Warrants at that time and date. The Common Stock and Warrants and the
certificates for the Common Stock and Warrants so purchased shall be delivered
to the Holder within a reasonable time, not exceeding ten (10) days, after the
rights represented by this Option shall have been so exercised.
3. This Option shall not be transferred, sold, assigned, or hypothecated
for a period of one (1) year from the Effective Date, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder or selling group member of the
offering during such period. Any transfer after one (1) year must be
accompanied with an immediate exercise of the Option. Any such assignment shall
be effected by the Holder (i) executing the form of assignment at the end hereof
and (ii) surrendering this Option for cancellation at the office or agency of
the Company referred to in paragraph 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this paragraph 3 hereof;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Option Securities as are
purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Option Securities purchased hereunder and the
Common Stock which may be
2
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issued upon exercise of the Warrants will, upon issuance, be duly and validly
issued, fully paid and nonassessable. The Company further covenants and
agrees that during the periods within which this Option may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of its Common Stock to provide for the exercise of this Option and that
it will have authorized and reserved a sufficient number of shares of Common
Stock for issuance upon exercise of the Warrants included in the Option
Securities.
5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, whether the Holder holds the Option
or has exercised the Option and holds Option Securities or any of the securities
underlying the Option Securities, by written notice at least 20 days prior to
the filing of any post-effective amendment to the Registration Statement or of
any new registration statement or post-effective amendment thereto under the Act
covering any securities of the Company, for its own account or for the account
of others (other than a registration statement on Form S-4 or S-8 or any
successor forms thereto), and will for a period of five years from the effective
date of the Registration Statement, upon the request of the Holder within 10
days of the receipt of the Company's notice, include in any such post-effective
amendment or registration statement, such information as may be required to
permit a public offering of the Option, all or any of the Units, Common Stock,
or Warrants included in the Units or the Common Stock issuable upon the exercise
of the Warrants (the "Registrable Securities"). The Company shall supply
prospectuses and such other documents as the Holder may request in order to
facilitate the public sale or other disposition of the Registrable Securities,
use its best efforts to register and qualify any of the Registrable Securities
for sale in such states as such Holder designates provided that the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or execute a general consent to service of process in any
jurisdiction in any action and do any and all other acts and things which may be
reasonably necessary or desirable to enable such Holders to consummate the
public sale or other disposition of the Registrable Securities, and furnish
indemnification in the manner provided in paragraph 7 hereof. The Holder shall
furnish information and indemnification as set forth in paragraph 7 except that
the maximum amount which may be recovered from the Holder shall be limited to
the amount of proceeds received by the Holder from the sale of the Registrable
Securities. The Company shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
holders of Registrable Securities requested to be included in the registration
to include such securities in such underwritten offering on the same terms and
conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering advises the holders of Registrable Securities that the total
amount of securities which they intend to include in such offering is such as to
materially and adversely affect the success of such offering, then the amount of
securities to be offered for the accounts of holders of Registrable Securities
shall be eliminated, reduced, or limited to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount, if
any, recommended by such managing underwriter or underwriters (any such
reduction or limitation in the total amount of Registrable Securities to be
included in such
3
<PAGE>
offering to be borne by the holders of Registrable Securities proposed to be
included therein pro rata). The Holder will pay its own legal fees and
expenses and any underwriting discounts and commissions on the securities sold
by such Holder and shall not be responsible for any other expenses of such
registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof to the
effect that such holder desires to register under the Act this Option or any of
the underlying securities contained in the Option Securities underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved then the Company will
promptly, but no later than 60 days after receipt of such notice, file a post-
effective amendment to the current Registration Statement or a new registration
statement pursuant to the Act, to the end that the Option and/or any of the
Securities underlying the Option Securities may be publicly sold under the Act
as promptly as practicable thereafter and the Company will use its best efforts
to cause such registration to become and remain effective for a period of 120
days (including the taking of such steps as are reasonably necessary to obtain
the removal of any stop order); provided that such holder shall furnish the
Company with appropriate information in connection therewith as the Company may
reasonably request in writing. The 50% holder (which for purposes hereof shall
mean any direct or indirect transferee of such holder) may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act with respect to the
Registrable Securities on only one occasion during the term of this Option. The
Holder may at its option request the registration of the Option and/or any of
the securities underlying the Option in a registration statement made by the
Company as contemplated by Section 6(a) or in connection with a request made
pursuant to this Section 6(b) prior to acquisition of the Securities issuable
upon exercise of the Option and even though the Holder has not given notice of
exercise of the Option. The 50% holder may, at its option, request such post-
effective amendment or new registration statement during the described period
with respect to the Option or separately as to the Common Stock and/or Warrants
included in the Option and/or the Common Stock issuable upon the exercise of the
Warrants, and such registration rights may be exercised by the 50% holder prior
to or subsequent to the exercise of the Option. Within ten business days after
receiving any such notice pursuant to this subsection (b) of paragraph 6, the
Company shall give notice to the other holders of the Options, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other holders. Each holder electing to include its Registrable
Securities in any such offering shall provide written notice to the Company
within twenty (20) days after receipt of notice from the Company. The failure
to provide such notice to the Company shall be deemed conclusive evidence of
such holder's election not to include its Registrable Securities in such
offering. Each holder electing to include its Registrable Securities shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of only one such post-
effective amendment or new registration statement shall be borne by the Company,
except that the holders shall bear the fees of their own counsel and any
underwriting discounts or commissions applicable to any of the securities sold
by them.
4
<PAGE>
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the Company's request to waive such lock-up. In the event of such postponement,
the Company shall be required to file the registration statement pursuant to
this Section 6(b), within 60 days of the consummation of the event requiring
such postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean the
holder of at least 50% of the Common Stock and the Warrants underlying the
Option (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are
5
<PAGE>
based upon the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse the Distributing Holder and each such controlling person and
underwriter for any legal or other expenses reasonably incurred by the
Distributing Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage, or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or supplement
in reliance upon and in conformity with written information furnished by such
Distributing Holder or any other Distributing Holder, for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer, or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such
6
<PAGE>
indemnified party under this paragraph 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Notwithstanding anything to the contrary contained in the
Warrant Agreement, in the event an adjustment to the Exercise Price is effected
pursuant to this Subsection (a) (and a corresponding adjustment to the number of
Option Securities is made pursuant to Subsection (d) below), the exercise price
of the Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
In such event, there shall be no adjustment to the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option
Securities by the product of the Exercise Price in effect immediately prior to
the date of such issuance multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding on the record
date mentioned below and the number of additional shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall
7
<PAGE>
be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and-dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Securities by the product of the Exercise Price in
effect immediately prior thereto multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as defined in Subsection
(e) below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this Option
is adjusted pursuant to Subsections (a), (b) or (c) above, the number of Option
Securities purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Securities initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b) or (c)
above, the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for 20 consecutive business
days before such date. The closing price for each day shall be the last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed, or if not listed or admitted to trading on such exchange,
the average of the highest reported bid and lowest reported asked prices as
reported by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors.
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<PAGE>
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least fifteen cents
($0.15) in such price; provided, however, that any adjustments which by reason
of this Subsection (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Securities issuable upon exercise of this
Option and, if requested, information describing the transactions giving rise to
such adjustments, to be mailed to the Holder, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this Option shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (g), inclusive above.
(i) No adjustments shall be made in connection with future public
offerings.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
9
<PAGE>
IN WITNESS WHEREOF, ThermaCell Technologies, Inc. has caused this Option to
be signed by its duly authorized officers under its corporate seal, and this
Option to be dated as of the date first above written.
THERMACELL TECHNOLOGIES, INC.
By:
--------------------------------
John Pidorenko
President
(Corporate Seal)
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
_____Units, each consisting of one (1) Share of Common Stock, $.0001 par value
per share, of ThermaCell Technologies, Inc. and one (1) Warrant and herewith
makes payment of $______________ therefor, and requests that the Warrants and
certificates for shares of Common Stock be issued in the name(s) of, and
delivered to _________________________ whose address(es) is (are)
_____________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase Units, each
consisting of one (1) share of Common Stock and one (1) Warrant of ThermaCell
Technologies, Inc., in the numbers set forth below represented by the foregoing
Option to the extent of _____ shares of Common Stock and ____ Warrants, and
appoints _________________________________ attorney to transfer such rights on
the books of ThermaCell Technologies, Inc., with full power of substitution in
the premises.
Dated:
By:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
In the presence of:
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
THERMACELL TECHNOLOGIES, INC.
1,250,000 UNITS CONSISTING OF
1,250,000 SHARES OF COMMON STOCK, $.0001 PAR VALUE
AND
1,250,000 REDEEMABLE CLASS A COMMON STOCK
PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_______ __, 1997
Dear Sirs:
1. Monroe Parker Securities, Inc. (the "Underwriter"), has agreed to
offer on a firm commitment basis, subject to the terms and conditions and
execution of the Underwriting Agreement, 1,250,000 Units each consisting of one
(1) share of Common Stock, $.0001 par value per share ("Common Stock") of
ThermaCell Technologies, Inc. (the "Company") and one (1) Redeemable Class A
Common Stock Purchase Warrant ("Warrant") (hereinafter, collectively referred to
as the "Units"; including any shares of Common Stock and Warrants offered
pursuant to an over-allotment option, the "Firm Units"). Each Warrant is
exercisable to purchase one (1) share of Common Stock. The Firm Units are more
particularly described in the enclosed Preliminary Prospectus, additional copies
of which, as well as the Prospectus (after effective date), will be supplied in
reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy Units, upon the terms and
conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission ("the Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended ("the 1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and
<PAGE>
not registered under the 1934 Act who agree to make no sales within the
United States, its territories and possessions or to persons who are
nationals thereof or residents therein and, in making sales, to comply with
the NASD's interpretation with respect to free-riding and withholding. The
Units are to be offered to the public at a price of $4.00 per Unit. Selected
Dealers will be allowed a concession of not less than __% of the aggregate
offering price. You will be notified of the precise amount of such
concession prior to the effective date of the Registration Statement. The
offer is solicited subject to the issuance and delivery of the Units and
their acceptance by the Underwriter, to the approval of legal matters by
counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Units has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Purchase below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Units set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Units, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of the Units assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in re-offering the Units, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Units purchased by you remaining unsold,
and we shall have the right to repurchase such Units upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of
the Units purchased by you pursuant to this Agreement are to be re-offered by
you to the public at the public offering price, subject to the terms hereof and
shall not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Units which you purchase hereunder shall be made by you
on such date as we may determine by certified or bank cashier's check payable in
New York Clearinghouse funds to Monroe Parker Securities, Inc. Certificates for
the Securities shall be delivered as soon as practicable at the offices of
Monroe Parker Securities, Inc., 2500 Westchester Avenue, Purchase, New York
10577. Unless specifically authorized by us, payment by you may not be deferred
until delivery of certificates to you.
6. A registration statement covering the offering has been filed with the
Commission in respect to the Units. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
2
<PAGE>
Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or
by the Underwriter to give any information or to make any representations other
than those contained in the Prospectus in connection with the sale of the Units.
Nothing contained herein shall render the Selected Dealers a member of the
underwriting group or partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Units in any state.
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Units; such contractual commitment can only be made in
accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("Association") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Rules 2730, 2740, 2420 and 2750 of the NASD Conduct Rules of the
Association and the interpretations of said Section promulgated by the Board of
Governors of such Association including the interpretation with respect to
"Free-Riding and Withholding"; (b) Section 10(b) of the 1934 Act and Rules 10b-6
and 10b-10 of the general rules and regulations promulgated under said Act; (c)
Securities Act Release #3907; (d) Securities Act Release #4150; and (e)
Securities Act Release #4968 requiring the distribution of a Preliminary
Prospectus to all persons reasonably expected to be purchasers of Units from you
at least 48 hours prior to the time you expect to mail confirmations. You, if a
member of the Association, by signing this Agreement, acknowledge that you are
familiar with the cited law, rules and releases, and agree that you will not
directly and/or indirectly violate any provisions of applicable law in
connection with your participation in the distribution of the Units.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Units or its component
securities in the open market or otherwise make a market in
3
<PAGE>
such securities or otherwise attempt to induce others to purchase such
securities in the open market. Nothing contained in this paragraph 11 shall,
however, preclude you from acting as agent in the execution of unsolicited
orders of customers in transactions effectuated for them through a market
maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for
or purchases in the open market in connection with such stabilization any Units
sold to you hereunder and not effectively placed by you, the Underwriter may
charge you the Selected Dealer's concession originally allowed you on the Units
so purchased, and you agree to pay such amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your net capital
is such that you may, in accordance with Rule 15c3-1 adopted under the 1934 Act,
agree to purchase the number of Units you may become obligated to purchase under
the provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer the purchase
of Firm Units unless you shall have reasonable grounds to believe that the
recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Firm Units in a discretionary account without the prior specific written
approval of the customer.
15. You represent that neither you nor any of your affiliates or
associates owns any Common Stock of the Company.
16. All communications from you should be directed to us at the office of
Monroe Parker Securities, Inc., 2500 Westchester Avenue, Purchase, New York
10577. All communications from us to you shall be directed to the address to
which this letter is mailed.
Very truly yours,
MONROE PARKER SECURITIES, INC.
By:
----------------------------------
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE
______ DAY OF ____________, 1997
[Name of Dealer]
By:
-----------------------------
Its
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<PAGE>
TO: Monroe Parker Securities, Inc.
2500 Westchester Avenue
Purchase, New York 10577
We hereby subscribe for _______ Units of ThermaCell Technologies, Inc. in
accordance with the terms and conditions stated in the foregoing letter. We
hereby acknowledge receipt of the Prospectus referred to in the first paragraph
thereof relating to said Units. We further state that in purchasing said Units
we have relied upon said Prospectus and upon no other statement whatsoever,
whether written or oral. We confirm that we are a dealer actually engaged in
the investment banking or securities business and that we are either (i) a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") or (ii) a dealer with its principal place of business located
outside the United States, its territories and its possessions and not
registered as a broker or dealer under the Securities Exchange Act of 1934, as
amended, who hereby agrees not to make any sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein. We hereby agree to comply with the provisions of Rule 2740
of the NASD Conduct Rules, and if we are a foreign dealer and not a member of
the NASD, we also agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member of the NASD,
with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules.
Name of
Dealer:
--------------------------------
By:
-----------------------------
Address:
-----------------------------
-----------------------------
Dated: ____________ , 1997
<PAGE>
FINANCIAL CONSULTING AGREEMENT
Agreement made this ____ day of _______, 1997 by and between Monroe
Parker Securities, Inc. ("Consultant") and ThermaCell Technologies, Inc. (the
"Company").
WHEREAS, the Company desires to obtain Consultant's consulting
services in connection with the Company's business and financial affairs, and
Consultant is willing to render such services as hereinafter more fully set
forth.
NOW, THEREFORE, the parties hereby agree as follows:
1. The Company hereby engages and retains Consultant and Consultant
hereby agrees to use its best efforts, to render to the Company the consulting
services hereinafter described for a period of two years commencing as of, and
conditioned upon, the closing of the underwriting contemplated in the
Registration Statement on Form SB-2, No. 333-_______, declared effective by the
Securities and Exchange Commission on __________, 1997.
2. Consultant's services hereunder shall consist of consultations
with the Company concerning investment banking and other financial matters to be
determined by the Company.
3. The Company agrees that Consultant shall not be precluded during
the term of this Agreement from providing other consulting services or engaging
in any other business activities whether or not such consulting services or
business activities are pursued for gain, profit or other pecuniary advantage
and whether or not such consulting activities are in direct or indirect
competition with the business activities of the Company.
4. The Company agrees to pay to Consultant for its services
hereunder the sum of One Percent (1%) of the gross proceeds of the Company's
initial public offering. The Company agrees that the entire sum due to
Consultant hereunder shall be paid in full on the date hereof.
5. Consultant shall be entitled to reimbursement by the Company of
such reasonable out-of-pocket expenses as Consultant may incur in performing
services under this Agreement.
6. All final decisions with respect to consultations or services
rendered by Consultant pursuant to this Agreement shall be those of the Company,
and there shall be no liability on the part of the Consultant in respect
thereof. This Agreement and the Underwriting Agreement dated __________, 1997
contain the entire agreement of the parties hereto with respect to the subject
matter hereof, and there are no representations or warranties other than as
shall be herein or therein set forth. No waiver or modification hereof shall be
valid unless in writing. No waiver of any term, provision or condition of this
Agreement, in any one or more instance, shall constitute a waiver of any other
provision thereof, whether or not similar, nor shall such waiver constitute a
continuing waiver.
<PAGE>
7. This Agreement shall be governed, construed and enforced in
accordance with the laws of the State of New York, without regard to the
principals of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have caused the agreement to be
signed as of the day and year first above written.
THERMACELL TECHNOLOGIES, INC.
By:
--------------------------------------
Name: John Pidorenko
Title: President
MONROE PARKER SECURITIES, INC.
By:
--------------------------------------
Name: Stephen J. Drescher
Title: Director of Corporate Finance
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<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______, 1997, by and between
THERMACELL TECHNOLOGIES, INC., a Florida corporation ("Company"), and AMERICAN
STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 1,437,500 Units,
each consisting of one (1) share of common stock, $.0001 par value per share
(the "Common Stock"), and one (1) Redeemable Class A Common Stock Purchase
Warrant (the "Warrant") pursuant to an underwriting agreement (the "Underwriting
Agreement") dated __________, 1997 between the Company and Monroe Parker
Securities, Inc. ("Monroe"), and the issuance to Monroe or its designees of an
option to purchase 125,000 additional Units, consisting of 125,000 shares of
Common Stock and 125,000 Warrants (the "Purchase Option"), the Company will
issue up to 1,562,500 Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of 20,000,000 authorized shares, $.0001 par
value per share, and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect to the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution, or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (1) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Warrants or (ii), in the case of any
reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or property
provided for in such section or (iii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value,
<PAGE>
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean ______, 1998 (one (1)
year from the Effective Date).
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $4.25 per share, subject to adjustment from time to time pursuant
to the provisions of Section 9 hereof, and subject to the Company's right, in
its sole discretion, to reduce the Purchase Price upon notice to all
warrantholders.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.10 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
__________, 2001 or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon
notice to all warrantholders the Company shall have the right to extend the
warrant expiration date.
2
<PAGE>
2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,562,500 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed, or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Purchase Option; and
(vi) those issued at the option of the Company, in such form as may be approved
by the its Board of Directors, to reflect any adjustment or change in the
Purchase Price, the number of shares of Common Stock purchasable upon exercise
of the Warrants or the Redemption Price therefor made pursuant to Section 9
hereof.
(e) Pursuant to the terms of the Purchase Option, Monroe may purchase
up to 125,000 Units, consisting of 125,000 shares of Common Stock and 125,000
Warrants. The Purchase Option shall not be transferred, sold, assigned or
hypothecated for a period of one (1) year from the Effective Date, except that
it may be transferred to persons who are officers of Monroe or selling group
members in the offering.
3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with
3
<PAGE>
any law or with any rule or regulation made pursuant thereto or with any rule
or regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage or to the requirements of Section 2(b). The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange, or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President, or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4 hereof.
4. EXERCISE. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise (plus a certificate for any remaining unexercised
Warrants of the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the exercise of
any Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant Proceeds") to
the Company or as the Company may direct in writing.
4
<PAGE>
5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES, ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its
5
<PAGE>
Corporate Office, and upon satisfaction of the terms and provisions hereof,
the Company shall execute and the Warrant Agent shall countersign, issue, and
deliver in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered with shares of
Common Stock pursuant to the Underwriting Agreement will be immediately
detachable from the Common Stock and transferable separately therefrom.
7. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered
6
<PAGE>
Holder in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
8. REDEMPTION.
(a) Subject to the provisions of paragraph 2(e) hereof, on not less
than thirty (30) days notice given at any time after six (6) months after the
Initial Warrant Exercise Date, or earlier with the consent of Monroe, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$0.10 per Warrant, provided the Market Price of the Common Stock receivable upon
exercise of the Warrant shall equal or exceed 250% of the then exercise price of
the Warrants per share (the "Target Price"), subject to adjustment as set forth
in Section 8(f) below. Market Price for the purpose of this Section 8 shall
mean the average closing sale price for all twenty (20) consecutive trading days
ending on the third day prior to the date of the notice of redemption, which
notice shall be mailed no later than five days thereafter, of the Common Stock
as reported by the National Association of Securities Dealers, Inc. Automatic
Quotation System or any national securities exchange on which the Common Stock
is traded.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On
and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant, the Redemption Price.
7
<PAGE>
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
WARRANTS.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision,
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(G) below) for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
8
<PAGE>
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to
this Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage, or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, or other change, consolidation,
merger, sale, or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
9
<PAGE>
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefore were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to Monroe and to each registered holder
of Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further
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<PAGE>
consideration other than cash, if any (such convertible or exchangeable
securities being herein called "Convertible Securities"), or (2) the issuance
by the Company, without the receipt by the Company of any consideration
therefor, of any rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or Convertible Securities, in each
case, if (and only if) the consideration payable to the Company upon the
exercise of such rights, warrants, or options shall consist of cash, whether
or not such rights, warrants, or options, or the right to convert or exchange
such Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such rights,
warrants, or options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate consideration
payable to the Company upon the exercise of such rights, warrants, or options,
plus the consideration received by the Company for the issuance or sale of
such rights, warrants, or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants, or options or upon the
conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants, or options) is less than the fair market
value of the Common Stock on the date of the issuance or sale of such rights,
warrants, or options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants, or options or upon the
conversion or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants, or options) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b)
hereof and shall be deemed to have been sold for cash in an amount equal to
such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value or
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection (iii)
above or any other securities of the Company convertible, exchangeable, or
exercisable for shares of Common Stock, for any reason other than an event that
would require adjustment to prevent dilution, so that the consideration per
share received by the Company after such modification is less than the market
price on the date prior to such modification, the Purchase Price to be in effect
after such modification shall be determined
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<PAGE>
by multiplying the Purchase Price in effect immediately prior to such event by
a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding multiplied by the market price on the date prior to the
modification plus the number of shares of Common Stock which the aggregate
consideration receivable by the Company for the securities affected by the
modification would purchase at the market price and of which the denominator
shall be the number of shares of Common Stock outstanding on such date plus
the number of shares of Common Stock to be issued upon conversion, exchange,
or exercise of the modified securities at the modified rate. Such adjustment
shall become effective as of the date upon which such modification shall take
effect.
(vi) On the expiration of any such right, warrant, or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the Purchase
Option; or
(ii) upon the sale of any shares of Common Stock in the Company's
initial public offering, including, without limitation, shares sold upon the
exercise of any over-allotment option granted to the Underwriters in connection
with such offering; or
(iii) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants, or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold
other than issuances of preferred stock in connection with acquisitions by the
Company; or
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<PAGE>
(iv) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in a private placement unless the issuance or sale price is less than
85% of the fair market value of the Common Stock on the date of issuance, in
which case the adjustment shall only be for the difference between 85% of the
fair market value and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to shareholders of any corporation which merges into the Company or
from which the Company acquires assets and some or all of the consideration
consists of equity securities of the Company, in proportion to their stock
holdings of such corporation immediately prior to the acquisition but only if no
adjustment is required pursuant to any other provision of this Section 9.
(h) Intentionally Omitted.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon
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<PAGE>
any exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
12. RIGHTS OF ACTION. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of the Warrants, and any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a warrant that:
(a) The warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if
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<PAGE>
the Warrant Certificates representing such Warrants are surrendered at the
office of the Warrant Agent, duly endorsed or accompanied by a proper
instrument of transfer satisfactory to the Warrant Agent and the Company in
their sole discretion, together with payment of any applicable transfer taxes;
and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel
Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, splitup, combination, or exchange.
15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board,
15
<PAGE>
President, any Vice President, its Secretary, or Assistant Secretary, (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order, or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses, and liabilities, including judgments,
costs, and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of its duties and powers hereunder except losses, expenses, and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 60
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 30 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act, or deed; but if for any reason
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act, or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
16
<PAGE>
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; PROVIDED,
HOWEVER, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and PROVIDED, FURTHER, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
17. NOTICES. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 8306 Laurel Fair Circle, Suite 240, Tampa, FL 33610, Attention:
President, with a copy sent to Johnson, Blakely, Pope, Bokor, Ruppel & Burns,
P.A., Attention: ____________________, Esq. or at such other address as may have
been furnished to the Warrant Agent in writing by the Company; and if to the
Warrant Agent, at its Corporate office.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without reference to
principles of conflict of laws.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Company and, the Warrant Agent and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy, or claim, in equity or at law, or to impose upon any
other person any duty, liability, or obligation.
20. TERMINATION. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
17
<PAGE>
21. COUNTERPARTS. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THERMACELL TECHNOLOGIES, INC.
By:
------------------------------
John Pidorenko
Its: President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
------------------------------
Its: Authorized Officer
19
<PAGE>
EXHIBIT A
[Form of Face of Warrant Certificate]
No. W Warrants
VOID AFTER ________ __, 2001
REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANT
THERMACELL TECHNOLOGIES, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Class A Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.0001 par value per share ("Common Stock"), of ThermaCell Technologies,
Inc., a Florida corporation (the "Company"), at any time between the Initial
Warrant Exercise Date and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $4.25 (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to ThermaCell Technologies, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________ __,
1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean ________ __, 1998.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on ________
__, 2001, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.10 per Warrant at any time after ________ __, 1998 or earlier with
the consent of Monroe Parker Securities, Inc., provided the Market Price (as
defined in the Warrant Agreement) for the securities issuable upon exercise of
such Warrant shall exceed 250% of the then exercise price of the Warrants.
Notice of redemption shall be given not later than the thirtieth day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to this Warrant except to receive the $.10 per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of _____________.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
THERMACELL TECHNOLOGIES, INC.
By:
-----------------------------------
John Pidorenko
Its: President
Date:
------------------------------
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
------------------------------
Its: Authorized Officer
3
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[Form of Reverse of Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
----------------------------------------------------------
(please insert social security or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
--------------------------------------------
(Date)
--------------------------------------------
(Taxpayer Identification Number)
<PAGE>
If this Warrant has been solicited by a member of the National Association of
Securities Dealers, Inc., the name of such firm is:__________:
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
----------------------------------------------------------
(please insert social security or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
--------------------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE>
[LETTERHEAD]
February 17, 1997
ThermaCell Technologies, Inc.
5419 Provost Drive
Holiday, FL 34690-2939
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as your counsel in the preparation on a Registration
Statement on Form SB-2 (the "Registration Statement") filed by you with the
Securities and Exchange Commission covering 1,250,000 units (the "Units"),
each Unit consisting of one share of common stock, $.01 par value per share
(the "Common Stock") and one Series A Redeemable Common Stock Purchase
Warrants (the "Series A Warrants").
In so acting, we have examined and relied upon such records, documents
and other instruments as in our judgment are necessary or appropriate in
order to express the opinion hereinafter set forth and have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, and the conformity to original documents of all documents
submitted to us as certified or photostatic copies.
Based on the foregoing, we are of the opinion that:
(i) the Units and the Common Stock, when issued and delivered in the
manner and on the terms described in the Registration Statement (after
it is declared effective), will be duly and validly issued, fully paid
and nonassessable;
(ii) the Series A Warrants have been duly authorized and, when (a) the
pertinent provisions of the Securities Act of 1933 (the "Act") and of
such "blue-sky" and securities laws as may be applicable have been
complied with, (b) the Series A Warrants have been executed and
authenticated in the manner set forth in the Warrant Agreement, and
(c) the Series A Warrants have been issued and delivered in the manner
set forth in the Prospectus (in the form filed by the Company pursuant
to Rule 424(b) under the Act) against payment therefor, the Series A
Warrants will have been validly executed, authenticated, issued and
<PAGE>
[LETTERHEAD]
ThermaCell Technologies, Inc.
February 17, 1997
Page 2
delivered, will constitute the legal, valid and binding obligations
of the Company, will (subject to applicable bankruptcy, insolvency
and other laws affecting the enforceability of creditors' rights
generally) be enforceable as to the Company in accordance with their
terms and the terms of the Warrant Agreement, and will be entitled to
the benefits provided by the Warrants Agreement; and
(iii) the shares of Common Stock of the Company to be issued upon the
exercise of the Series A Warrants are validly authorized and,
assuming (a) the shares of Common Stock so issuable will be validly
authorized on the dates of exercise, and (b) the Series A Warrants
will have been duly executed, authenticated, issued and delivered,
will constitute the legal, valid and binding obligations of the
Company, (subject to applicable bankruptcy, insolvency and other laws
affecting the enforceability of creditors' rights generally) will be
enforceable as to the Company in accordance with their terms and the
terms of the Warrant Agreement, and will be entitled to the benefits
provided by the Warrant Agreement and (c) no change occurs in the
applicable law or the pertinent facts, when (d) the pertinent
provisions of such "blue-sky" and securities laws as may be applicable
have been complied with and (e) the Series A Warrants are exercised in
accordance with their terms and the terms of the Warrant Agreement,
the shares of Common Stock so issuable will be validly issued, fully
paid and nonassessable.
We hereby consent to the reference to our Firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Act, or the general rules and regulations
thereunder.
Very truly yours,
JOHNSON, BLAKELY, POPE, BOKOR,
RUPPEL & BURNS, P.A.
By: [NAME ILLEGIBLE]
------------------------------------
<PAGE>
EXHIBIT 10(K)
AGREEMENT
This Agreement ("Agreement") is made as of this day of February, 1997 by
and between CONSOLIDATED FINANCIAL MANAGEMENT, INC., an Arizona Corporation,
(hereinafter "CONSOLIDATED") and THERMACELL TECHNOLOGIES, INC., a Florida
Corporation, (hereinafter "THERMACELL").
R E C I T A L S
A. WHEREAS, CONSOLIDATED is the maker of that certain Promissory Note,
(hereinafter the "Note"), dated December 5, 1995 in the amount of two hundred
thousand ($200,000) dollars;
B. WHEREAS, THERMACELL is the Payee of said Note;
C. WHEREAS, CONSOLIDATED is the Pledgor under that certain Pledge Agreement
dated December 5, 1995 in which it pledged sixty thousand (60,000) shares of
Meadow Valley Corporation stock as security for the obligations under the Note;
D. WHEREAS, THERMACELL is the Pledgee of that certain Pledge Agreement;
E. WHEREAS, THERMACELL is the maker of two Promissory Notes dated November
29, 1995. One, executed in the amount of one hundred thousand ($100,000) dollars
in favor of Rodney W. Smith as holder; and one, executed in the amount of two
hundred thousand ($200,000) dollars in favor of Michael Lang as holder, the
("Third Partry Notes");
F. WHEREAS, CONSOLIDATED has acquired all rights, title and interest into
the Third Party Notes;
G. WHEREAS, as a result of a dispute regarding the Note, the Stock, and the
Third Party Notes, an action entitled CONSOLIDATED FINANCIAL MANAGEMENT, INC.,
AN ARIZONA CORPORATION, PLAINTIFF V. THERMACELL TECHNOLOGIES, INC., A FLORIDA
CORPORATION, DEFENDANT, bearing Maricopa County Superior Court cause # CV
97-90292 (The "ACTION") was commenced;
H. WHEREAS, in the action CONSOLIDATED has obtained a Temporary Restraining
Order enjoining THERMACELL from selling, reselling, assigning, transferring,
conveying or delivering the 60,000 shares of Meadow Valley Corporation Stock
shares to any other person or entity other than CONSOLIDATED;
I. WHEREAS, prior to the action, THERMACELL obtained a replacement
certificate bearing its name pertaining to the 60,000 shares of Meadow Valley
Corporation Stock.
J. WHEREAS, for purposes of clarification in this document, "Business Day"
shall mean a calendar day other than a Saturday, Sunday of other day on which
banks in Phoenix, Arizona, are required to close;
K. WHEREAS, by this agreement, CONSOLIDATED and THERMACELL exchange certain
promises and agree to perform certain acts to settle the ACTION.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. INCORPORATION. Recitals A through K are incorporated herein by
reference.
2. METHOD OF SETTLEMENT.
A-1
<PAGE>
2.1 THERMACELL shall deposit with Smith Barney located at 311 Park Place
Boulevard, Suite 100, Clearwater, Florida, the replacement certificate it
obtained regarding the 60,000 shares of Meadow Valley Corporation stock.
Said replacement certificate shall either be endorsed in blank or
accompanied by an executed stock power that will allow CONSOLIDATED to
obtain a successor certificate issued in its name. Accompanied with the
replacement certificate issued in the name of THERMACELL endorsed in blank
and/or the endorsed stock power shall be an instructional letter to Smith
Barney, (the form and content which is attached hereto as Exhibit "A"),
instructing Smith Barney that they are not to release the replacement
certificate issued to THERMACELL (and/or the executed stock power) to
CONSOLIDATED until THERMACELL through its Attorney Michael Cronin notifies
Smith Barney that CONSOLIDATED has complied with the obligations as
prescribed in paragraph 2.2 herein.
2.2 Upon notification by the Smith Barney, Clearwater Florida office
that it has received the replacement certificate issued in the name of
THERMACELL (that is either endorsed in blank or accompanied by an
appropriate stock power), CONSOLIDATED shall within two (2) business day's
notification from Smith Barney, send the sum of one hundred thousand
($100,000.00) dollars wired, on behalf of THERMACELL as follows:
<TABLE>
<S> <C>
Republic Bank
POB 7017
Clearwater, Florida 34618
Telephone 813/796-2900 (ext 296)
ABA #063108868
Account to
Credit: Johnson, Blakely, Pope, Bokor, Ruppel & Burns-Trust Account
Account Number: 0018022106
</TABLE>
2.3 Until such time that the transaction stated in paragraphs 2.1 and
2.2 are completed, the Temporary Restraining Order that is currently in
effect in the ACTION shall remain in full force and effect and CONSOLIDATED
shall continue to be required to maintain the ten thousand ($10,000.00)
dollar bond. Once the transactions in paragraphs 2.1 and 2.2 are complied
with by the parties, CONSOLIDATED will cause to have filed the Notice of
Dismissal with Prejudice, the form and content of which is attached hereto
as Exhibit "B". The parties understand and agree that the dismissal of the
ACTION with prejudice does not in any way limit or restrict the rights of
either party to this Agreement and any attachment hereto including but not
limited to the right to bring an action in law or in equity to enforce that
party's rights under this Agreement.
2.4 In connection with this Agreement, THERMACELL shall deliver to
CONSOLIDATED the original Promissory Note dated December 5, 1995, and the
original Pledge and Security Agreement dated December 5, 1995 and delineate
that each document is conceled and the Note is paid in full.
2.5 THERMACELL shall also deliver to CONSOLIDATED the original Third
Party Notes. Consolidated will in turn delineate that each Third Party Note
is cancelled and return the Third Party Notes to THERMACELL.
2.6 If the original Note, Pledge and Security Agreement and/or Third
Party Notes cannot be located, each party will execute any and all necessary
documents to conform with the requirements of 2.4 and 2.5.
2.7 Upon execution of this Agreement, THERMACELL shall also execute and
deliver a new Promissory Note in the sum of two hundred fifty eight
thousand, seven hundred eighty nine ($258,789.00) dollars in favor of
CONSOLIDATED, the form and content of which is attached hereto as Exhibit
"C". THERMACELL understands and agrees that CONSOLIDATED shall have the
right to assign this new Promissory Note if it so desires.
A-2
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THERMACELL. So long as this Agreement
is in effect, THERMACELL represents, warrants and agrees as follows:
3.2 THERMACELL represents and warrants to CONSOLIDATED that the 60,000
shares of Meadow Valley Corporation stock is owned free and clear of all
claims, mortgages, pledges, liens and other encumbrances of any nature
whatsoever, except (i) any liens and restrictions set forth herein, and (ii)
any restrictions pursuant to Rule 144 of the Securities Act of 1933, as
amended (the "Act"), or any applicable state securities laws.
4. REPRESENTATIONS AND WARRANTIES OF CONSOLIDATED. So long as this
Agreement is in effect, CONSOLIDATED represents, warrants and agrees as follows:
4.1 CONSOLIDATED represents and warrants to THERMACELL that it has
acquired all right, title and interest into the Third Party Notes and is the
lawful titleholder of said notes. Attached hereto and incorporated herein as
Exhibits "D" and "E" are copies of the Assignments executed by Michael Lang
on the Lang Third Party Note and Rodney Smith on the Smith Third Party Note,
evidencing their assignment of said notes to CONSOLIDATED.
5. RELEASES.
5.1 THERMACELL shall and does hereby relieve, release, and discharge
CONSOLIDATED, its respective officers, directors, representatives, agents,
attorneys, employees, administrators, sureties, successors, heirs and
assigns, and each of them, and the heirs, legatees, devisees, executors,
trustees, administrators, successors and assigns of any such persons and
entities, of and from any and all claims, debts, abilities, demands,
obligations, promises, acts, agreements, costs, expenses (including but not
limited to attorneys' fees), damages, actions, causes of action, judgments,
executions and attachments (hereinafter referred to as "released claims"),
whether now known or unknown, suspected or unsuspected, based on, arising
out of, or in connection with the Action, save and except any obligations
created under this Agreement.
5.2 CONSOLIDATED, shall and does hereby relieve, release, and discharge
THERMACELL, its respective officers, directors, representatives, agents,
attorneys, employees, administrators, sureties, successors, heirs and
assigns, and each of them, and the heirs, legatees, devisees, executors,
trustees, administrators, successors and assigns of any such persons and
entities, of and from any and all claims, debts, abilities, demands,
obligations, promises, acts, agreements, costs, expenses (including but not
limited to attorneys' fees), damages, actions, causes of action, judgments,
executions and attachments (hereinafter referred to as "released claims"),
whether now known or unknown, suspected or unsuspected, based on, arising
out of, or in connection with the Action, save and except any obligations
created under this Agreement.
6. MISCELLANEOUS.
6.1 ENTIRE AGREEMENT AND WAIVER. This AGREEMENT contains the entire
agreement between the parties hereto and supersedes all prior and
contemporaneous agreements, arrangements, negotiations and understandings
between the parties hereto, relating to the subject matter hereof. There are
no other understandings, statements, promises or inducements, oral or
otherwise, contrary to the terms of this AGREEMENT. No supplement,
modification, or amendment of any term, provision or condition of this
AGREEMENT shall be binding unless executed in writing by all parties. No
waiver of any term, provision, or condition of this AGREEMENT whether by
conduct or otherwise, in any one or more instances, shall be deemed to be,
or shall constitute, a waiver of any other provision hereof, whether or not
similar, nor shall such waiver constitute a continuing waiver, and no waiver
shall be binding unless executed in writing by the party making the waiver.
6.2 EXHIBITS. All exhibits attached hereto and referred to herein are
an integral part of this AGREEMENT and are incorporated herein by reference
hereby.
A-3
<PAGE>
6.3 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties contained in this AGREEMENT, in any attachment hereto, or any
certificate delivered in connection herewith, shall be considered a material
warranty and representation which was made as a substantial inducement to
the execution of this AGREEMENT and any breach of any such representation
and warranty shall be considered a material breach of this AGREEMENT.
6.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All
statements contained in any exhibit, document, certificate or other
instrument delivered by or on behalf of any party hereto in connection with
the transactions contemplated hereby shall be deemed to be representations
and warranties made pursuant to this AGREEMENT by such party. The
representations, warranties, covenants and agreements contained in this
AGREEMENT and continue from the date of this AGREEMENT.
6.5 INTERPRETATIONS AND DEFINITIONS. The parties agree that each party
and its counsel have reviewed and revised this AGREEMENT and that any rule
of construction to the effect that ambiguities are to be resolved against
the drafting party shall not apply in the interpretation of this AGREEMENT.
In this AGREEMENT whenever the context so requires, the gender includes the
neuter, feminine and masculine and the number includes the singular and the
plural and the words "person" and "party" include an individual,
corporation, partnership, firm, trust or association.
6.6 HEADINGS. The subject headings of articles, sections and
paragraphs in this AGREEMENT are included solely for purposes of convenience
and reference only, and shall not be deemed to explain, modify, limit,
amplify, or aid in the meaning, construction or interpretation of any of the
provisions of this AGREEMENT.
6.7 RELATIONSHIPS. Nothing contained in this AGREEMENT shall be deemed
or construed by the parties or by any third person to create the
relationship of principal and agent or of partnership or of joint venture or
any association between or among the parties hereto.
6.8 PARTIES IN INTEREST. Nothing in this AGREEMENT whether expressed
or implied, is intended to confer any rights or remedies under or by reason
of this AGREEMENT on any persons other than the parties to it and their
respective heirs, representatives, successors and permitted assigns, nor is
anything in this AGREEMENT intended to relieve or discharge the obligations
or liabilities of any third persons to any party to this AGREEMENT, nor
shall any provision hereof give any third persons any right of subrogation
against or action over any party to this AGREEMENT.
6.9 GOVERNING LAW. It is the intention of the parties that the
internal laws, and not the laws of conflicts, of the State of Arizona shall
govern the validity of this AGREEMENT, the construction of its terms and the
interpretation of the rights and duties of the parties. Jurisdiction and
venue for all actions related to this AGREEMENT shall be in the Superior
Court of Maricopa County, Phoenix, Arizona.
6.10 REMEDIES NOT EXCLUSIVE AND WAIVER. No remedy conferred by any of
the specific provisions of this AGREEMENT is intended to be exclusive of any
other remedy and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder of now or hereafter existing
at law or in equity or by statute or otherwise. The election of any one or
more remedies shall not constitute a waiver of the right to pursue other
available remedies.
6.11 ATTORNEYS' FEES. In any action at law or in equity to enforce any
of the provisions or rights under this AGREEMENT, the unsuccessful party to
such litigation, as determined by the Court in a final judgment or decree,
shall pay the prevailing party or parties all costs, expenses and reasonable
attorneys' fees incurred herein by such party or parties (including without
limitation such costs, expenses and fees on any appeal), and if such
prevailing party shall recover judgment in any such action or proceeding,
such costs, expenses and attorneys' fees shall be included in as part of
such judgment.
A-4
<PAGE>
6.12 NOTICES. All notices, requests, demands or other communications
("notices") under this AGREEMENT shall be in writing and shall be either
delivered personally to the party to whom notice is to be given, mailed by a
reputable overnight courier service or mailed in the United States mail,
first class, postage prepaid, registered or certified, return receipt
requested and properly addressed as follows:
(a) If to CONSOLIDATED:
Consolidated Financial Management, Inc.
6220 E. Thomas Road, Suite #300
Scottsdale, Arizona 85251
cc: Attorney C. William Mulligan, III
1405 E. Guadalupe, Suite #3
Tempe, Arizona 85283
(b) If to THERMACELL:
Thermacell Technologies, Inc.
5419 Provost Drive
Holiday, Florida
cc: Attorney Mike Cronin
911 Chestnut Street
POB 1368
Clearwater, Florida 34617-1368
Any notice which is personally delivered shall be deemed to be given
upon the date of delivery. Any notice which is mailed by a reputable
overnight courier service shall be deemed to be given on the day following
deposit with such overnight courier service. Any notice which is mailed
shall be deemed to be given three days after the deposit of same into the
United States mail, as above provided. Any person named above may change the
address to which notices are sent to it by giving written notice thereof to
all other persons referred to above in the manner provided above.
6.13 TIME IS OF THE ESSENCE OF THIS AGREEMENT. Time is of the essence
of this AGREEMENT. This AGREEMENT shall be binding upon the heirs, personal
representatives, executors, administrators, successors, and assigns of the
respective parties hereto.
6.14 SEVERABILITY. Should any part, term or provision of this
Agreement or any document required herein to be executed be declared
invalid, void or unenforceable, all remaining parts, terms and provisions
hereof shall remain in full force and effect and shall in no way be
invalidated, impaired or affected thereby.
6.15 COUNTERPARTS. This AGREEMENT may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
A-5
<PAGE>
IN WITNESS WHEREOF, said parties have hereunto set their hands and seals the
day and year above written.
CONSOLIDATED FINANCIAL
MANAGEMENT INC.
By: /s/ J.C. CANNON
--------------------------------------
J.C. Cannon
PRESIDENT
THERMACELL TECHNOLOGIES, INC.
By:
--------------------------------------
John Pidorenko
PRESIDENT
A-6
<PAGE>
DEBT FOR EQUITY EXCHANGE AGREEMENT
This Debt For Equity Exchange Agreement, ("Agreement") is made the
____ day of February, 1997, between THERMACELL TECHNOLOGIES, INC. a Florida
corporation ("Company") ___________ a resident of __________________
("Investor") and JOHN PIDORENKO ("Pidorenko").
W I T N E S S E T H
WHEREAS, the Investor has previously purchased and acquired a
Convertible Promissory Note payable from the Company in the aggregate
principal amount of $__________, which amount is unpaid, plus accrued
interest thereon ("Note");
WHEREAS, the Company attempted a "best efforts" underwriting of its
securities which was not successful, the results of which was to place the
Company in a precarious financial condition in which it is not able to pay
its debts and obligations as they become due;
WHEREAS, Monroe Parker Securities, Inc. ("Underwriter") is willing to
underwrite on a "firm commitment" basis $5,000,000 of the Company's equity
which underwriting is in the best interest of the Company.
WHEREAS, as a condition to this underwriting, the Underwriter is
requiring the Company to substantially reduce its outstanding obligations
through the conversion of debts to equity at one-half (1/2) the public
offering price of $4.00 or $2.00 per share;
WHEREAS, the Investor agrees that it is in the best interest of the
Company to exchange the outstanding principal balance of the Note plus any
accrued and unpaid interest thereon for shares of the Company's Common Stock,
par value $.001 ("Stock") an exchange value of $2.00 per share, or 50% of the
anticipated initial public offering price of $4.00 per unit;
WHEREAS, Pidorenko agrees that this understanding is of direct benefit
to himself and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the parties
hereto agree as follows:
1. The above recitals are true and correct and are incorporated herein
by reference.
2. Investor agrees to accept shares of the Company's Common Stock at a
valuation of $2.00 per share in a sufficient number to equal the unpaid
principal balance of the Investor's Note and accrued and unpaid interest
thereon through March 30, 1997, in exchange for the Investor's cancellation
of all obligations of the Company due Investor under such Promissory Note.
3. Upon Investor's execution of this Agreement, Investor shall release
the Company from all obligations the Company owes Investor under the Note,
it being the express agreement of the Investor and the Company that the
Investor shall receive shares of the Company's Stock valued at $2.00 per
share as payment in full for the Company's obligations under said Note.
4. By virtue of the execution of this Agreement and in consideration
of an undertaking by the Underwriter in connection with the firm commitment
offering of 1,250,000 Units of shares of the Company's Common Stock and
Warrants, and the execution of an Underwriting Agreement between the
Underwriter and the Company, the terms and conditions of which are hereby
incorporated by reference, the Investor agrees with the Underwriter and the
Company as follows:
<PAGE>
(i) The Investor agrees not to sell or otherwise dispose of all
shares of the Company's Common Stock required by the Investor through the
date of this Agreement for a period of at least two (2) years from the
effective date of the Prospectus for the Company's firm commitment
underwriting undertaken by the Underwriter, without the Underwriter's
consent, except in private transactions in which the purchaser agrees to be
bound by such lock-up agreement with the Underwriter. The Underwriter has
the right to extend this lock-up period for one (1) additional year if the
Company does not achieve during any 12 consecutive month period a cumulative
pre-tax profit on income, calculated and in accordance with GAAP of at least
$3,000,000.
5. As additional consideration for the Investor accepting shares of
the Company's Common Stock, Pidorenko agrees that until all investors are
released from their lock-up agreements that his salary from the Company shall
be limited to $90,000 per year and that no bonuses shall be paid him.
6. The Investor is granted one time piggyback registration rights for
a subsequent public offering of the Company's securities with the consent of
Monroe Parker Securities, Inc.
7. Investor represents and warrants as a condition to this Agreement
that he or she has the right and power to acquire the stock which is the
subject of this Agreement, and such purchase will not conflict with any other
agreement or understandings to which Investor is a party or which he or she
is bound.
8. Investor acknowledges he has had the opportunity to ask any
questions of and receive answers from the Company and authorized
representatives of the Company concerning the business and affairs of the
Company prior to purchasing the Stock hereunder. Accordingly, Purchaser
represents that he has been given access to all information concerning the
Company in which he desires in connection with his investment decision
hereunder.
9. Investor has adequate means of providing for his current needs and
possible personal contingencies, and has no need for liquidity of his
investment in the Stock. He can bear the economic risk of losing his entire
investment; he has such knowledge and experience in financial matters that he
is capable of evaluating the relative risks and merits of this investment;
and he is acquiring the Stock for his own account, for investment only and
not with a view toward the resale or distribution thereof.
10. Investor acknowledges that he is aware that his investment involves
a high degree risk of loss by him of his entire investment and that there are
substantial restrictions on the transferability of the Stock; the Stock will
not be, and Purchaser has no right to require that the Stock be, registered
under the Securities Act of 1933 or any state securities laws; that there may
be no public market for the Stock and that he may not be able to resell the
Stock which he is purchasing.
11. Investor understands that the Stock has not registered under
federal or state securities laws on the grounds that this sale of stock is
exempt from registration. He further acknowledges his understanding that the
Company's reliance on such exemption is, in part, based upon the foregoing
representations, warranties and covenants.
12. This Agreement supersedes all previous written or oral agreements,
undertakings or discussions between the Investor and the Company. The
Investor releases the Company, other than the Company's obligations set forth
in this Agreement, for any prior representation, statement, undertaking or
agreement made by Mr. Pidorenko or any of the other officers, employees or
agents of the Company. The Investor understands that any other agreements,
arrangements or understandings are solely a personal obligation of the
parties so involved and are not an agreement, obligation or undertaking of
the Company.
13. FOR FLORIDA RESIDENTS. These securities have not been registered
under the Securities Act of 1933, as amended, or the Florida Securities Act,
by reason of specific exemptions thereunder relating to the
2
<PAGE>
limited availability of the offering. These securities cannot be sold,
transfered, or otherwise disposed of to any person or entity unless they are
subsequently registered or exemption from registration is available.
The shares referred to herein will be sold to, and acquired, by the
holder in a transaction exempt under Section 517.061 of the Florida
Securities Act. The shares have not been registered under said act in the
State of Florida. In addition, all Florida residents shall have the
privilege of voiding the purchase within three (3) days after the first
tender of consideration is made such purchase to the issuer, an agent of the
issuer, or an escrow agent or within three (3) days after the availability of
that privilege is communicated to said purchaser, whichever occurs later.
14. As of March 15, 1997, the unpaid principal balance of Investor's
Note is $_______ plus accrued and unpaid interest of $______ for a total
obligation of $______. Accordingly, the Company shall issue the Investor a
sufficient number of additional shares after adjusting for the prior
conversions so that investor is issued a total of ______ shares of the
Company's Common Stock to satisfy its obligations under the Note upon the
Company's receipt of this Agreement executed by Investor.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
INVESTOR
---------------------------------------
THERMACELL TECHNOLOGIES, INC.
By:
-----------------------------------
Its:
----------------------------------
3
<PAGE>
LOCK-UP LETTER FOR
THERMACELL TECHNOLOGIES, INC.
Gentlemen:
By virtue of the execution of this letter agreement (the "Agreement")
the undersigned individual and/or entity (hereinafter referred to as the
"Shareholder"), as record and beneficial owner of the number of shares of
Common Stock, $.001 par value per share set forth opposite the Shareholder's
name at the end of this Agreement (the "Shares"), of ThermaCell Technologies,
Inc., a Florida corporation (the "Company") hereby represents and warrants to
the Company as follows:
a) The undersigned has full power and authority to enter into this
Agreement and to restrict the transferability and saleability of the
Shares;
b) The undersigned's compliance with the terms and conditions of this
Agreement will not conflict with any instrument or agreement
pertaining to the Shares or the transaction contemplated herein; and
will not conflict in, result in a breach of, or constitute a default
under any instrument to which the Shareholder is a party;
c) The undersigned owns the Shares free and clear of any and all liens
and encumbrances.
By virtue of the execution of this Agreement and solely in consideration
for the Company's utilizing its best efforts to cause the preparation and
filing with the Securities and Exchange Commission (the "SEC") of a
Registration Statement on Form SB-2 (the "Registrant Statement") under the
Securities Act of 1933, as amended (the "Act"), causing the same to be
ordered effective by the SEC; and the firm commitment undertaking by Monroe
Parker Securities, Inc. to act as underwriter (the "Underwriter") in
connection with the offering of 1,250,000 Units at $4.00 per Unit and the
execution of an Underwriting Agreement between the Underwriter and the
Company, the terms and conditions of which are hereby incorporated herein by
reference and which document is hereinafter referred to as the "Underwriting
Agreement"; the Shareholder hereby agrees with the Underwriter and the
Company as follows:
<PAGE>
The Shareholder agrees not to sell or otherwise dispose of all shares of
the Company's Common Stock required by the Shareholder through the date of
this Agreement for a period of at least two (2) years from the effective date
of the Prospectus for the Company's firm commitment underwriting undertaken
by the Underwriter, without the Underwriter's consent, except in private
transactions in which the purchaser agrees to be bound by such lock-up
agreement with the Underwriter. The Underwriter has the right to extend this
lock-up period for one (1) additional year if the Company does not achieve
during any 12 consecutive month period a cumulative pre-tax profit on income,
calculated and in accordance with GAAP of at least $3,000,000.
Very truly yours,
No. of Shares
------------- --------------------------------------
Name of Stockholder
--------------------------------------
Signature
--------------------------------------
Street Address
--------------------------------------
City, State and Zip Code
--------------------------------------
Telephone Number
2
<PAGE>
February 17, 1997
TO THE BOARD OF DIRECTORS OF
THERMACELL TECHNOLOGIES, INC.
Gentlemen:
By execution of this letter I agree to reduce my annual salary pursuant to
the terms of my employment agreement from $150,000 to $90,000. I further agree
not to be paid any bonuses or to increase my base salary until such time as all
current shareholders in the Company are released from their lock-up provisions
with Monroe Parker Securities, Inc.
Very truly yours,
/s/ JOHN PIDORENKO
---------------------------------------
John Pidorenko
<PAGE>
[LOGO]
Board of Directors
ThermaCell Technologies, Inc.
We consent to the use of our report dated January 15, 1997 on the financial
statements of ThermaCell Technologies, Inc. included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
CHERRY BEKAERT & HOLLAND L.L.P.
February 17, 1997
<PAGE>
[Letterhead]
Board of Directors
C.F. Darling Paint & Chemicals, Inc.
We consent to the use of our report dated January 3, 1996 on the financial
statements of C.F. Darling Paint & Chemicals, Inc. included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ CHERRY BEKAERT & HOLLAND L.L.P.
--------------------------------------
Cherry Bekaert & Holland L.L.P.
May 22, 1996
