As filed with the Securities and Exchange Commission on June 24, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LAMINATING TECHNOLOGIES, INC.
(Exact name of Small Business Issuer as specified in its charter)
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Delaware 2671 58-2044990
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation) classification code number) identification
number)
291 North Industrial Way
Canton, Georgia 30115
(404) 355-7681
(Address and telephone number of principal executive offices and principal place
of business)
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Michael E. Noonan
Chief Executive Officer
291 North Industrial Way
Canton, Georgia 30115
(404) 355-7681
(Name, address and telephone number of agent for service)
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Copies to:
Sheldon E. Misher, Esq. Spencer G. Feldman, Esq.
Bachner, Tally, Polevoy & Misher LLP Greenberg, Traurig, Hoffman, Lipoff,
380 Madison Avenue Rosen & Quentel
New York, New York 10017 153 East 53rd Street
(212) 687-7000 New York, New York 10022
(212) 801-9200
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, please check the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
registration statement for the same offering. | |
If the delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. |X|
Pursuant to Rule 416 under the Securities Act of 1933, as
amended, there are also being registered such additional shares of
Common Stock as may become issuable pursuant to anti-dilution
provisions upon exercise of the Warrants and the Unit Purchase Option.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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(Continued on following page)
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(Continued from previous page)
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price (1) Registration Fee
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<S> <C> <C>
Units, each consisting of one share of Common Stock, $.01 par value,
one Class A Warrant and one Class B Warrant (2) .............................. $ 8,625,000 $ 2,974
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Units, each consisting of one share of Common Stock,
$.01 par value, and one Class B Warrant (3) .................................. 11,212,500 3,866
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Common Stock, $.01 par value (4) ............................................... 30,187,500 10,409
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Unit Purchase Option (5) ....................................................... 150 --
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Units, each consisting of one share of Common Stock,
$.01 par value, one Class A Warrant and one Class B Warrant (6) .............. 900,000 310
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Units, each consisting of one share of Common Stock,
$.01 par value, and one Class B Warrant (6) .................................. 975,000 336
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Common Stock, $.01 par value (6) ............................................... 2,625,000 905
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Class A Warrants (7) ........................................................... -- --
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Units, each consisting of one share of Common Stock,
$.01 par value, and one Class B Warrant (8) .................................. 6,483,750 2,236
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Common Stock, $.01 par value (9) ............................................... 8,728,125 3,010
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Total .................................................................. $69,737,025 $24,046
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 225,000 Units subject to the Underwriter's over-allotment option.
(3) Issuable upon exercise of the Class A Warrants.
(4) Issuable upon exercise of the Class B Warrants.
(5) To be issued to the Underwriter.
(6) Issuable upon exercise of the Unit Purchase Option and/or the Warrants
issuable thereunder.
(7) Registered for resale by selling security holders.
(8) Issuable upon exercise of the Class A Warrants registered for resale by the
selling securityholders.
(9) Issuable upon exercise of the Class B Warrants underlying the Class A
Warrants registered for resale by the selling securityholders.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are also being registered such additional shares of Common Stock as may become
issuable pursuant to anti-dilution provisions upon exercise of the Warrants and
the Unit Purchase Option.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) up to 1,725,000
units ("Units"), including Units to cover over-allotments, if any, each Unit
consisting of one share of Common Stock, $.01 par value ("Common Stock"), of
Laminating Technologies, Inc., a Delaware corporation (the "Company"), one
redeemable Class A Warrant ("Class A Warrant") and one redeemable Class B
Warrant ("Class B Warrant"), for sale by the Company in an underwritten initial
public offering and (ii) an additional 997,500 Class A Warrants (the "Selling
Securityholder Warrants"), for sale by the holders thereof (the "Selling
Securityholders"), 997,500 Class B Warrants (the "Selling Securityholder Class B
Warrants") underlying the Selling Securityholder Warrants and 1,995,000 shares
of Common Stock (the "Selling Securityholder Stock") underlying the Selling
Securityholder Warrants and the Selling Securityholder Class B Warrants, all for
resale from time to time by the Selling Securityholders subject to the
contractual restriction that the Selling Securityholders may not sell the
Selling Securityholder Warrants for specified periods after the closing of the
underwritten offering. The Selling Securityholder Warrants, the Selling
Securityholder Class B Warrants and the Selling Securityholder Stock are
sometimes collectively referred to herein as the "Selling Securityholder
Securities."
The complete Prospectus relating to the underwritten offering follows
immediately after this Explanatory Note. Following the Prospectus for the
underwritten offering are pages of the Prospectus relating solely to the Selling
Securityholder Securities, including alternative front and back cover pages and
sections entitled "Concurrent Public Offering," "Plan of Distribution," and
"Selling Securityholders" to be used in lieu of the sections entitled
"Concurrent Offering" and "Underwriting" in the Prospectus relating to the
underwritten offering. Certain sections of the Prospectus for the underwritten
offering will not be used in the Prospectus relating to the Selling
Securityholder Securities such as "Use of Proceeds" and "Dilution."
(i)
<PAGE>
SUBJECT TO COMPLETION -- DATED JUNE 24, 1996
PROSPECTUS
LAMINATING TECHNOLOGIES, INC.
1,500,000 Units
Consisting of 1,500,000 Shares of Common Stock,
1,500,000 Redeemable Class A Warrants and
1,500,000 Redeemable Class B Warrants
Each unit ("Unit") offered by Laminating Technologies, Inc. (the
"Company") consists of one share of common stock, $.01 par value ("Common
Stock"), one redeemable class A warrant ("Class A Warrants") and one redeemable
class B warrant ("Class B Warrants"). The components of the Units will be
separately transferable immediately upon issuance. Each Class A Warrant entitles
the holder to purchase one share of Common Stock and one Class B Warrant at an
exercise price of $6.50, subject to adjustment, at any time until the fifth
anniversary of the date of this Prospectus. Each Class B Warrant entitles the
holder to purchase one share of Common Stock at an exercise price of $8.75,
subject to adjustment, at any time until the fifth anniversary of the date of
this Prospectus. Commencing one year after the date hereof, the Class A Warrants
and Class B Warrants (together the "Warrants") are each subject to redemption by
the Company at a redemption price of $.05 per Warrant on 30 days' written
notice, provided the closing bid price of the Common Stock averages in excess of
$9.10 and $12.25 per share, respectively, for any 30 consecutive trading days
ending within 15 days of the notice of redemption. See "Description of
Securities."
Prior to this offering (the "Offering"), there has been no public market
for the Units, the Common Stock or the Warrants, and there can be no assurance
that such markets will develop. The Company intends to apply for quotation of
the Units, Common Stock, Class A Warrants and Class B Warrants on the Nasdaq
SmallCap Market ("Nasdaq") under the symbols LAMTU, LAMT, LAMTW and LAMTZ,
respectively. It is currently anticipated that the initial public offering price
will be $5.00 per Unit. See "Underwriting" for a discussion of factors
considered in determining the initial public offering price. Pursuant to
Schedule E to the By-Laws of the National Association of Securities Dealers,
Inc. (the "NASD"), the Units are being offered at a price no greater than the
maximum recommended by RAS Securities Corp., a qualified independent
underwriter, for the reason set forth in "Underwriting." FOR INFORMATION
CONCERNING A SECURITIES AND EXCHANGE COMMISSION INVESTIGATION RELATING TO THE
UNDERWRITER, SEE "RISK FACTORS" AND "UNDERWRITING."
Concurrently with this Offering, the Company has registered for resale by
certain securityholders (the "Selling Securityholders") 997,500 Class A Warrants
(the "Selling Securityholder Warrants"), and the Common Stock and Class B
Warrants underlying the Selling Securityholder Warrants and the Common Stock
issuable upon exercise of such Class B Warrants. The Selling Securityholder
Warrants and the securities underlying such warrants are sometimes collectively
referred to as the "Selling Securityholder Securities." The Selling
Securityholder Warrants are issuable on the closing of this offering to the
Selling Securityholders upon the automatic conversion of warrants (the "Bridge
Warrants") acquired by them in the Company's private placement completed in
April and May 1996 (the "Bridge Financing"). The Selling Securityholders have
agreed not to sell any of the Selling Securityholder Warrants for at least 90
days after the closing of this Offering and, for the period expiring 270 days
after such Closing, have agreed to certain resale restrictions. Sales of the
Selling Securityholder Warrants or the underlying securities, or the potential
of such sales, may have an adverse effect on the market price of the securities
offered hereby.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."
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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.
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Underwriting Discounts and Proceeds to
Price to Public Commissions (1) Company (2)
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Per Unit........ $ $ $
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Total (3) ...... $ $ $
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(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $ _______, or
$______ per Unit ($_____ if the over-allotment option is exercised in
full); (ii) an option, exercisable over a period of four years commencing
one year from the date of this Prospectus, to purchase up to 150,000 Units
at $______ per Unit (the "Unit Purchase Option") and (iii) a two year
consulting agreement providing for aggregate fees of $70,000. The Company
has also agreed to indemnify the Underwriter against certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, including
the Underwriter's non-accountable expense allowance, estimated at $_______
($________ if the Underwriter's over-allotment option is exercised in
full). See "Underwriting."
(3) The Company has granted to the Underwriter a 30-day option to purchase up
to 225,000 additional Units on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If the over-allotment
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $______ , $______
and $______ , respectively. See "Underwriting."
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The Units are being offered on a "firm commitment" basis by the Underwriter
when, as and if delivered to and accepted by the Underwriter, subject to its
right to reject orders in whole or in part and subject to certain other
conditions. It is expected that the delivery of the certificates representing
the Units will be made against payment at the offices of D.H. Blair Investment
Banking Corp., 44 Wall Street, New York, New York 10005 on or about ______,
1996.
D.H. BLAIR INVESTMENT BANKING CORP.
The date of this Prospectus is , 1996
<PAGE>
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK AND/OR WARRANTS OFFERED HEREBY 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>
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PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by reference to, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Except as
otherwise noted, all information in this Prospectus (i) reflects a
2.7102-for-one reverse stock split of the Common Stock effected in April 1996;
(ii) reflects the conversion in April 1996 of certain outstanding indebtedness
of the Company held by certain individuals (the "Conversion Investors") into an
aggregate of 361,061 shares of Common Stock of the Company (the "Debt
Conversion"); (iii) assumes no exercise of (a) the Underwriter's over-allotment
option; (b) the Warrants; (c) the Selling Securityholder Warrants; (d) the Unit
Purchase Option; or (e) options granted or available for grant under the
Company's stock option plan; and (iv) gives effect to the automatic conversion,
on the closing of the Offering, of (a) the Bridge Warrants into the Selling
Securityholder Warrants; (b) all outstanding shares of the Company's Series A
Preferred Stock, $.01 par value ("Series A Preferred Stock"), into 184,486
shares of Common Stock. See "Management -- Stock Options," "Certain
Transactions" and "Description of Securities."
The Company
Laminating Technologies, Inc. (the "Company") is a development stage
company which has been formed to research, develop, design and market packaging
and specialty display products that are manufactured using the Company's
proprietary processing method ("LTI Processed"). LTI Processed is a procedure by
which polyester film is laminated onto single thickness paper ("linerboard")
prior to corrugation. The Company believes that the LTI Processed method is the
only process currently available in which polyester film can be laminated onto
linerboard such that the resulting laminate can withstand the heat and stress of
corrugation. This procedure results in a packaging material that the Company
believes is physically superior, more attractive and potentially more
cost-effective than many currently existing packaging materials such as
polystyrene (styrofoam), plastic, metal and certain corrugated cardboard
products, including those that are laminated with paper and/or coated after
corrugation.
The LTI Processed method can be utilized to produce a wide variety of
packaging products and specialty displays. To date, the Company has produced a
number of prototype products, including coolers, frozen food shippers, point of
purchase displays, pizza delivery boxes, medical product/specimen shippers and
microwavable food disks used as pie plates and pizza slice trays. The Company
believes that these products, together with other potential LTI Processed
products, are capable of improving upon existing packaging products by reducing
or eliminating certain limitations associated with such products. For example,
the Company believes that LTI Processed products may be waterproof, resistant to
a variety of solvent and petroleum-based chemicals, thermally insulating,
recyclable, stronger and may have a higher bursting strength than conventional
corrugated products. The Company also believes that the LTI Processed method
permits higher quality printing and results in more attractive packaging than
corrugated materials printed with traditional printing processes. Such aesthetic
qualities have become more important in recent years as retailers have
significantly increased the extent to which they display and sell products in
the same packaging in which they are shipped.
In addition, the Company believes that while LTI Processed material may be
more costly to produce than traditional corrugated board, it is generally less
expensive than certain other non-corrugated packaging products, including
styrofoam, metal and plastic. Moreover, because LTI Processed containers often
can be reused, and can be collapsed and stored pending reuse (thereby requiring
less storage space than containers made from materials such as styrofoam, metal
and plastic), they may be more cost-effective than other packaging materials,
including traditional corrugated materials. Based on these potential performance
advantages and cost savings, the Company believes that LTI Processed packaging
materials may be preferred to many packaging products currently marketed by
other suppliers.
The Company's strategy is to focus principally on (i) designing, developing
and marketing value-added, niche LTI Processed products directly to end-users
and (ii) leveraging its resources by establishing strategic alliances with
vertically integrated corrugators ("converters") for whom the Company intends to
supply LTI Processed linerboard for further manufacture (i.e., printing,
die-cutting, etc.) and sale by such converters. The Company may in the future
also seek to license its LTI Processed technology to manufacturers. With the
exception of design activities and certain limited printing operations, the
Company currently intends to out-source production to laminators or converters
with whom the Company expects to establish informal relationships.
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3
<PAGE>
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Since its inception, the Company has focused primarily on research and
development, has had only limited sales and has only recently begun to focus on
broader-based marketing. Most of such sales did not involve significant orders
and the Company believes that these customers were primarily evaluating the
commercial application of LTI Processed products. Moreover, further development
of the LTI Processed method may be necessary to satisfy the requirements of
specific end-users or strategic partners.
The Company was incorporated in Georgia in March 1993 as New Cooler Corp.
and subsequently changed its name to Laminating Technologies, Inc. In April
1996, the Company was merged into Laminating Merger Corporation, a Delaware
corporation, which changed its name to Laminating Technologies, Inc. The
Company's executive offices are located at 291 North Industrial Way, Canton,
Georgia 30115 and its telephone number is (404) 355-7681.
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4
<PAGE>
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The Offering
Securities Offered.................... 1,500,000 Units, each Unit consisting
of one share of Common Stock, one
Class A Warrant and one Class B
Warrant.
Terms of Warrants .................... Each Class A Warrant entitles the
holder to purchase one share of
Common Stock and one Class B Warrant
at an exercise price of $6.50,
subject to adjustment, at any time
until the fifth anniversary of the
date of this Prospectus. Each Class
B Warrant entitles the holder to
purchase one share of Common Stock
at an exercise price of $8.75,
subject to adjustment, at any time
until the fifth anniversary of the
date of this Prospectus. The
Warrants are each subject to
redemption in certain circumstances.
See "Description of Securities."
Securities Offered Concurrently
by Selling Securityholders.......... 997,500 Class A Warrants; 997,500
Class B Warrants issuable upon
exercise of these Class A Warrants
and 1,995,000 shares of Common Stock
issuable upon exercise of these
Class A Warrants and Class B
Warrants. See "Concurrent Offering."
Common Stock Outstanding
Before Offering..................... 1,230,000 shares (1)(2)
Common Stock Outstanding
After Offering...................... 2,730,000 shares (1)(2)(3)
Use of Proceeds....................... To repay the notes (the "Bridge
Notes") issued in the Bridge
Financing, for product development,
sales and marketing and working
capital. See "Use of Proceeds."
Proposed Nasdaq Symbols (4)
Units ............................ LAMTU
Class A Common Stock: ............ LAMT
Class A Warrants: ................ LAMTW
Class B Warrants: ................ LAMTZ
Risk Factors.......................... The Offering involves a high degree of
risk and immediate substantial
dilution. See "Risk Factors" and
"Dilution."
- ----------
(1) Excludes (i) an aggregate of 1,995,000 shares of Common Stock reserved for
issuance upon exercise of the Selling Securityholder Warrants; (ii)
250,000 shares of Common Stock reserved for issuance under the Company's
Amended and Restated 1996 Stock Option Plan (the "Plan"), under which, as
of the date of this Prospectus, options to purchase 120,000 shares of
Common Stock are outstanding at an exercise price of $4.00 per share; and
(iii) 36,897 shares of Common Stock issuable upon exercise of warrants
exercisable at $2.71 per share issued to the Underwriter in March 1994.
(2) Includes 410,000 shares of Common Stock (the "Escrow Shares") which have
been deposited into escrow by the holders thereof. The Escrow Shares are
subject to cancellation and will be contributed to the capital of the
Company if the Company does not attain certain earnings levels or the
market price of the Company's Common Stock does not achieve certain
levels. If such earnings or market price levels are met, the Company will
record a substantial non-cash charge to earnings, for financial reporting
purposes, as compensation expense relating to the value of the Escrow
Shares released to Company officers and employees. See "Risk Factors --
Charges and Potential Charges to Earnings," "Capitalization" and
"Principal Stockholders."
(3) Excludes (i) up to 900,000 shares of Common Stock issuable upon exercise
of the Underwriter's overallotment option and the Warrants included
therein; (ii) 4,500,000 shares of Common Stock issuable upon exercise of
the Warrants which are components of the Units offered hereby; and (iii)
an aggregate of 600,000 shares of Common Stock issuable upon exercise of
the Unit Purchase Option and the Warrants included therein. See
"Underwriting."
(4) Notwithstanding the anticipated quotation on the Nasdaq SmallCap Market,
there can be no assurance that an active trading market for the Company's
securities will develop or, if developed, that it will be sustained.
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5
<PAGE>
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Summary Financial Information
<TABLE>
<CAPTION>
April 19, 1993 April 19, 1993
(Commencement Year (Commencement
of Operations) Ended of Operations)
Through March 31, Through
March 31, ------------------------------ March 31,
1994 1995 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .............................................. $ 135,887 $ 86,486 $ 119,412 $ 341,785
Gross loss ............................................. (302,355) (213,591) (158,042) (673,988)
Selling, general and administrative expenses ........... 1,037,711 1,223,044 1,042,290 3,303,045
----------- ----------- ----------- -----------
Operating loss ......................................... (1,340,066) (1,436,635) (1,200,332) (3,977,033)
Net (loss) ............................................. (1,361,215) (1,530,061) (1,228,745) (4,120,021)
Cumulative dividend on preferred stock ................. 25,000 50,000 50,000 125,000
----------- ----------- ----------- -----------
Net (loss) attributable to common stockholders ......... $(1,386,215) $(1,580,061) $(1,278,745) $(4,245,021)
=========== =========== =========== ===========
Net (loss) per share of common stock ................... $ (2.39) $ (2.70) $ (2.02)
=========== =========== ===========
Weighted average number of common
shares outstanding ................................... 575,519 586,269 632,719
=========== =========== ===========
Supplementary pro forma:
Net (loss) per share of common stock (1) ............. $ (1.13) $ (1.28) $ (1.04)
=========== =========== ===========
Weighted average number of
common shares outstanding .......................... 1,230,000 1,230,000 1,230,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------
Actual Pro Forma(2) As Adjusted(2)(3)
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<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) ................... (2,089,725) 450,501 4,006,151
Total assets ................................... 20,529 948,571 4,504,221
Total liabilities .............................. 2,536,739 1,821,209 491,209
Deficit accumulated during the development stage (4,375,973) (4,388,680) (5,428,030)
Total stockholders's equity (deficiency) ....... (2,516,210) (872,638) 4,013,012
</TABLE>
- ----------
(1) Gives pro forma effect to the Debt Conversion and the automatic conversion
of the Preferred Stock into Common Stock upon the closing of this Offering.
(2) Gives pro forma effect to the Bridge Financing, the Debt Conversion and the
use of the proceeds of the Bridge Financing to repay approximately $572,000
of indebtedness and other obligations in April 1996. See Note L of Notes to
Financial Statements.
(3) Adjusted to give effect to the sale of 1,500,000 Units offered hereby at an
assumed initial public offering price of $5.00 per Unit, the receipt of the
net proceeds therefrom and the use of the net proceeds to repay the Bridge
Notes (plus accrued interest thereon) and the corresponding charge to
operations through the date of the repayment estimated at $1,039,350. See
"Risk Factors -- Charges and Potential Charges to Earnings," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and an investment
in the Units offered hereby involves a high degree of risk. In addition to the
other information contained in this Prospectus, prospective investors should
carefully consider the following risk factors in evaluating whether to purchase
the Units offered hereby. Moreover, prospective investors are cautioned that the
statements in this Prospectus that are not descriptions of historical facts may
be forward looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors.
History of Operating Losses; Anticipated Future Losses; Working Capital
Deficit; Going Concern Explanatory Paragraph in Independent Auditors' Report. At
March 31, 1996, the Company had an accumulated deficit of approximately
$4,120,000, is continuing to incur significant operating losses and expects to
incur substantial and increasing operating losses for the foreseeable future. At
March 31, 1996, the Company also had a working capital deficit of approximately
$2,090,000. Such losses and deficit have been and will continue to be
principally the result of costs associated with the Company's research,
development, design, sales and marketing activities. The Company has received a
report from its independent auditors that includes an explanatory paragraph that
describes the substantial doubt as to the ability of the Company to continue as
a going concern. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and the financial statements included
elsewhere in this Prospectus.
Development Stage Company; No History of Operations. The Company was
organized in March 1993 and is currently in the development stage. While it has
conducted limited research and development and sales and marketing activities,
it has not generated significant revenues and may experience many of the
problems, delays, expenses and difficulties commonly encountered by early stage
companies, many of which are beyond the Company's control. These include, but
are not limited to, unanticipated problems relating to product development,
testing, manufacturing, marketing, competition and regulatory compliance,
including but not limited to possible regulations governing food packaging and
recyclability, as well as additional costs and expenses that may exceed current
estimates. There can be no assurance that the Company will successfully develop
and commercialize any products, generate any revenues or ever achieve profitable
operations. Additionally, the Company has never produced LTI Processed materials
under the conditions and in the volume that will be required to be profitable
and cannot predict all of the manufacturing difficulties that may arise. Given
the particular properties of LTI Processed materials, the Company has in the
past been forced to modify package construction to accommodate unforeseen design
problems, including those associated with excess heat and cold retention in food
service packaging. Thus, the Company's proposed products may require significant
further research, development, design, testing as well as regulatory clearances
prior to larger-scale commercialization. There can be no assurance that the
Company's products will be successfully marketed, prove to be safe and
practical, receive regulatory approvals if required (including, but not limited
to, possible domestic or foreign requirements regarding packaging used in food
service as well as possible domestic or foreign requirements regarding the
recyclability of the Company's materials), or be capable of being produced in
commercial quantities at reasonable costs. See "Business."
Use of Proceeds to Repay Indebtedness; Need for Significant Additional
Funds. The Company requires the proceeds of this Offering to pursue its business
plan. Approximately $2,055,000, or approximately 35%, of the net proceeds of
this Offering will be used for the repayment of the Bridge Notes issued in the
Bridge Financing. The remaining proceeds of this Offering are only expected to
be sufficient to fund the Company's operations for approximately twelve months
and the Company will require additional funds to continue its operations after
such period. Moreover, the Company's cash requirement may vary materially from
those currently anticipated due to product development programs, relationships
with strategic partners, if any, changes in the direction of the Company's
activities and other factors. The Company has no commitments for any future
funding and there can be no assurance that the Company will be able to obtain
additional financing in the future from either debt or equity financings,
collaborative arrangements or other sources on acceptable terms. Any future
financing may result in significant dilution to investors. If the Company is
unable to obtain the necessary financing, it will be required to significantly
curtail its activities or cease operations.
Uncertainty of Market Acceptance. The success of LTI Processed products
will require the Company to secure production and marketing alliances within the
highly competitive corrugated packaging market, which is characterized by
manufacturers who operate at very low profit margins and by end-users who often
seek the lowest packaging and materials costs possible. Additionally, much of
the corrugated packaging industry is characterized by long-standing business
relationships between manufacturers and end-users. The Company will likely
encounter
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resistance from end-users reluctant to incur possible additional costs
associated with LTI Processed products (compared to non-laminated corrugated
products and other materials). In addition, the use of LTI Processed products
may require that end-users change both their packaging material and their source
of packaging material and perhaps incur the further cost and inconvenience of
interrupting their production line to accommodate these changes. The Company has
not conducted any market studies as to the commercial viability of LT1 Processed
products and there can be no assurance that the Company will be able to
successfully demonstrate to manufacturers and end-users that the properties of
LTI Processed products justify the additional costs and/or burdens associated
with such products. See "-- Need for Independent Laboratory Testing."
Need for Independent Laboratory Testing. The Company currently has no
independent laboratory studies or test results to verify its claims as to the
physical properties of LTI Processed materials. Because such independent tests
are frequently relied upon within the packaging industry, the Company
anticipates that its lack of objective corroboration will likely hamper future
marketing efforts. To date, the Company has had only limited success in
marketing LTI Processed materials and has encountered difficulties in
penetrating certain segments of the packaging industry where, for example, the
strength and insulating properties of LTI Processed products would be critical
but where manufacturers and end-users demand objective confirmation of these
properties. The Company expects to seek such testing as soon as practicable
following the closing of this Offering. However there can be no assurance of
when or if such tests will be successfully concluded or whether such tests will
confirm the Company's beliefs about the physical properties of its products.
Should any such laboratory tests, if performed, fail to support the Company's
beliefs regarding its products, the marketability of such products will be
adversely affected.
Dependence on Suppliers; Shortages of Raw Materials and Price Fluctuations.
The Company does not manufacture the raw material that is used in its products
and thus it depends on its raw material suppliers. The Company does not have any
long-term supply or distribution agreements with any of its suppliers. The
Company's success will depend in part on its ability to maintain relationships
with its current suppliers and to develop new supplier relationships, as to
which there can be no assurance. There can be no assurance that the loss of, or
a significant disruption in the relationship with, one or more of the Company's
suppliers would not have a material adverse effect on the Company's business and
results of operations. Moreover, the corrugating industry periodically suffers
shortages of roll stock paper from which corrugated board is made. These
shortages more seriously affect non-vertically integrated corrugating converters
(i.e., those that do not own their own timber and produce their own roll stock)
by raising prices and forcing customers of corrugated board to purchase from
integrated converters. In that the Company intends to utilize, to some extent,
non-integrated converters for the production of LTI Processed packaging, a
shortage-induced price increase could raise the price of such LTI Processed
materials beyond its value margin, causing end-users to seek integrated
suppliers who may not use the Company's products.
Dependence on Third Parties for Manufacturing and Marketing Activities. The
Company does not intend to directly manufacture either LTI Processed linerboard
or finished products. Instead the Company expects to contract for manufacture
with outside laminators, corrugators and sheet plants with whom the Company
expects to establish informal relationships. Although the Company believes that
such services are widely available, there can be no assurance that the Company
will be able to procure these services on terms acceptable to the Company.
Moreover, the Company's dependence on such third parties will reduce its control
over the manufacturing process.
Additionally, the Company expects to rely heavily on large integrated
converters to market LTI Processed products to their end-users and intends to
pursue strategic alliances with such companies for manufacture and marketing.
The success of the Company will depend, in part, on its ability to enter into
and maintain such strategic alliances and the collaborator's strategic interest
in and ability to successfully manufacture and/or market LTI Processed products.
To the extent the Company enters into any strategic alliance, the Company will
be dependent to a significant extent on such partners. The success of any such
strategic alliance will depend in part upon such partners' own competitive,
marketing and strategic considerations, including the relative advantages of
alternative products being developed and/or marketed by such partners. If any
such partners are unsuccessful in manufacturing and/or marketing the Company's
products, the Company's business, financial condition and results of operations
would be materially adversely affected.
The Company has no experience in manufacturing or marketing products on a
commercial scale and does not have the resources to manufacture on a commercial
scale any of its products. To the extent that the Company determines not to, or
is unable to, enter into strategic alliances with respect to the manufacture or
marketing of LTI
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Processed products, significant additional funds, capital expenditures,
management resources and time will be required to establish a manufacturing
facility or develop a larger sales force. There can be no assurance that the
Company will be able to enter into strategic alliances to manufacture or market
its proposed products or, in lieu thereof, establish a manufacturing facility or
develop a sufficient sales force, or be successful in gaining market acceptance
of its products. See "Business -- Manufacturing" and "-- Sales and Marketing."
Dependence on Patents and Proprietary Technology; Uncertainty of Patent
Protection; No Assurance of Significant Competitive Advantage. The Company's
success will depend in part on its ability to obtain patent protection for its
products, both in the United States and abroad. On December 9, 1988, Michael
Olvey, Sr., the inventor of the LTI Processed method and a founder and former
President of the Company, filed a patent application with the U.S. Patent and
Trademark Office (the "U.S. Patent Office") covering the Company's LTI Processed
technology. On March 15, 1990, the U.S. Patent Office rejected the Company's
patent application as being too broad in light of prior art. On April 19, 1993,
Mr. Olvey assigned all rights to this patent application to the Company. The
Company expects to submit a modification of its original application after the
completion of this Offering.
There can be no assurance that any patents will be granted or that patents
issued to the Company will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide any significant competitive
advantage to the Company. Furthermore, there can be no assurance that others
have not independently developed, or will not independently develop, similar
products or technologies or, if patents are issued to the Company, will not
design around such patents.
The Company's potential products may conflict with patents which have been
or may be granted to competitors or others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin manufacturing
and marketing of the affected products. If any such actions are successful, in
addition to any potential liability for damages, the Company could be required
to obtain a license in order to continue to manufacture or market the affected
products. There can be no assurance that the Company would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms, if at all. If the Company becomes involved in
litigation, it could consume a substantial portion of the Company's time and
resources.
The Company also relies on trade secret protection for its confidential and
proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its rights to unpatented trade secrets.
The Company intends to protect its proprietary technology through the use
of licensing, exclusivity and non-disclosure agreements with the laminators,
corrugators, converters and printers with which it may establish strategic
alliances and production relationships. The Company also requires that certain
of its employees and consultants execute a confidentiality agreement upon the
commencement of an employment or consulting relationship with the Company. The
agreements generally provide that trade secrets and all inventions conceived by
the individual and all confidential information developed or made known to the
individual during the term of the relationship shall be the exclusive property
of the Company and shall be kept confidential and not disclosed to third parties
except in specified circumstances. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information. See "Business -- Patents and Proprietary Rights."
Competition. Competition in the corrugated and packaging industries is
intense and based significantly on price. Moreover, certain aspects of the
Company's business, including printing, are characterized by rapidly evolving
technology that could result in the technological obsolescence of processes
utilized by the Company. The Company competes with many corrugating firms and
manufacturers of other packaging products, including those made of styrofoam,
metal and plastic. Most of the Company's competitors have substantially greater
financial, technical and human resources than the Company and are better
equipped to develop, manufacture and market products. These companies also
compete with the Company in recruiting and retaining highly qualified personnel
and consultants.
Additionally, there are both corrugated and other packaging and display
materials available which can provide some or all of the physical
characteristics of LTI Processed products as well as high quality aesthetics and
which directly compete with the Company's products. Major corrugating and
integrated converters produce large quantities
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of corrugated products with wax and other coatings which are water resistant and
can be used, for example, to pack wet and frozen foods for extended periods and
to reduce abrasion of items with delicate finishes. The Company will face
intense competition from these manufacturers to the extent that these products
present viable alternatives to LTI Processed products. These products may remain
attractive to many end-users as they can be lower priced and end-users will not
have to incur the potential cost of interrupting product lines and supply
sources to accommodate different packaging from a new company. The Company
intends to compete with such manufacturers by offering a product that can be
more expensive but which the Company believes will be of higher quality, and in
many circumstances, more cost efficient in the long term. Additionally, the
Company will face competition from non-integrated converters who supply
corrugated products that are laminated with high quality, lithographically
printed paper. While the Company believes that these products do not have the
physical properties of LTI Processed and offer little price advantage over LTI
Processed, they will effectively compete with the Company's products in the
market for quality printed products.
The Company also expects to encounter significant competition as it seeks
to enter markets for other forms of value-added packaging and products such as
styrofoam, metal and plastic. Given the fact that the physical properties of
these other materials have been long established, that end-users are accustomed
to using these materials and that manufacturers have massive national and
international production and marketing efforts as well as sophisticated and well
developed product lines, the Company will need to persuade end-users of the
value of an entirely new material and product design which is purchased from a
new supplier. There can be no assurance that such efforts will be successful.
Moreover, there can be no assurance that other companies will not develop
products which are superior to the Company's or which achieve greater market
penetration. See " Business --Competition."
Historical Inability to Leverage Technology; Management Turnover. Although
the Company was organized in March 1993, its basic laminating technology has
been owned by the Company and its predecessors since 1988. Nonetheless, the
Company and its predecessors have been unable to successfully commercialize such
technology, have generated only minimal revenues and have been unable to
effectively penetrate the Company's target markets. In addition, the Company has
had a limited number of management personnel and has also experienced
significant turnover in such managment since inception. These management issues
have contributed to periods of limited or no operating activity and insufficient
continuity of business relationships and related agreements. See "--Risks
Related to Potential License Agreements." While the Company has recently
instituted a new management team, there can be no assurance that current
management will be successful in implementing the Company's business plan, or
that the Company will not be adversely affected by issues relating to past
operations.
Risks Related to Potential License Agreements. The Company believes that
approximately six years ago a predecessor to the Company entered into
negotiations regarding two potential licenses of the LTI Processed technology.
Neither the Company nor the other parties to such negotiations have been able to
produce a copy of an executed license agreement and, to the Company's knowledge,
no significant license-related activities have been performed. Based on the
Company's efforts to determine the existence of any such agreements, the Company
does not believe any license agreements exist. However, there can be no
assurance that license agreements do not exist or as to the terms of any such
license. Although the Company's strategy currently does not emphasize licensing
its technology, the Company may determine to do so in the future. In the event
that any previous license agreements exist, they may limit the Company's ability
to enter into additional licenses in the future or may otherwise restrict the
Company's operations, which could have an adverse effect on the Company.
Charges and Potential Charges to Earnings. The Securities and Exchange
Commission (the "Commission") has taken the position with respect to escrow
arrangements such as that entered into by the Company and its stockholders that
in the event any shares are released from escrow to the holders who are
officers, directors, employees or consultants of the Company, a compensation
expense will be recorded for financial reporting purposes. Accordingly, in the
event of the release of the Escrow Shares, the Company will recognize during the
period in which the earnings thresholds are probable of being met or such stock
price levels achieved, a substantial noncash charge (not deductible for income
tax purposes) to operations equal to the then fair market value of such shares,
which would have the effect of significantly increasing the Company's loss or
reducing or eliminating earnings, if any, at such time. The recognition of such
compensation expense may have a depressive effect on the market price of the
Company's securities. Notwithstanding the foregoing discussion, there can be no
assurance that the Company will attain the targets which would enable the Escrow
Shares to be released from escrow.
The Company also expects to incur non-recurring charges to operations (not
deductible for income tax purposes), aggregating approximately $1,039,350,
during the quarter ending June 30, 1996 and the quarter in which the closing
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of this Offering occurs relating to the Bridge Financing and the repayment of
the Bridge Notes. In addition, two principal stockholders of the Company have
granted to Michael E. Noonan, the Company's Chairman and Chief Executive
Officer, options to purchase an aggregate of 116,346 shares of Common Stock of
the Company held by such stockholders at an exercise price of $1.00 per share.
The options are fully vested and are exercisable one-third immediately and
one-third in each of April 1997 and 1998. The Company will record a non-cash
charge to earnings during the quarter ending June 30, 1996 in an amount equal to
the difference between the exercise price and the fair market value of the
shares at the time of grant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Certain Transactions,"
"Principal Stockholders" and "Description of Securities."
Broad Discretionary Use of Proceeds. The Company has broad discretion with
respect to the specific application of approximately $2,470,000, or 41.7%, of
the net proceeds of the Offering. Such amounts are intended to be used for
working capital, including salaries and the payment of certain accounts payable.
Thus, purchasers of the Units will be entrusting their funds to the Company's
managment, upon whose judgment the investors must depend, with only limited
information concerning management's specific intentions. See "Use of Proceeds."
Use of Proceeds to Benefit Insiders. The Company expects to utilize a
portion of the proceeds for the Offering to pay salaries to executive officers
of the Company aggregating approximately $357,000 during the 12-month period
following the closing of the Offering. In addition, certain stockholders of the
Company loaned an aggregate of approximately $1,040,000 to the Company through
December 1995, which amounts have been and will be repaid out of the proceeds of
the Bridge Financing and this Offering. An aggregate of $495,000 of this
indebtedness was converted into Bridge Notes and Bridge Warrants in the Bridge
Financing (on the same terms as non-affiliated investors) and such Bridge Notes
will be repaid, together with interest at a rate of 10% per annum, from the
proceeds of this Offering. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Management."
Dependence on Key Personnel. The Company is dependent on Michael E. Noonan,
the Company's Chairman and Chief Executive Officer, as well as principal members
of its management, design and marketing staff, the loss of one or more of whom
could substantially impair the Company's development and marketing plans. The
Company currently does not maintain "key-man" insurance on any such person,
although it is in the process of obtaining such a policy on Mr. Noonan. The
Company is currently negotiating a multi-year employment agreement with Mr.
Noonan, which the Company anticipates will be executed prior to the completion
of this Offering. Additionally, the Company has entered into a consulting
agreement with Michael Olvey, Sr., the inventor of the LTI Processed method and
a founder of the Company. The future success of the Company depends in large
part upon its ability to attract and retain highly qualified personnel. The
Company faces intense competition for such highly qualified personnel from other
corrugated manufacturers and may be required to pay higher salaries to attract
and retain such personnel. There can be no assurance that the Company will be
able to hire sufficient qualified personnel on a timely basis or retain such
personnel. The loss of such key personnel or failure to recruit additional key
personnel by the Company could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, many
members of the Company's management team have only recently joined the Company.
Managing the integration of new personnel could adversely affect the Company's
growth and progress until such integration occurred. See "Management."
Dilution. The purchasers of the Units in the Offering will incur immediate
and substantial dilution of approximately $ 3.27, or 65.4%, in the pro forma net
tangible book value per share of their Common Stock ($3.04, or 60.8%, if the
Underwriter's over-allotment option is exercised in full), assuming an initial
public offering price of $5.00 per Unit. Additional dilution to public
investors, if any, may result to the extent that the Warrants, the Underwriter's
Unit Purchase Option and/or other outstanding options or warrants are exercised
at a time when the net tangible book value per share of Common Stock exceeds the
exercise price of any such securities. See "Dilution."
Absence of Prior Trading Market; Possible Volatility of Market Price;
Arbitrary Determination of Offering Price. Prior to this Offering, there has
been no market for any of the Company's securities, and there can be no
assurance that an active trading market will develop or be sustained after this
Offering. The initial public offering price of the Units and the exercise prices
and other terms of the Warrants have been determined by negotiation between the
Company and the Underwriter and are not related to the Company's asset value,
net worth, results of operations or any other criteria of value and may not be
indicative of the prices that may prevail in the public market. VentureTek L.P.
("VentureTek"), a limited partnership whose limited partners consist of the
children and grandchildren of J. Morton Davis, the sole stockholder of the
Underwriter, beneficially owns approximately 26.2% of the outstanding shares of
Common Stock before this Offering. Substantially all of the limited partners of
VentureTek
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are also the principal stockholders of D.H. Blair & Co., Inc. ("Blair & Co."), a
selling group member which will distribute substantially all of the Units
offered hereby. In addition, the Underwriter owns warrants to purchase 36,897
shares of Common Stock of the Company. As a result of such stockholdings, the
Underwriter may be deemed to be an affiliate of the Company by the NASD.
Accordingly, this Offering is being made pursuant to Schedule E to the NASD
By-Laws. Under Schedule E to the By-Laws of the NASD, when a member of the NASD,
such as the Underwriter, participates in the public distribution of securities
of a company in which it or its affiliates owns 10% or more of the outstanding
voting securities, and where there is no "bona fide independent market" for such
securities, the public offering price can be no higher than that recommended by
a qualified independent underwriter. Accordingly, the Units in this Offering
will be offered at a price no greater than that recommended by RAS Securities
Corp., a qualified independent underwriter. The market prices of the Units,
Common Stock and Warrants could also be subject to significant fluctuations in
response to variations in the Company's quarterly operating results,
developments concerning proprietary rights, government regulations, general
trends in the industry and other factors. See "Underwriting."
Outstanding Options and Warrants. Upon completion of this Offering, the
Company will have outstanding (i) 1,500,000 Class A Warrants to purchase an
aggregate of 1,500,000 shares of Common Stock and 1,500,000 Class B Warrants;
(ii) 1,500,000 Class B Warrants to purchase 1,500,000 shares of Common Stock;
(iii) the Selling Securityholder Warrants to purchase 997,500 shares of Common
Stock and 997,500 Class B Warrants; (iv) warrants to purchase 36,897 shares of
Common Stock, which Warrants are owned by the Underwriter; (v) the Unit Purchase
Option to purchase an aggregate of 600,000 shares of Common Stock, assuming
exercise of the underlying Warrants; and (vi) 250,000 shares of Common Stock
reserved for issuance upon exercise of options under the Company's 1996 Stock
Option Plan, under which options to purchase 120,000 shares of Common Stock have
been granted. Holders of such warrants and options are likely to exercise them
when, in all likelihood, the Company could obtain additional capital on terms
more favorable than those provided by warrants and options. Further, while these
warrants and options are outstanding, the Company's ability to obtain additional
financing on favorable terms may be adversely affected. See "Management -- Stock
Options" and "Description of Securities."
Control by Existing Stockholders; Potential Anti-takeover Provisions. Upon
completion of this Offering, the Company's directors, executive officers and
principal stockholders of the Company will own approximately 30.7% of the
outstanding Common Stock of the Company. As a result, such directors, officers
and principal stockholders will generally be able to influence significantly the
outcome of corporate transactions or other matters submitted for stockholder
approval. Such influence by principal stockholders could preclude any
unsolicited acquisition of the Company and consequently adversely affect the
market price of the Common Stock. The Company's Board of Directors is also
authorized to issue from time to time, without stockholder authorization, shares
of preferred stock, in one or more designated series or classes. The Company is
also subject to a Delaware statute regulating business combinations. Any of
these provisions could discourage, hinder or preclude an unsolicited acquisition
of the Company and could make it less likely that stockholders receive a premium
for their shares as a result of any such attempt. See "Certain Transactions,"
"Principal Stockholders" and "Description of Securities."
Shares Eligible for Future Sale. Future sales of Common Stock by existing
stockholders pursuant to Rule 144 under the Securities Act, pursuant to the
Concurrent Offering or otherwise, could have an adverse effect on the price of
the Company's securities. Pursuant to the Concurrent Offering, 997,500 Selling
Securityholder Warrants and the underlying securities have been registered for
resale concurrently with this Offering, subject to a contractual restriction
that the Selling Securityholders not sell any of the Selling Securityholder
Warrants for at least 90 days after the date of this Prospectus and, during the
period from 91 to 270 days after the date of this Prospectus, may only sell
specified percentages of such Selling Securityholder Warrants. In addition to
the 1,500,000 Units offered hereby, approximately 137,631 shares of Common Stock
will be eligible for immediate resale in the public market and, subject to
compliance with Rule 144 under the Securities Act, approximately 483,355 shares
of Common Stock will be eligible for sale in the public market beginning 90 days
from the date of this Prospectus (subject to the restrictions on transfer
applicable to the Escrow Shares). An additional 120,000 shares of Common Stock
issuable upon the exercise of vested options and warrants will also become
eligible for sale in the public market pursuant to Rule 701 and Rule 144 under
the Securities Act beginning 90 days from the date of this Prospectus. The
Securities and Exchange Commission has recently proposed an amendment to the
holding period requirements of Rule 144 to permit resales of restricted
securities after a one-year holding period rather than a two-year holding
period, and to permit unrestricted resales by non-affiliates after a two-year
holding period rather than a three-year holding period. However, holders of all
of the outstanding shares of Common Stock and outstanding options prior to the
Offering have agreed not to sell any shares of Common Stock for a period of 13
months from the date of this Prospectus
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without the prior written consent of the Underwriter. Sales of Common Stock, or
the possibility of such sales, in the public market may adversely affect the
market price of the securities offered hereby. In addition, the holders of the
Unit Purchase Option and the holders of options and warrants to purchase an
aggregate of 153,244 shares of Common Stock (38,782 of which are subject to
restrictions on transfer applicable to the Escrow Shares) have certain demand
and "piggy-back" registration rights with respect to their securities commencing
twelve months from the closing of this Offering. Exercise of such rights could
involve substantial expense to the Company. See "Description of Securities,"
"Shares Eligible for Future Sale," Concurrent Offering" and "Underwriting."
Potential Adverse Effect of Redemption of Warrants. Commencing one year
from the date of this Prospectus, the Warrants may be redeemed by the Company at
a redemption price of $.05 per Warrant upon not less than 30 days' prior written
notice if, with respect to the Class A Warrants, the closing bid price of the
Common Stock shall have averaged in excess of $9.10 per share and, with respect
to the Class B Warrants, $12.25 per share, in each instance for 30 consecutive
trading days ending within 15 days of the notice. Redemption of the Warrants
could force the holders (i) to exercise the Warrants and pay the exercise price
therefor at a time when it may be disadvantageous for the holders to do so, (ii)
to sell the Warrants at the then current market price when they might otherwise
wish to hold the Warrants, or (iii) to accept the nominal redemption price
which, at the time the Warrants are called for redemption, is likely to be
substantially less than the market value of the Warrants. See "Description of
Securities Redeemable Warrants."
Current Prospectus and State Registration to Exercise Warrants. Holders of
Warrants will be able to exercise the Warrants only if (i) a current prospectus
under the Securities Act relating to the securities underlying the Warrants is
then in effect and (ii) such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company has undertaken and
intends to use its best efforts to maintain a current prospectus covering the
securities underlying the Warrants following completion of the Offering to the
extent required by Federal securities laws, there can be no assurance that the
Company will be able to do so. The value of the Warrants may be greatly reduced
if a prospectus covering the securities issuable upon the exercise of the
Warrants is not kept current or if the securities are not qualified, or exempt
from qualification, in the states in which the holders of Warrants reside.
Persons holding Warrants who reside in jurisdictions in which such securities
are not qualified and in which there is no exemption will be unable to exercise
their Warrants and would either have to sell their Warrants in the open market
or allow them to expire unexercised. If and when the Warrants become redeemable
by the terms thereof, the Company may exercise its redemption right even if it
is unable to qualify the underlying securities for sale under all applicable
state securities laws. See "Description of Securities -- Redeemable Warrants."
Possible Adverse Effect on Liquidity of the Company's Securities Due to the
Investigation of D.H. Blair Investment Banking Corp. and D.H. Blair & Co., Inc.
by the Securities and Exchange Commission. The Commission is conducting an
investigation concerning various business activities of the Underwriter and
Blair & Co., a selling group member which will distribute substantially all of
the Units offered hereby. The investigation appears to be broad in scope,
involving numerous aspects of the Underwriter's and Blair & Co.'s compliance
with the Federal securities laws and compliance with the Federal securities laws
by issuers whose securities were underwritten by the Underwriter or Blair & Co.,
or in which the Underwriter or Blair & Co. made over-the-counter markets,
persons associated with the Underwriter or Blair & Co., such issuers and other
persons. The Company has been advised by the Underwriter that the investigation
has been ongoing since at least 1989 and that it is cooperating with the
investigation. The Underwriter cannot predict whether this investigation will
ever result in any type of formal enforcement action against the Underwriter or
Blair & Co., or, if so, whether any such action might have an adverse effect on
the Underwriter or the securities offered hereby. The Company has been advised
that Blair & Co. intends to make a market in the securities following the
Offering. An unfavorable resolution of the Commission's investigation could have
the effect of limiting such firm's ability to make a market in the Company's
securities, which could adversely affect the liquidity or price of such
securities. See "Underwriting."
Possible Restrictions on Market-Making Activities in Company's Securities.
The Underwriter has advised the Company that Blair & Co. intends to make a
market in the Company's securities. Rule 10b-6 under the Securities Act of 1934,
as amended (the "Exchange Act"), may prohibit Blair & Co. from engaging in any
market-making activities with regard to the Company's securities for the period
from nine business days (or such other applicable period as Rule 10b-6 may
provide) prior to any solicitation by the Underwriter of the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriter may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, Blair &
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Co. may be unable to provide a market for the Company's securities during
certain periods while the Warrants are exercisable. In addition, under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the Selling Securityholder Warrants may not simultaneously
engage in market-making activities with respect to any securities of the Company
for the applicable "cooling off" period (at least two and possibly nine business
days) prior to the commencement of such distribution. Accordingly, in the event
the Underwriter or Blair & Co. is engaged in a distribution of the Selling
Securityholder Warrants, neither of such firms will be able to make a market in
the Company's securities during the applicable restrictive period. Any temporary
cessation of such market-making activities could have an adverse effect on the
market price of the Company's securities. See "Underwriting."
Possible Delisting of Securities from the Nasdaq Stock Market. While the
Company's Units, Common Stock, Class A Warrants and Class B Warrants meet the
current Nasdaq listing requirements and are expected to be initially included on
the Nasdaq SmallCap Market, there can be no assurance that the Company will meet
the criteria for continued listing. Continued inclusion on Nasdaq generally
requires that (i) the Company maintain at least $2,000,000 in total assets and
$1,000,000 in capital and surplus, (ii) the minimum bid price of the Common
Stock be $1.00 per share, (iii) there be at least 100,000 shares in the public
float valued at $200,000 or more, (iv) the Common Stock have at least two active
market makers, and (v) the Common Stock be held by at least 300 holders.
If the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Units, Common Stock and Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of transactions, reduction in
security analysts' and the news media's coverage of the Company, and lower
prices for the Company's securities than might otherwise be attained.
Risks of Low-Priced Stock. If the Company's securities were delisted from
Nasdaq (See "-- Possible Delisting of Securities from the Nasdaq Stock Market"),
they could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in the Offering to sell in
the secondary market any of the securities acquired hereby.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
No Dividends. The Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash or other dividends in the
foreseeable future. See "Dividend Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 Units
offered hereby, after deducting underwriting discounts and commissions and other
expenses of the Offering, are estimated to be approximately $5,925,000
($6,903,750 if the Underwriter's over-allotment option is exercised in full),
assuming an initial public offering price of $5.00 per Unit. The Company expects
the net proceeds to be utilized approximately as follows:
<TABLE>
<CAPTION>
Approximate Amount Percentage of
Application of Net Proceeds Net Proceeds
-------- ------------------ -------------
<S> <C> <C>
Repayment of Bridge Notes (1) ................................ $ 2,055,000 34.68%
Product Design and Development (2) .......................... 700,000 11.81
Sales and Marketing (3) ...................................... 700,000 11.81
Working Capital (4) .......................................... 2,470,000 41.70
----------- ------
Total ................................................... $ 5,925,000 100.00%
===========
</TABLE>
- --------
(1) Represents the principal amount and accrued interest at the rate of 10% per
annum (estimated at approximately $60,000 through August 15, 1996) of
Bridge Notes issued in the Bridge Financing in April and May 1996. The
proceeds of the Bridge Financing were and are being used primarily for the
repayment of certain indebtedness and working capital purposes. See
"Capitalization -- Bridge Financing" and "Concurrent Offering."
(2) Includes costs associated with the proposed independent testing of the
Company's products.
(3) Includes costs associated with sales personnel, support and the production
of product samples. See "Business -- Sales and Marketing."
(4) Includes general and administrative expenses, including approximately
$50,000 for the payment of accounts payable that are current or past due,
approximately $357,000 for salaries of the current executive officers for
the next twelve months and approximately $30,000 for repayment of accrued
interest on indebtedness to the Underwriter, the principal amount of which
was repaid in April 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations and "Underwriting."
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this Offering. This estimate is based on certain assumptions
relating to the progress of the Company's development design and marketing
strategies, the results of testing activities, the timing of patent applications
and responses, technological advances, market acceptance of the Company's
products and other factors. Expenditures will also be dependent upon the
establishment of strategic alliances with other companies. Future events, as
well as changes in economic, regulatory or competitive conditions or the
Company's business and the results of the Company's sales and marketing
activities, may make shifts in the allocation of funds necessary or desirable.
In addition, the Company may seek to utilize funds allocated to working capital,
in part, for acquisitions of new products or product lines or other companies
and to fund inventory purchases prior to collection of receivables. The Company
does not currently have any agreements, commitments or arrangements with respect
to any proposed acquisitions and there can be no assurance that any acquisition
will be consummated.
The Company currently estimates that the net proceeds of this Offering will
be sufficient to fund its planned operations for approximately twelve months.
However, the Company may require additional funds during such period in the
event of delays in product development, cost overruns or other unanticipated
expenses commonly associated with a company in an early stage of development. In
addition, the Company will need substantial additional financing following such
twelve-month period. In the event such financing is not obtained, the Company
may be materially adversely affected and may have to cease or substantially
reduce operations.
Any additional proceeds received upon exercise of the over-allotment
option, the Warrants or the Selling Securityholder Warrants will be added to
working capital. Pending utilization, the net proceeds will be invested in
short-term, interest-bearing investments.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings, if any, for use in the expansion of
the Company's business. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Board of Directors and will depend upon
the Company's profitability, financial condition, cash requirements, future
prospects and other factors deemed relevant by the Board of Directors.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1996 (after giving retroactive effect to a 2.7102-for-one reverse
stock split effected in April 1996); (ii) pro forma as of March 31, 1996 to
reflect the sale of the $1,995,000 principal amount of Bridge Notes and 997,500
Bridge Warrants subsequent to such date, the conversion of $978,556 of
indebtedness of the Company held by certain investors (the "Conversion
Investors") into 361,061 shares of Common Stock (the "Debt Conversion"), the
conversion of the 250,000 shares of outstanding Series A Preferred Stock into
184,486 shares of Common Stock and the issuance of 4,689 shares of Common Stock
subsequent to March 31, 1996; and (iii) as adjusted to reflect the sale of the
Units offered hereby at an assumed initial public offering price of $5.00 per
Unit and the application of the net proceeds therefrom to repay the Bridge Notes
and the corresponding charge to operations. This table should be read in
conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------
Actual Pro Forma As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Bridge Notes, net of discount(1)................ $ -- 1,330,000(4) --
Other debt...................................... 1,831,188 71,592 71,592
----------- ----------- -----------
Total debt...................................... 1,831,188 1,401,592 71,592
----------- ----------- -----------
Stockholders' Equity:
Preferred Stock, $.01 par value;
5,000,000 shares authorized;
250,000 shares of Series A Preferred
Stock outstanding actual; no shares
issued and outstanding pro forma and
as adjusted................................. 2,500 -- --
Common Stock, $.01 par value;
20,000,000 shares authorized;
679,764 shares issued and outstanding
actual; 1,230,000 shares issued and
outstanding pro forma; 2,730,000 shares
issued and outstanding as adjusted (2)(3)... 6,797 12,300 27,300
Additional paid in capital...................... 1,850,446 3,503,742 9,413,742
Deficit accumulated during
development stage............................. (4,375,973) (4,388,680) (5,428,030)
----------- ----------- -----------
Total stockholders equity (deficiency)..... (2,516,210) (872,638) 4,013,012
----------- ----------- -----------
Total capitalization.................... $ (685,022) $ 528,924 $ 4,084,604
=========== =========== ===========
</TABLE>
- --------
(1) The Bridge Notes are payable on the earlier of closing of this Offering or
April 1997. See "Use of Proceeds."
(2) Excludes (i) up to 900,000 shares of Common Stock issuable upon exercise of
the Underwriter's over-allotment option and the underlying Warrants; (ii)
4,500,000 shares of Common Stock issuable upon exercise of the Warrants
included in or underlying the Units offered hereby; (iii) 1,995,000 shares
of Common Stock issuable upon exercise of the Selling Securityholder
Warrants and the underlying Warrants; (iv) 36,897 shares of Common Stock
issuable upon the exercise of warrants issued to the Underwriter in March
1994; (v) 600,000 shares of Common Stock issuable upon exercise of the Unit
Purchase Option and the Warrants included in or underlying such option; and
(vi) 250,000 shares of Common Stock reserved for issuance under the
Company's Amended and Restated 1996 Stock Option Plan, under which options
to purchase 120,000 shares of Common Stock are outstanding. See
"Management--Stock Options," "Certain Transactions," "Description of
Capital Stock" and "Concurrent Offering."
(3) Includes 410,000 Escrow Shares. See "Principal Stockholders-- Escrow
Shares."
(4) Gives effect to recognition of $665,000 of expense upon the closing of this
Offering relating to the value of the Bridge Warrants issued in the Bridge
Financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
16
<PAGE>
Bridge Financing
In April and May 1996, the Company completed the Bridge Financing of an
aggregate of $1,995,000 principal amount of Bridge Notes and 997,500 Bridge
Warrants in which it received net proceeds of approximately $1,185,000 (after
conversion of $495,000 of outstanding indebtedness of the Company into Bridge
Notes and Bridge Warrants and after deducting expenses of the Offering). The
Bridge Notes are payable, together with interest at the rate of 10% per annum,
on the earlier of April 1997 or the closing of the Offering. See "Use of
Proceeds." The Bridge Warrants entitled the holders thereof to purchase one
share of Common Stock commencing in April or May 1997 respectively, but will be
exchanged automatically on the closing of the Offering for the Selling
Securityholder Warrants, each of which will be identical to the Class A Warrants
included in the Units offered hereby. The Selling Securityholder Securities have
been registered for resale in the Registration Statement of which this
Prospectus forms a part, subject to the contractual restriction that the Selling
Securityholders have agreed not to exercise the Selling Securityholder Warrants
for a period of one year from the closing of the Offering and not to sell the
Securityholder Warrants except after specified periods commencing 90 days after
the closing date of the Offering. See "Concurrent Offering."
17
<PAGE>
DILUTION
At March 31, 1996, the Company had a negative net tangible book value of
$(3,141,902) or $(4.62) per share based on 820,000 shares outstanding (excluding
the 410,000 Escrow Shares) and a negative pro forma net tangible book value of
$(873,330) or $(1.07) per share, giving effect to the issuance in April and May
1996 of the Bridge Notes, net of debt issue costs and debt discount, the Debt
Conversion in April 1996 of $978,556 of outstanding indebtedness of the Company
into 361,061 shares of Common Stock and the conversion of the 250,000
outstanding shares of Series A Preferred Stock into 184,486 shares of Common
Stock. Net tangible book value per share represents the amount of the Company's
total assets minus the amount of its intangible assets and liabilities, divided
by the number of shares of Common Stock outstanding. Dilution represents the
difference between the initial public offering price paid by the purchasers in
the Offering and the pro forma net tangible book value per share at March 31,
1996, as adjusted to give effect to the Offering. After giving retroactive
effect to the sale of 1,500,000 Units offered hereby at an assumed initial
public offering price of $5.00 per Unit and the receipt of the net proceeds
therefrom, the pro forma net tangible book value of the Company, as adjusted, at
March 31, 1996 would have been $4,012,320 or $1.73 per share. This represents an
immediate increase in net tangible book value of $2.80 per share to existing
stockholders and an immediate dilution of $3.27 per share to persons purchasing
shares at the initial public offering price ("New Investors"). The following
table illustrates this per share dilution:
The following table illustrates this dilution to New Investors on a per
share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Unit ................ $5.00(1)
Pro forma negative net tangible book value per share
before Offering........................................... $ (1.07)
Increase per share attributable to New Investors.............. $ 2.80
-------
Net tangible book value per share after Offering.............. $1.73
-----
Dilution to New Investors ..................................... $3.27
=====
</TABLE>
- --------
(1) Assumes no allocation of the offering price to the Warrants included in the
Units.
If the over-allotment option is exercised in full, the net tangible book
value after the Offering would be approximately $1.96 per share (excluding the
Escrow Shares), resulting in dilution to New Investors in the Offering of $3.04
per share.
The following table summarizes the differences between existing
stockholders and New Investors with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and by New
Investors:
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Paid Average
--------------------- ------------------------ Price Per
Number Percent Amount(1) Percent Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ...................... 1,230,000(2) 45.05% $ 2,501,085(3) 25.01% $2.03
New Investors .............................. 1,500,000 54.95 $ 7,500,000 74.99 $5.00
--------- ------ ----------- ------
Total .............................. 2,730,000 100.00% $10,001,085 100.00%
========= ====== =========== ======
</TABLE>
- --------
(1) Prior to deduction of costs of issuance.
(2) Includes the 410,000 Escrow Shares. See "Principal Stockholders-- Escrowed
Shares."
(3) Includes (i) shares valued at $273,763 issued in exchange for employment
services rendered and (ii) shares valued at $1,068,572 issued upon
conversion of indebtedness.
The foregoing tables do not give effect to the exercise of any outstanding
options or warrants. To the extent such options or warrants are exercised there
will be further dilution to New Investors. See "Capitalization -- Bridge
Financing," "Management --Stock Option Plans" and "Description of Securities."
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the period from April 19,
1993 (commencement of operations) through March 31, 1994, the years ended March
31, 1995 and 1996 and the period from April 19, 1993 (commencement of
operations) through March 31, 1996, respectively, and the balance sheet data at
March 31, 1994, 1995, and 1996 and March 31, 1996 (Pro Forma) have been derived
from the financial statements of the Company. The financial statements of the
Company as at March 31, 1996 and March 31, 1996 (Pro Forma) and for the years
ended March 31, 1995 and 1996 and for the period from April 19, 1993
(commencement of operations) through March 31, 1996, together with the notes
thereto and the report of Richard A. Eisner & Company, LLP, independent
auditors, are included elsewhere in this Prospectus. The selected financial data
set forth below should be read in conjunction with the financial statements of
the Company and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
April 19, 1993 April 19, 1993
(Commencement Year (Commencement
of Operations) Ended of Operations)
Through March 31, Through
March 31, ------------------------------ March 31,
1994 1995 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 135,887 $ 86,486 $ 119,412 $ 341,785
Gross loss (302,355) (213,591) (158,042) (673,988)
Selling, general and administrative expenses 1,037,711 1,223,044 1,042,290 3,303,045
----------- ----------- ----------- -----------
Operating loss (1,340,066) (1,436,635) (1,200,332) (3,977,033)
----------- ----------- ----------- -----------
Net (loss) (1,361,215) (1,530,061) (1,228,745) (4,120,021)
Cumulative dividend on preferred stock 25,000 50,000 50,000 125,000
----------- ----------- ----------- -----------
Net (loss) attributable to common stockholders $(1,386,215) $(1,580,061) $(1,278,745) $(4,245,021)
=========== =========== =========== ===========
Net (loss) per share of common stock.............. $ (2.39) $ (2.70) $ (2.02)
=========== =========== ===========
Weighted average number of common
shares outstanding ............................. 575,519 586,269 632,719
=========== =========== ===========
Supplementary pro forma:
Net (loss) per share of common stock (1)........ $ (1.13) $ (1.28) $ (1.04)
=========== =========== ===========
Weighted average number of
common shares outstanding..................... 1,230,000 1,230,000 1,230,000
=========== =========== ===========
<CAPTION>
March 31, 1996
------------------------------------------------
Actual Pro Forma(2)
----------- ------------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficiency) ................................. (2,089,725) 450,501
Total assets ................................................. 20,529 948,571
Total liabilities ............................................ 2,536,739 1,821,209
Deficit accumulated during the development stage.............. (4,375,973) (4,388,680)
----------- -----------
Total capital deficiency...................................... (2,516,210) (872,638)
=========== ===========
</TABLE>
- ----------
(1) Gives pro forma effect to the Debt Conversion and the automatic conversion
of the Preferred Stock to Common Stock upon the closing of this Offering.
(2) Gives pro forma effect to the Bridge Financing, the Debt Conversion and the
use of the proceeds of the Bridge Financing to repay approximately $572,000
of indebtedness and other obligations in April 1996. See Note L of Notes to
Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is a development stage company organized to develop, design and
market value-added packaging and specialty display products. Since its
inception, the Company's efforts have been principally devoted to research,
development and design of products, marketing activities and raising capital.
The Company has had only limited sales, has generated minimal revenues from
operations and has incurred substantial operating losses from these activities.
Most of the Company's sales to date did not involve significant orders and
the Company believes that these customers were primarily evaluating the
commercial potential of the Company's products. The Company also incurred
significant costs associated with such sales in part because a large percentage
of finished product was distributed free of charge as samples. The Company's
sales efforts have also been adversely affected by periods with no operations, a
lack of continuity of management and inadequate capital.
The following discussion should be read in conjunction with the Selected
Financial Data and the Financial Statements and notes thereto included elsewhere
in this Prospectus.
Results of Operations
Fiscal Years Ended March 31, 1995 and 1996. Net sales increased 38% from
approximately $86,500 to approximately $119,500 during the fiscal years ended
March 31, 1995 ("fiscal 1995") and March 31, 1996 ("fiscal 1996"), respectively.
Gross loss, which includes the costs of items manufactured as well as the cost
of samples, decreased 26% from approximately $213,600 in fiscal 1995 to
approximately $158,000 in fiscal 1996, primarily as a result of the increase in
net sales and a decrease in the cost of goods sold which was attributable to a
decrease in product given away as samples.
Selling, general and administrative expenses decreased by 15% from
approximately $1,223,000 in fiscal 1995 to approximately $1,042,000 in fiscal
1996, primarily as a result of a decrease in payroll and management resulting
from a temporary cessation of operations and a $65,000 financing charge related
to the issuance of stock at below fair market value in connection with a
$250,000 loan.
Net loss decreased 20% from approximately $1,530,000, or $2.70 per share,
in fiscal 1995 to approximately $1,229,000, or $2.02 per share, in fiscal 1996,
as a result of the foregoing factors. Pro forma net loss per share decreased
from $1.28 in fiscal 1995 to $1.04 in fiscal 1996.
Liquidity and Capital Resources
The Company has funded its activities to date through loans from principal
stockholders and private placements of equity and debt securities. As of March
31, 1996, the Company had a working capital deficit of approximately $2,090,000.
On a pro forma basis at March 31, 1996, the Company had working capital of
approximately $450,000. Since its inception, the Company has received working
capital loans from the Conversion Investors. At March 31, 1996, the amount of
outstanding indebtedness to the Conversion Investors was approximately
$1,470,000. In March 1996, the Conversion Investors agreed to convert, effective
on the closing of the Bridge Financing, $975,000 of the Conversion Debt into
361,061 shares of the Company's Common Stock and the remaining $495,000 of the
Conversion Debt was exchanged for $495,000 in Bridge Notes and 247,500 Bridge
Warrants. See "Capitalization -- Bridge Financing" and "Certain Transactions."
In April 1996, the Company completed the Bridge Financing which consisted
of $1,995,000 principal amount of Bridge Notes bearing interest at an annual
rate of 10% and warrants to purchase an aggregate of 997,500 shares of Common
Stock. The proceeds of the Bridge Financing, which were approximately $1,185,000
(net of the $495,000 of exchanged Conversion Debt, for which the Company
received no proceeds, $199,500 in commissions and a $59,850 expense allowance
paid to the Underwriter, which acted as placement agent, and other expenses of
the private placement), have been utilized by the Company for working capital
purposes, including general and administrative expenses and expenses associated
with this Offering. The Company intends to repay the principal and accrued
interest on the Bridge Notes with a portion of the proceeds of the Offering. The
Company expects to incur, during the quarter ending June 30, 1996 and the
quarter in which the closing of this Offering occurs, a non-
20
<PAGE>
recurring charge to operations relating to the Bridge Financing and the
repayment of the Bridge Notes aggregating approximately $1,039,350, including
$314,350 for amortization of deferred financing costs, $665,000 (or
approximately $0.67 per warrant) for amortization of the value of the Bridge
Warrants and $60,000 for accrued interest through August 15, 1996. See
"Capitalization -- Bridge Financing."
The Company requires the proceeds of this Offering to implement its
business plan, which includes the development and testing of products utilizing
the LTI Processed method and sales and marketing activities. At June 30, 1996,
the Company had no material capital commitments. However, during the 12-month
period following the Offering, the Company is committed to pay approximately
$144,000 in compensation to Michael E. Noonan and intends to pay an additional
$213,000 to other executive officers. See "Management -- Employment Agreements."
The Company expects to continue to incur substantial research, development
and marketing costs in the future. The Company also expects that general and
administrative costs necessary to support manufacturing and the creation of a
marketing and sales organization will increase in the future. Accordingly, the
Company expects to incur increasing operating losses for the foreseeable future.
There can be no assurance that the Company will ever achieve profitable
operations.
In the event of the release of the Escrow Shares, the Company will
recognize during the period in which the earnings thresholds are probable of
being met or such stock price levels achieved, a substantial non-cash charge to
earnings (not deductible for income tax purposes) equal to the fair market value
of such shares on the date of their release, which would have the effect of
significantly increasing the Company's loss or reducing or eliminating earnings,
if any, at such time. There can be no assurance that the Company will attain the
targets which would enable the Escrow Shares to be released from escrow.
In addition, two principal stockholders of the Company have granted to
Michael E. Noonan, the Company's Chairman and Chief Executive Officer, options
to purchase an aggregate of 116,346 shares of Common Stock of the Company held
by such stockholders at an exercise price of $ 1.00 per share. The options are
fully vested and are exercisable one-third immediately and one-third in each of
April 1997 and 1998. The Company will record a non-cash charge to earnings
during the quarter ending June 30, 1996 in an amount equal to the difference
between the exercise price and the fair market value of the shares at the time
of grant. See "Certain Transactions" and "Principal Stockholders."
The recognition of the potential charges to income described above may have
a depressive effect on the market price of the Company's securities.
At March 31, 1996 the Company had net operating loss carryforwards for
Federal income tax purposes of $4,100,000. The net operating loss and credit
carryforwards expire from March 2008 through March 2011. See Note I of Notes to
Financial Statement. Additionally, the Company's ability to utilize its net
operating loss carryforwards may be subject to annual limitations pursuant to
Section 382 of the Internal Revenue Code as a result of this Offering.
The report of the independent auditors on the Company's financial
statements as of March 31, 1996 contains an explanatory paragraph regarding an
uncertainty with respect to the ability of the Company to continue as a going
concern. The Company has had no significant revenue and has incurred an
accumulated deficit through March 31, 1996 of approximately $4,120,000. However,
the Company believes that upon the completion of the Offering and the receipt of
the proceeds therefrom, it will have the necessary liquidity and capital
resources to sustain planned operations for the 12 month period following the
Offering. In the event that the Company's internal estimates relating to its
planned expenditures prove materially inaccurate, the Company may be required to
reallocate funds among its planned activities and curtail certain planned
expenditures. In any event, the Company anticipates that it will require
substantial additional financing after such time. There can be no assurance as
to the availability or terms of any required additional financing, when and if
needed. In the event that the Company fails to raise any funds it requires, it
may be necessary for the Company to significantly curtail its activities or
cease operations. See "Use of Proceeds."
21
<PAGE>
BUSINESS
General
The Company is a development stage company which has been organized to
research, develop, design and market value-added packaging and specialty display
products which are manufactured using the Company's proprietary processing
method ("LTI Processed"). LTI Processed is a procedure by which polyester film
is laminated onto single thickness paper ("linerboard") prior to corrugation.
The Company believes that the LTI Processed method is the only process currently
available in which polyester film can be laminated onto linerboard such that the
resulting laminate can withstand the heat and stress of corrugation. This
procedure results in a packaging material that the Company believes is
physically superior, more attractive and potentially more cost-effective than
many currently existing packaging materials such as polystyrene (styrofoam),
plastic, metal and certain corrugated cardboard products, including those that
are laminated with paper and/or coated after corrugation.
The LTI Processed method can be utilized to produce a wide variety of
packaging products and specialty displays. To date, the Company has produced a
number of prototype products, including coolers, frozen food shippers, point of
purchase displays, pizza delivery boxes, medical product/specimen shippers and
microwavable food disks used as pie plates and pizza slice trays. The Company
believes that these products, together with other potential LTI Processed
products, are capable of improving upon existing packaging products by reducing
or eliminating certain limitations associated with such products. For example,
the Company believes that LTI Processed products may be waterproof, resistant to
a variety of solvent and petroleum-based chemicals, thermally insulating,
recyclable, stronger and may have a higher bursting strength than conventional
corrugated products. The Company also believes that the LTI Processed method
permits higher quality printing and results in more attractive packaging than
corrugated materials printed with traditional printing processes. Such aesthetic
qualities have become more important in recent years as retailers have
significantly increased the extent to which they display and sell products in
the same packaging in which they were shipped.
In addition, the Company believes that while LTI Processed material may be
more costly to produce than traditional corrugated board, it is generally less
expensive than certain other non-corrugated packaging products, including
styrofoam, metal and plastic. Moreover, because LTI Processed containers often
can be reused, and can be collapsed and stored pending reuse (thereby requiring
less storage space than containers made from materials such as styrofoam, metal
and plastic), they may be more cost-effective than other packaging materials,
including traditional corrugated materials. Based on these potential performance
advantages and cost savings, the Company believes that LTI Processed packaging
materials may be preferred to many packaging products currently marketed by
others.
Since its inception, the Company has focused primarily on research and
development, has had only a limited number of sales and has only recently begun
to focus on broader-based marketing. Most of such sales did not involve
significant orders and the Company believes that these customers were primarily
evaluating the commercial application of LTI Processed products. Moreover,
further development of the LTI Processed method may be necessary to satisfy the
requirements of specific end-users or strategic partners.
Strategy
The Company's strategy is to focus principally on (i) designing, developing
and marketing value-added, niche LTI Processed products directly to end-users
and (ii) leveraging its resources by establishing strategic alliances with
vertically integrated corrugators ("converters") for whom the Company intends to
supply LTI Processed linerboard for further manufacture and sale by such
converters. The principal elements of the Company's strategy are as follows:
Design, Develop and Market Products Directly. The Company intends to
design, develop and market value-added, niche LTI Processed products directly to
end-users. The Company believes that this strategy will provide more flexibility
to (i) identify quickly certain end-users for whom the physical properties or
potential cost-effectiveness of LTI Processed materials may provide a
significant advantage over their current packaging or display products and (ii)
design specific products that satisfy such end-user's requirements.
Out-Source Manufacturing Activities. With the exception of design
activities and certain limited printing operations, the Company currently
intends to out-source substantially all of its manufacturing to existing
laminating, corrugating, printing and sheet plant companies with whom the
Company expects to establish informal relationships.
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<PAGE>
The Company believes that such out-sourcing may be more cost-effective and will
enable it to maintain the flexibility to both accommodate the varied product
needs of a wide array of customers and adjust rapidly to developments in the
Company's product designs.
Seek Strategic Alliances for Production and Marketing. The Company intends
to seek strategic alliances with vertically integrated converters for whom the
Company intends to supply LTI Processed linerboard for further manufacture and
sale by such converters. The Company believes that such relationships will
enable the Company to more effectively penetrate the national market and
persuade larger end-users of the value of LTI Processed products without
disrupting existing supplier relationships. The Company expects that such
alliances, if entered into, would involve the purchase by such converters of LTI
Processed linerboard (either printed or unprinted) from the Company and the
completion (i.e., die-cutting and printing, if necessary) and sale of finished
products by such converters.
Licensing of LTI Processed Technology. The Company may in the future also
seek to license its LTI Processed technology to manufacturers who would produce
LTI Processed linerboard and finished products independently. Such licensing
agreements might provide for up-front licensing fees and/or royalty payments.
Industry Background
The corrugated packaging industry is divided into three basic groups:
integrated converters, non-integrated converters and sheet plants. Integrated
converters are the largest manufacturers and grow and harvest their own timber
and process it in high volume into large, pre-sized linerboard rolls in various
basic grades. Linerboard produced for in-house corrugation is then moved to
corrugating lines where it is processed, cut and printed if desired. Integrated
converters are extremely competitive and focus primarily on high speed, high
volume manufacture of commodity-type paper and packaging products with low
profit margins. Accordingly, they generally avoid production of value-added
products which typically require costlier materials, more manual labor,
interruptions in production and have shorter manufacturing runs. Integrated
converters have the advantage of being largely self-sufficient for supplies of
raw materials and can guarantee continuity of production and thus compete with
value-added products largely by providing basic corrugated packaging at low
prices.
Non-integrated corrugating converters do not produce their own linerboard
but purchase linerboard roll-stock and corrugate it into sheets from which
finished packaging and other products are produced, either by them or by sheet
plants. Non-integrated converters generally compete on a smaller scale, are
regional in scope, focus their operations on shorter runs and produce more
value-added products than integrated converters.
Sheet plants do not produce or corrugate rolls of linerboard but rather
purchase finished corrugated sheets from converters and then design, cut,
customize and process these sheets into finished packaging, displays and other
specialty items, including post-corrugation laminated products such as
point-of-purchase displays. Sheet plants generally market to local or regional
end-users who require higher cost, special design or value-added packaging and
have shorter run needs.
Product Background
Since the late 1960s, the corrugating industry has focused its
technological research and development largely on generating faster and more
efficient production of basic corrugated products through the use of high speed
corrugation, die-cutting and processing equipment designed to reduce labor
costs. Few advances have been made in the design or construction of the actual
corrugated packaging materials. The Company believes that there is a market for
corrugated products with physical properties such as insulation, improved
strength, resistance to chafing of the package surface, reduced abrasion of
packaged products, resistance to water and other liquids and improved graphics,
print resolution and gloss finishes. However, although film-on-film and
film-on-paper laminates exist for items such as snack-food bags and specialty
products, the Company believes that there currently exists no other corrugated
film laminates that can withstand the heat, pressure and stress of corrugation.
There currently exist certain alternative methods for producing value-added
corrugated products. For example, wax and other chemical coatings allow
corrugated board to be water resistant (but not waterproof) and scuff and
abrasion resistant. However, wax and chemical coatings are often absorbed by the
linerboard over time, thereby affecting its structural integrity. Increased
bursting strength can be achieved by increasing the weight of the linerboard or
through "double wall" and "triple wall" construction in which two or three
layers of corrugating "flutes" are
23
<PAGE>
sandwiched between layers of linerboard, creating a bulkier material which is
difficult to bend. To the extent that packaging is required which exceeds the
capabilities of traditional corrugated boards, other materials such as
styrofoam, metal and plastic can be used. However, in addition to limited
physical advantages, many currently available value-added corrugated products
are often not purchased by national end-users because they are typically
manufactured by non-integrated converters whose focus is more regional.
The most advanced printing method currently available for high volume
production of corrugated material is pre-printing on linerboard before
corrugating. Pre-printed linerboard is produced in roll form and then corrugated
into sheets. This type of printing has certain problems associated with it such
as chafing of the exposed printed surface and cracking along the "score line" (a
crease placed into a product to allow easy bending). Additionally, because this
process entails printing on a porous, exposed surface, it requires more ink to
be used and thus allows somewhat limited graphics quality and gloss
capabilities. Pre-printing on linerboard also typically requires that higher
quality, and therefore more expensive, linerboard be used.
An alternative printing method, litho-laminating, involves the lamination
of lithographically printed paper (lithographic printing produces a higher
quality image and is commonly referred to as offset printing) onto already
corrugated rigid sheets. Both the lithographic printing and the handling of the
rigid corrugated sheets are relatively slow and labor intensive and thus more
costly, but are generally required for items which demand the most advanced
graphics available such as point-of-purchase displays. Litho-laminated products
also suffer from the problems of chafing of the printed surface and cracking
along the score lines because the printed surface is exposed.
LTI Processed
The Company believes that the application of the LTI Processed method,
which is a proprietary process involving the lamination of polyester film onto
linerboard before corrugation, results in a corrugated packaging and display
product that is physically superior, more attractive and potentially more
cost-effective than traditional corrugated products and certain non-corrugated
packaging products, including styrofoam, metal and plastic. The Company believes
that the LTI Processed method is the only currently available procedure that
permits the lamination of linerboard prior to corrugation.
The corrugating process entails using stream, heat and pressure to mold
paper into the interior flutes of the corrugated board and these flutes are then
sandwiched between two layers of linerboard using a starch bonding agent and the
further application of heat and pressure. The stress inherent in the corrugating
process can cause improperly laminated film to distort, shrink, melt, burn or
delaminate over time and can cause improper bonding agents to bubble or
crystallize. The Company believes that the LTI Processed method avoids these
problems by utilizing a proprietary combination of particular types of polyester
film and polymer bonding agents and by laminating using specific temperatures,
pressures and other laminating techniques. The Company believes that, with the
proper direction by the Company's personnel, independent companies possessing
the proper machinery can produce LTI Processed products with little or no
modification of existing equipment and with only minor interruption in
production and thus with minimal added cost. The resulting laminate can then be
corrugated using traditional methods and virtually no modification of existing
machinery, thereby permitting high volume production of LTI Processed corrugated
material.
The Company believes that the LTI Processed laminate provides a protective
barrier allowing corrugated board to be waterproof and resistant to a variety of
solvents, paints, petroleum-based products and other chemicals for extended
periods of time. The Company also believes that this film allows corrugated
board to be more thermally insulating than traditional corrugated material of
the same thickness and may allow its insulating properties to be comparable to
other materials such as styrofoam while being thinner, collapsible and more
printable. The Company believes that this film allows the board to have a higher
bursting strength (bursting strength refers to the ability of the board surface
to withstand pressure before tearing) than traditional corrugated board. LTI
Processed materials may also be recyclable, a significant advantage over
styrofoam, which may pose certain environmental hazards and has been restricted
in certain areas, including the European Union.
The Company believes that the LTI Processed method can also significantly
improve on the ability to print corrugated board, especially for high volume
production orders. The Company expects that high volume printing of LTI
Processed materials will be done in one of two ways, either by reverse-printing
the polyester film before laminating and corrugating or by printing onto
linerboard before laminating and corrugating. Both of these methods afford
higher quality, more durable graphics than is possible on traditional corrugated
material while maintaining the economies of scale not possible with
litho-lamination.
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<PAGE>
Reverse printing the polyester film ("reverse printing") before laminating
produces the highest quality image because the smooth surface of the film allows
extremely detailed, high resolution printing using minimal quantities of ink.
Laminating polyester film onto pre-printed linerboard ("pre-printing") also
allows high quality, high resolution and more detailed images because the layer
of film protects the printed surface and, again, allows less ink to be used.
However, the quality of the images are somewhat diminished relative to reverse
printing due to the porous nature of the linerboard. Pre-printing is used when
the width of the product to be printed exceeds the width of film printers which
are generally used for items such as snack-food bags and are generally not
designed for larger dimension printing. Both of these methods have high gloss
capabilities and are expected to solve the chafing and cracking problems
associated with traditional printing methods because the printed surface is
protected by the external layer of film. These processes can reduce the cost of
high quality printing on corrugated products by effectively integrating printing
into the corrugator's high-speed, high-volume production lines. Moreover, in
either case, there is no need for the corrugator to utilize higher quality
linerboard as is the case with traditional corrugated printing processes.
Because these processes require printing in advance of corrugation and thus the
timely coordination of the entire production process, the Company expects to
utilize these methods only for high volume orders.
For smaller orders, which are expected to constitute most of the Company's
business for the foreseeable future, the Company expects to "screen print" after
corrugation onto previously laminated board. Screen printing entails applying
ink to the film surface of the corrugated board using a silk-screen type
process. While this process can be more expensive than reverse printing and
pre-printing and suffers some of the scuffing problems associated with exterior
surface printing, the Company uses particular inks which allow a superior bond
of the ink to the film, thereby minimizing scuffing. Additionally, screen
printing allows more ink to be used to attain greater opacity and a glossy
finish while the particular screen printing technique maintains high quality
resolution. The Company believes that this market is currently being supplied
largely by litho-laminated products. See "-- Product Background."
The Company believes that the LTI Processed method can be utilized to
produce a wide variety of packaging products and specialty displays. For
example, the Company believes that LTI Processed may be utilized to produce
reusable containers for the large scale delivery of cold, frozen and fresh food
which is now frequently shipped in single-use cardboard boxes, as well as for
packaging for specialty and mail-order fresh foods, replacing bulky styrofoam
and plastic containers which are expensive to produce and ship. The Company
believes LTI Processed products can be used as an alternative to styrofoam
coolers and it has produced waterproof, reusable, collapsible and printable
beer, wine and soft drink coolers and containers. The Company has also produced
insulated catering and pizza delivery boxes and believes that LTI Processed can
produce improved alternatives to corrugated products currently used in these
industries. LTI Processed products may also have applications for the shipment
of items with delicate finishes, and where the use of styrofoam has been
curtailed (for example, in the case of products shipped to the European Union).
LTI Processed products may also be employed in the medical industry for
packaging difficult to handle and contaminated items and for containers for
paints, solvents and chemicals which are currently stored in metal cans.
Sales and Marketing
The Company's sales force currently consists of two salespersons. The
Company intends to hire approximately two additional salespersons in the near
term. See "-- Employees." The sales force is under the direction of J. Scott
Stewart, Senior Vice President -- Marketing and Sales.
The Company anticipates that its principal customers will be end-users of
LTI Processed finished products and converters who may purchase LTI Processed
linerboard for further production and sale to their customers. The Company
believes that converters, particularly large, integrated converters, will enable
the Company to more effectively penetrate the national market, while direct
sales to end-users will enable the Company to identify and design particular
niche products that may provide a significant advantage over alternative
packaging or display products. To the extent that the Company enters into
relationships with converters, the Company will be dependent to a large degree
upon such converters to market products incorporating LTI Processed technology,
and the success of any such relationships will depend in part upon the
converter's own competitive, marketing and strategic considerations, including
the relative advantages of alternative products being developed or marketed by
such converters.
The Company believes that much of the corrugated packaging industry is
characterized by long-standing business relationships between manufacturers and
end-users. In addition, the Company will need to convince potential customers
currently utilizing non-corrugated packaging products of the relative advantages
of LTI Processed products.
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<PAGE>
As a result, the Company may encounter significant resistance in its marketing
efforts and expects that it will be required to some extent to educate the
market regarding LTI Processed products. Moreover, the Company anticipates that
it will be required in certain cases to design and produce at its own expense
prototype products prior to consummating a sale, which activities could have an
adverse effect on the Company's results of operations.
Manufacturing
The Company does not intend to directly manufacture either LTI Processed
roll-stock or finished products. Instead, the Company expects to contract for
manufacture with outside laminators, corrugators and sheet plants with whom the
Company expects to establish informal relationships. However, the Company may,
in the future, consider performing some or all of the manufacturing processes if
it believes it is appropriate under the circumstances. The Company has no
experience in manufacturing products on a commercial scale and does not have the
resources to directly manufacture on a commercial scale any of its products. In
the event the Company decides to engage in any manufacturing activities, the
Company will require substantial additional funds and will be required to hire
and train significant additional personnel.
LTI Processed polyester film can be laminated either on laminating machines
which are currently used largely for film-on-film lamination, or on coating
machines which currently coat single-ply cardboard with polyethylene and other
coatings for finishes such as those on cereal boxes. While the Company's
proprietary process requires lamination under precise tolerances and with
particular films and bonding agents, the Company believes that, with the proper
direction by the Company's personnel, independent companies possessing the
proper laminating or coating machinery can produce LTI Processed with little or
no modification of existing equipment and with only minor interruption in
production and thus with minimal added cost. The Company believes that there are
a sufficient number of laminators and coaters both locally and nationally to
fill the Company's production needs. However, there can be no assurance that the
Company will be able to procure these services on terms acceptable to the
Company.
The Company intends to out-source the corrugation of LTI Processed
roll-stock with corrugators with whom the Company expects to establish informal
relationships. See "-- Strategy." The Company believes that the corrugation of
LTI Processed roll-stock requires little oversight by the Company, that no
modification of existing machinery is required and that corrugators are widely
available. However the Company will be dependent on these corrugators for
production and there can be no assurance that these corrugators will continue to
fill the Company's production needs or, if they cease to do so, that the Company
would be able to secure adequate production on terms acceptable to the Company.
After corrugation, sheets of LTI Processed board will typically be stored
as inventory on the Company's premises to await specific orders. To fill smaller
customer orders, this inventory can be die-cut and printed if necessary by sheet
plants and made into final products. On larger orders for printed products, the
Company expects to laminate onto pre-printed linerboard or laminate with
reverse-printed film and thus run printed roll-stock through the corrugating
process, allowing higher volume and faster and less expensive production. See"--
LTI Processed."
Competition
Competition in the corrugated and packaging industries is intense and based
significantly on price. Moreover, certain aspects of the Company's business,
including printing, are characterized by rapidly evolving technology that could
result in the technological obsolescence of processes utilized by the Company.
The Company competes with many corrugating firms and manufacturers of other
packaging products, including those made of styrofoam, metal and plastic. Most
of the Company's competitors have substantially greater financial, technical and
human resources than the Company and may be better equipped to develop,
manufacture and market products. These companies also compete with the Company
in recruiting and retaining highly qualified personnel and consultants.
Additionally, there are both corrugated and other packaging and display
materials available which can provide some or all of the physical
characteristics of LTI Processed products as well as high quality aesthetics and
which directly compete with the Company's products. Major corrugating and
integrated converters produce large quantities of corrugated products with wax
and other coatings which are water resistant and can be used, for example, to
pack wet and frozen foods for extended periods and to reduce abrasion of items
with delicate finishes. The Company will face intense competition from these
manufacturers to the extent that these products present viable alternatives to
LTI Processed products. These products may remain attractive to many end-users
as they can be lower priced and end-users will not have to incur the potential
cost of interrupting product lines and supply sources to accommodate
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<PAGE>
different packaging from a new company. The Company intends to compete with such
manufacturers by offering a product that can be more expensive but which the
Company believes will be of higher quality, and in many circumstances, more cost
efficient in the long term. Additionally, the Company will face competition from
non-integrated converters who supply corrugated products that are laminated with
high quality, lithographically printed paper. While the Company believes that
these products do not have the physical properties of LTI Processed and offer
little price advantage over LTI Processed, they will effectively compete with
the Company's products in the market for quality printed products.
The Company also expects to encounter significant competition as it seeks
to enter markets for other forms of value-added packaging and products such as
styrofoam, metal and plastic. Given the fact that the physical properties of
these other materials have been long established, that end-users are accustomed
to using these materials and that manufacturers have massive national and
international production and marketing efforts as well as sophisticated and well
developed product lines, the Company will need to persuade end-users of the
value of an entirely new material and product design which is purchased from a
new supplier. There can be no assurance that such efforts will be successful.
Moreover, there can be no assurance that other companies will not develop
products which are superior to the Company's or which achieve greater market
penetration.
Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain patent
protection for its products, both in the United States and abroad. On December
9, 1988, Michael Olvey, Sr., the inventor of the LTI Processed method and a
founder and former President of the Company filed a patent application with the
U.S. Patent and Trademark Office (the "U.S. Patent Office") covering the
Company's LTI Processed technology. On March 15, 1990, the U.S. Patent Office
rejected the Company's patent application as being too broad in light of prior
art. On April 19, 1993, Mr. Olvey assigned all rights to this patent application
to the Company. The Company expects to submit a modification of its original
application after the completion of this Offering.
There can be no assurance that any patents will be granted or that patents
issued to the Company will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection to the
Company. Furthermore, there can be no assurance that others have not
independently developed, or will not independently develop, similar products or
technologies or, if patents are issued to the Company, will not design around
such patents.
The Company's potential products may conflict with patents which have been
or may be granted to competitors or others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin manufacturing
and marketing of the affected products. If any such actions are successful, in
addition to any potential liability for damages, the Company could be required
to obtain a license in order to continue to manufacture or market the affected
products. There can be no assurance that the Company would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms, if at all. If the Company becomes involved in
litigation, it could consume a substantial portion of the Company's time and
resources.
The Company also relies on trade secret protection for its confidential and
proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its rights to unpatented trade secrets.
The Company intends to protect its proprietary technology through the use
of licensing, exclusivity and non-disclosure agreements with the laminators,
corrugators, converters and printers with which it may establish strategic
alliances and production relationships. The Company also requires that certain
of its employees and consultants execute a confidentiality agreement upon the
commencement of an employment or consulting relationship with the Company. The
agreements generally provide that trade secrets and all inventions conceived by
the individual and all confidential information developed or made known to the
individual during the term of the relationship shall be the exclusive property
of the Company and shall be kept confidential and not disclosed to third parties
except in specified circumstances. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information.
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<PAGE>
Suppliers
The Company is dependent on the suppliers of the raw materials used to
produce LTI Processed products, including polyester film and linerboard. The
corrugating industry periodically suffers shortages of linerboard. These
shortages more seriously affect non-vertically integrated corrugating converters
(those that do not own their own timber and produce their own roll-stock) by
raising prices and forcing customers of corrugated board to purchase from
integrated converters. To the extent that the Company intends to utilize
non-integrated converters for the production of LTI Processed packaging, a
shortage-induced price increase could raise the price of such LTI Processed
materials beyond its value margin, causing end-users to seek integrated
suppliers which may not use the Company's products.
In the absence of a shortage, the Company believes that there are numerous
sources of supply of its raw materials. However, should the Company be unable to
obtain an adequate supply of necessary raw materials, the Company's ability to
continue to manufacture products in accordance with its business plan would be
adversely affected.
Government Regulation
To the extent that LTI Processed is used in the food service and packaging
industries, the Company will be required to ensure that its products meet
federal Food and Drug Administration (the "FDA") regulations regarding materials
used in contact with food. The Company believes that both the polyester film and
the bonding agents used in LTI Processed products have been independently
approved by the FDA for food contact in connection with uses by other companies.
However, there can be no assurance that the Company's use of the materials
included in its products will not require separate FDA approval. Obtaining FDA
approval has historically been a costly and time-consuming process. The Company
may also need to seek regulatory approval from foreign governments for the use
of LTI Processed products shipped to those countries. For example, the European
Union has strict regulations as to the disposability and recyclability of
imported packaging and paper products. There can be no assurance that such
foreign regulations will not restrict or preclude the Company from engaging in
activities in such countries, which could have a material adverse effect on the
Company. The failure to obtain any required regulatory approvals could have a
material adverse effect on the Company.
Employees
The Company currently has six full-time employees, three of whom are
dedicated solely to marketing and two of whom are dedicated to both marketing
and operations. The Company also has consulting agreements with certain
individuals such as the Company's founder and inventor of the LTI Processed
proprietary technology, as well as certain former employees and officers of the
Company. The Company intends to hire two additional salespersons in the near
future. The Company's future success depends in significant part upon the
continued service of its executive officers and its ability to attract and
retain highly qualified sales and marketing and managerial personnel.
Competition for such personnel is intense and there can be no assurance that the
Company can retain its key employees or that it can attract, assimilate or
retain other highly qualified sales and marketing and managerial personnel in
the future. None of the Company's employees is represented by a labor union and
the Company believes its relations with its employees are satisfactory.
Properties
The Company is currently negotiating a lease with respect to approximately
17,000 square feet of warehouse space adjacent to Packaging Atlanta, Inc., a
mid-sized sheet plant in Canton, Georgia. The lease is expected to provide for
annual rent of approximately $34,000, subject to specified annual increases, and
is expected to be for a term of two years. The Company currently utilizes
Packaging Atlanta for certain printing, die cutting and assembly services. The
Company is also currently searching for approximately 2,500 square feet of
office space in which the Company intends to locate its executive offices. The
Company believes that adequate space is currently available in the Atlanta area.
Legal Proceedings
The Company is not involved in any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
----- ---- -------
<S> <C> <C>
Michael E. Noonan ....................... 55 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
Jerry A. Ross............................ 47 Chief Financial Officer
Robert L. Dover.......................... 61 Vice President-- Operations, Secretary and
Director
J. Scott Stewart......................... 43 Senior Vice President-- Marketing and
Sales
Ronald L. Christensen.................... 59 Director
William Warren........................... 57 Director
</TABLE>
MICHAEL E. NOONAN was appointed Chairman of the Board, President and Chief
Executive Officer on February 1, 1996. From 1994 to February 1, 1996, Mr. Noonan
was self-employed as a business consultant. From 1989 to 1994, Mr. Noonan was
the Chief Executive Officer, President and sole shareholder of Winning Image,
Inc, an apparel marketing and manufacturing firm which was sold to Terry
Manufacturing Co. From 1986 to 1989, Mr. Noonan was a Senior Vice President of
Domestic and North American Operations at the Mead Packaging Division of Mead
Corporation. Mr. Noonan graduated from Harvard Business School in 1975.
JERRY A. ROSS has been the part-time Chief Financial Officer of the Company
since June 15, 1996. Mr. Ross intends to devote approximately one-half of his
business time to the Company. From December 1994 to May 1996, Mr. Ross was Vice
President and Chief Financial Officer of Allied Foods, Inc., a manufacturer of
canned pet foods and, from December 1993 to November 1994, he was Vice President
of Finance of Daystar Digital, Inc., a manufacturer of accelerators and digital
imaging hardware and software for Apple/Macintosh computers. From February 1992
to November 1993, he was Chief Financial Officer and Director of Operations of
Klikok Corporation, an international manufacturer of packaging machinery. From
1975 to January 1992, Mr. Ross was a senior manager of the audit, accounting and
Financial Consulting Services of Arthur Andersen & Co. in Atlanta, Georgia. Mr.
Ross is a Certified Public Accountant and received a Masters Degree in
Professional Accountancy from Georgia State University in 1975.
ROBERT L. DOVER has been the Vice President -- Operations, Secretary and a
director of the Company since May 1996. From 1966 to April 1995, Mr. Dover was
an executive of Mead Packaging Division of Mead Corporation in Atlanta, Georgia
working in the capacity of Director of Marketing and Technological Planning,
Environmental Technology, Marketing and Sales, for the Food Industry, Marketing
for the Soft Drink Industry, Film Systems, Market Research and Machinery Systems
Development. From May 1995 to May 1996, Mr. Dover was an independent consultant.
Mr. Dover graduated with a Masters of Science Degree in Industrial Management
from the Georgia Institute of Technology.
J. SCOTT STEWART has been Senior Vice President of Sales and Marketing of
the Company since May 1996. From 1992 to 1996, Mr. Stewart was co-founder and a
sales representative for Simmons Survey, a company involved in leak detection
for underground fuel tanks. From 1981 to 1992, Mr. Stewart worked for the
Royston Division of AWH Corporation in Winston-Salem North Carolina as a Vice
President of the Contract Business Division and of Corporate Marketing. Mr.
Stewart graduated with a Masters Degree in Business Administration from Emory
University in 1977, and with a Bachelor's Degree in Industrial Management from
the Georgia Institute of Technology in 1975.
RONALD L. CHRISTENSEN has been a director of the Company since March 1996.
From 1993 to the present, Mr. Christensen has served as President and Chief
Executive Officer of PrinTech Label Corporation, a corrugating and printing
firm. Since 1983 he has also served as president of Adrienne Associates, a
consulting services company to the printing and corrugated converter industry.
Mr. Christensen graduated from Georgia Institute of Technology in 1960 with a
Bachelor's Degree in Chemical Engineering.
WILLIAM WARREN has been a director of the Company since March 1996. Mr.
Warren founded Mar-Lyn Container Corp. in Rancho Cucamonga, in 1967 and is the
president and a majority shareholder of Mar-Lyn. Mr. Warren graduated from the
University of California in 1961 with a Bachelor's Degree in Industrial
Management and has done post-graduate work in Management at California State
University.
29
<PAGE>
Directors serve until the next annual meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment. See
"Management -- Employment Agreements."
The Company has agreed, if requested by the Underwriter, to nominate a
designee of the Underwriter to the Company's Board of Directors for a period of
five years after the date of this Prospectus. See "Underwriting."
The Board of Directors' intends to establish an Audit Committee which will
review, with the Company's independent auditors, the results and scope of their
audit services and any other services they are asked to perform, their report on
the Company's financial statements following completion of their audit and the
Company's policies and procedures with respect to internal accounting and
financial controls. In addition, the Audit Committee will make annual
recommendations to the Board of Directors for the appointment of independent
public accountants for the ensuing year.
Executive Compensation
The following Summary Compensation Table sets forth the compensation earned
by Michael E. Noonan, the Company's Chief Executive Officer, and by Joseph
Neely, the Company's former Chief Executive Officer, for the fiscal year ended
March 31, 1996 (the "named executive officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------------------
Compensation Name Other Annual Long-Term
and Principal Position Year Salary Bonus Compensation Awards/Options(3)
- -------------------- ---- ---------- ----- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Michael E. Noonan .......................... 1996 $ 72,000(1) -- -- --
Joseph Neely ............................... 1996 107,500(2) -- 20,000 --
</TABLE>
- --------------
(1) Represents amounts accrued in the fiscal year ended March 31, 1996 and
includes $48,000 payable pursuant to a consulting arrangement prior to
February 1, 1996.
(2) Includes $42,500 accrued in the fiscal year ended March 31, 1996 and paid
in April 1996.
(3) No options were granted prior to the end of the fiscal year ended March 31,
1996.
Employment and Consulting Agreements
The Company is currently negotiating a multi-year employment agreement with
Michael E. Noonan, Chairman and Chief Executive Officer of the Company. The
agreement is expected to provide for an annual salary of $144,000 and will
contain confidentiality and non-competition provisions.
In December 1995, the Company entered into a one-year consulting agreement
with Michael W. Olvey, Sr., a founder, a former President and director of the
Company and a shareholder of the Company. The agreement provides for annual
payments of $60,000 and for a $60,000 bonus upon the issuance of a patent under
the Company's current patent application. The bonus is increased to $100,000
upon the issuance of multiple patents under the current patent application.
The Company has agreed with the Underwriter that, notwithstanding the
provisions of the foregoing agreements, the compensation of the Company's
executive officers will not increase from current levels for a period of 13
months after the closing of the Offering.
Director Compensation
Non-employee directors of the Company are entitled to compensation of $500
for each Board of Directors meeting attended and are reimbursed for expenses
actually incurred in connection with such meeting. Directors are not precluded
from serving the Company in any other capacity and receiving compensation
therefor. In addition, directors are entitled to receive Director Options
pursuant to the Company's 1996 Stock Option Plan. See "--Stock Options."
30
<PAGE>
Stock Options
General. In March 1996, the Board of Directors adopted and the Company's
stockholders approved the Amended and Restated 1996 Stock Option Plan (the
"Plan"), which provides for the grant by the Company of options to purchase up
to an aggregate of 250,000 shares of the Company's authorized but unissued
Common Stock. Pursuant to the Plan, employees, officers and directors of, and
consultants or advisers to, the Company and any subsidiary corporations are
eligible to receive incentive stock options ("incentive options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and/or options that do not qualify as incentive options ("non-qualified
options"). The Plan, which expires in March 2006, will be administered by the
Board of Directors or a committee of the Board of Directors, provided, however,
that with respect to "officers" and "directors," as such terms are defined for
the purposes of Rule 16b-3 ("Rule 16b-3") promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), such committee shall consist of
"disinterested" directors as defined in Rule 16b-3, but only if at least two
directors meet the criteria of "disinterested" directors as defined in Rule
16b-3. The purposes of the Plan are to ensure the retention of existing
executive personnel, key employees, directors, consultants and advisors who are
expected to contribute to the Company's future growth and success and to provide
additional incentive by permitting such individuals to participation the
ownership of the Company, and the criteria to be utilized by the Board of
Directors or the committee in granting options pursuant to the Plan will be
consistent with these purposes. The Plan provides for automatic grants of
options to certain directors in the manner set forth below.
Options granted under the Plan may be either incentive options or
non-qualified options. Incentive options granted under the Plan are exercisable
for a period of up to 10 years from the date of grant at an exercise price which
is not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive option granted under the Plan to a
stockholder owning more than 10% of the outstanding voting power may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the Common Stock on the date of the grant. To the extent that the
aggregate fair market value, as of the date of grant, of the shares for which
incentive options become exercisable for the first time by an optionee during
the calendar year exceeds $100,000, the portion of such option which is in
excess of the $100,000 limitation will be treated as a non-qualified option.
Options granted under the Plan to officers, directors or employees of the
Company may be exercised only while the optionee is employed or retained by the
Company or within 90 days of the date of termination of the employment
relationship or directorship. However, options which are exercisable at the time
of termination by reason of death or permanent disability of the optionee may be
exercised within 12 months of the date of termination of the employment
relationship or directorship. Upon the exercise of an option, payment may be
made by cash or by any other means that the Board of Directors or the committee
determines. No option may be granted under the Plan after March 2006.
Options may be granted only to such employees, officers and directors of,
and consultants and advisors to, the Company or any subsidiary of the Company as
the Board of Directors or the committee shall select from time to time in its
sole discretion, provided that only employees of the Company or a subsidiary of
the Company shall be eligible to receive incentive options. As of June 15, 1996,
the number of employees, officers and directors of the Company eligible to
receive grants under the Plan was eight persons. The number of consultants and
advisors to the Company eligible to receive grants under the Plan is not
determinable. An optionee may be granted more than one option under the Plan.
The Board of Directors or the committee will, in its discretion, determine
(subject to the terms of the Plan) who will be granted options, the time or
times at which options shall be granted, and the number of shares subject to
each option, whether the options are incentive options or non-qualified options,
and the manner in which options may be exercised. In making such determination,
consideration may be given to the value of the services rendered by the
respective individuals, their present and potential contributions to the success
of the Company and its subsidiaries and such other factors deemed relevant in
accomplishing the purpose of the Plan.
Under the Plan, the optionee has none of the rights of a stockholder with
respect to the shares issuable upon the exercise of the option until such shares
shall be issued upon such exercise. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date of
exercise, except as provided in the Plan. During the lifetime of the optionee,
an option shall be exercisable only by the optionee. No option may be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of decent and distribution.
The Board of Directors may amend or terminate the Plan except that
stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Plan (unless adjusted to
reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of the
31
<PAGE>
Company), to modify the requirements as to eligibility to receive options, to
increase materially the benefits accruing to participants or as otherwise may be
required by Rule 16b-3 or Section 422 of the Code. No action taken by the Board
may materially and adversely affect any outstanding option grant without the
consent of the optionee.
Under current tax law, there are no Federal income tax consequences to
either the employee or the Company on the grant of non-qualified options if
granted under the terms set forth in the Plan. Upon exercise of a non-qualified
option, the excess of the fair market value of the shares subject to the option
over the option price (the "Spread") at the date of exercise is taxable as
ordinary income to the optionee in the year it is exercised and is deductible by
the Company as compensation for Federal income tax purposes, if Federal income
tax is withheld on the Spread. However, if the shares are subject to vesting
restrictions conditioned on future employment or the holder is subject to the
short-swing profits liability restrictions of Section 16(b) of the Exchange Act
of (i.e., is an executive officer, director or 10% stockholder of the Company)
then taxation and measurement of the Spread is deferred until such restrictions
lapse, unless a special election is made under Section 83(b) of the Code to
report such income currently without regard to such restrictions. The optionee's
basis in the shares will be equal to the fair market value on the date taxation
is imposed and the holding period commences on such date.
Incentive option holders incur no regular Federal income tax liability at
the time of grant or upon exercise of such option, assuming that the optionee
was an employee of the Company from the date the option was granted until 90
days before such exercise. However, upon exercise, the Spread must be added to
regular Federal taxable income in computing the optionee's "alternative minimum
tax" liability. An optionee's basis in the shares received on exercise of an
incentive stock option will be the option price of such shares for regular
income tax purposes. No deduction is allowable to the Company for Federal income
tax purposes in connection with the grant or exercise of such option.
If the holder of shares acquired through exercise of an incentive option
sells such shares within two years of the date of grant of such option or within
one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (i.e., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
At the time of sale of shares received upon exercise of an option (other
than a Disqualifying Disposition of shares received upon the exercise of an
incentive option), any gain or loss is long-term or short-term capital gain or
loss, depending upon the holding period. The holding period for long-term
capital gain or loss treatment is more than one year.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the Plan. For instance, the
treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
To date, options to purchase 120,000 shares of Common Stock at an exercise
price of $4.00 per share have been granted under the Plan.
Directors' Options. The provisions of the Plan provide for the automatic
grant of non-qualified stock options to purchase shares of Common Stock
("Director Options") to directors of the Company who are not employees or
principal stockholders of the Company ("Eligible Directors"). Eligible Directors
of the Company will be granted a Director Option to purchase 10,000 shares of
Common Stock on the date of this Prospectus at a per share exercise price equal
to the initial public offering price of the Units. Future Eligible Directors
will be granted a Director Option to purchase 10,000 shares of Common Stock on
the date that such person is first elected or appointed a director. Further,
commencing on the day immediately following the date of the annual meeting of
stockholders for the Company's fiscal year ending March 31, 1997, each Eligible
Director, other than directors who received an Initial Director Option since the
last annual meeting, will be granted a Director Option to purchase 1,000 shares
of Common Stock ("Automatic Grant") on the day immediately following the date of
each annual meeting of stockholders, as long as such director is a member of the
Board of Directors. The exercise price for each share subject to a Director
Option shall be equal to the fair market value of the Common Stock on the date
of grant, except for directors who receive incentive options and who own more
than 10% of the voting power, in which case the
32
<PAGE>
exercise price shall be not less than 110% of the fair market value on the date
of grant. Director Options are exercisable in four equal annual installments,
commencing six months from the date of grant. Director Options will expire the
earlier of 10 years after the date of grant or 90 days after the termination of
the director's service on the Board of Directors.
Limitation of Liability and Indemnification Matters
The Company's Certificate of Incorporation eliminates in certain
circumstances the liability of directors of the Company for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director (i) for breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions by the director not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for willful or negligent declaration of an unlawful dividend, stock
purchase or redemption, or (iv) for transactions from which the director derived
an improper personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company believes 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, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief of recision.
The Company intends to enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and officers after
the Offering. Each such Indemnification Agreement will provide that the Company
will indemnify the indemnitee against expenses, including reasonable attorneys'
fees, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of his performance of his duties as a
director or officer, other than an action instituted by the director or officer.
Such indemnification will be available if the indemnitee acted in good faith and
in a matter he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action, had no reasonable
cause to believe his conduct was unlawful. The Indemnification Agreements will
also require that the Company indemnify the director or other party thereto in
all cases to the fullest extent permitted by applicable law. Each
Indemnification Agreement will permit the director or officer that is party
thereto to bring suit to seek recovery or amounts due under the Indemnification
Agreement and to recover the expenses of such a suit if he is successful.
The Company's By-laws provide that the Company shall indemnify its
directors, officers, employees or agents to the full extent permitted by the
Delaware General Corporation Law, and the Company shall have the right to
purchase and maintain insurance on behalf of any such person whether or not the
Company would have the power to indemnify such person against the liability. The
Company has not currently purchased any such insurance policy on behalf on any
of its directors, officers, employees or agents.
33
<PAGE>
CERTAIN TRANSACTIONS
VentureTek L.P., a limited partnership, beneficially owns approximately
26.2% of the outstanding shares of Common Stock before this Offering, including
(i) 138,365 shares of Common Stock purchased in April 1993 for $1.00 per share
and (ii) 184,486 shares of Common Stock issuable upon the automatic conversion,
upon the closing of this Offering, of 250,000 shares of Series A Preferred Stock
which were purchased in September 1993 for $2.00 per share. The limited partners
of VentureTek consist of the children and grandchildren of J. Morton Davis, the
sole stockholder of the Underwriter. Substantially all of the limited partners
of VentureTek are also the principal stockholders of Blair & Co., a selling
group member which will distribute substantially all of the Units offered
hereby. In September 1993, the Underwriter loaned $30,000 to the Company and in
March 1994, the Underwriter loaned an additional $100,000 to the Company, each
of which loans bore interest at 10% per annum. The principal amount of all of
such indebtedness was repaid in April 1996 and accrued interest of approximately
$30,000 will be paid out of the proceeds of this Offering. In March 1994, the
Company issued warrants to purchase 36,897 shares of Common Stock of the Company
to the Underwriter in consideration of the extension of the loan by the
Underwriter. The Underwriter also acted as Placement Agent for the Bridge
Financing in April and May 1996. See "Underwriting" for a description of the
compensation received by the Underwriter in connection with the Bridge
Financing.
In April 1996, Steve Gorlin and TransMillennial Resource Corporation
("TMR"), each principal stockholders of the Company, granted to Michael E.
Noonan, Chairman, President and Chief Executive Officer of the Company, options
to purchase an aggregate of 91,319 and 25,027 shares, respectively, of Common
Stock owned by Mr. Gorlin and TMR. The options are exercisable at $1.00 per
share and expire ten years from the date of grant. All of the TMR options and
13,755 of the Gorlin options are immediately exercisable, and the remaining
77,564 options are exercisable in approximately equal annual installments in
April 1997 and April 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The Company has granted Mr. Noonan demand and piggyback registration
rights with respect to the shares of Common Stock issuable upon exercise of
these options. See "Description of Securities -- Registration Rights."
On August 26, 1994, the stockolders of the Company ratified a preliminary
agreement (the "Memorandum of Understanding") with TMR. Charles Broes, the
President and a principl stockholder of TMR, served as the President and Chief
Executive Officer of the Company from August 1994 to March 1995 and a director
of the Company from August 1994 to February 1996. Pursuant to the Memorandum of
Understanding, TMR agreed to provide certain management, financing and marketing
services to the Company for fees to be established at a later date and the
issuance of certain warrants contingent upon TMR securing certain financing for
the Company within six months. On September 1, 1994, the Company entered into an
Outsourcing Agreement with TMR (the "TMR Outsourcing Agreement") pursuant to
which the Company agreed to pay TMR $20,000 a month for its management services.
On September 1, 1994, the Company also entered into an Outsourcing Agreement
with Revenue Process Development, Inc. ("RPD"), a subsidiary of TMR (the "RPD
Outsourcing Agreement"), pursuant to which RPD would act as exclusive marketing
and sales agent for the Company in exchange for the greater of 20% of gross
sales or RPD's actual costs. On February 2, 1995, the Company agreed with TMR to
amend the Memorandum of Understanding (the "Amendment") and extend the term of
the agreement to ten months, to increase TMR's fees to $22,000 a month, payable,
along with TMR's expenses, in the form of 10% convertible debentures of the
Company and to cancel the RPD Outsourcing Agreement. On June 7, 1995, TMR
informed the Company via letter that it was unable to secure the financing
called for under the Memorandum of Understanding. Accordingly, as per its terms,
the Memorandum of Understanding expired on June 30, 1995 and the Company was
obligated only for fees and expenses due to TMR through such date and no
warrants were issued or issuable to TMR.
On July 1, 1995, the Company sold certain assets to TMR at book value for
$54,279 in exchange for a reduction in the Company's indebtedness to TMR. As of
December 31, 1995, TMR sold certain of these assets to third parties for an
aggregate of $43,750, which amount was collected by the Company and resulted in
an increase in the Company's indebtedness to TMR. This indebtedness was included
in the indebtedness that was converted to equity in April 1996, as described
below. In July 1995, the Company purchased all of the outstanding stock of RPD
from TMR for $2,000.
In April 1996, pursuant to an agreement dated March 21, 1996, TMR
contributed to the capital of the Company $307,457 of indebtedness owed by the
Company to TMR for management services, expenses and other indebtedness under
the Memorandum of Understanding and the TMR Outsourcing Agreement and converted
the remaining
34
<PAGE>
$428,346 of Company indebtedness into 158,048 shares of Common Stock at a rate
of one share for every $2.7102 of indebtedness. In April 1996, pursuant to
additional debt conversion agreements dated March 21, 1996 (the "Debt Conversion
Agreements"), the Conversion Investors also converted an aggregate of $550,210
of indebtedness of the Company into 203,013 shares of Common Stock at a rate of
one share for every $2.7102 of indebtedness.
In April 1996, Donald Sallee, a principal stockholder of the Company, and
other debtholders of the Company converted an aggregate of $495,000 principal
amount of indebtedness of the Company into an aggregate of $495,000 in principal
amount of Bridge Notes and 247,500 Bridge Warrants. The Company agreed to pay
the accrued interest on the indebtedness in cash. See "Capitalization -- Bridge
Financing." The principal amount of the Bridge Notes and interest thereon at a
rate of 10% per annum will be paid to the holders of the Bridge Notes upon the
closing of this Offering.
In June 1995, the Company purchased from Michael W. Olvey, Sr., a founder,
stockholder and former President and a director of the Company, 126,114 shares
of Common Stock of the Company for $150,000, which amount was paid in
installments through April 1996. In July 1995, the Company sold 126,114 shares
of Common Stock to Donald Sallee for $85,000 in connection with a $250,000 loan
by Mr. Sallee to the Company in June 1995. As a result, the Company recorded a
financing cost of approximately $65,000 which was charged to earnings in the
year ended March 31, 1996. See Note J of Notes to Financial Statements.
Additionally, in June 1995, the Company issued 33,208 shares of Common Stock to
Mr. Olvey in consideration for the cancellation of $90,000 of the Company's
indebtedness to him. In March 1996, Mr. Olvey cancelled 7,379 of these shares.
In December 1995, the Company entered into a one year consulting agreement with
Mr. Olvey. The agreement provides for annual payments of $60,000 and a $60,000
bonus upon the issuance of a patent under the Company's current patent
application. The bonus is increased to $100,000 upon the issuance of multiple
patents under the current patent application.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (ii) each director and named executive
officer of the Company and (iii) all executive officers and directors of the
Company as a group, (a) prior to the Offering giving effect to the Debt
Conversion, the automatic conversion of the Series A Preferred Stock into Common
Stock upon the closing of the Offering and (b) as adjusted to give effect to the
sale of the 1,500,000 Units offered hereby.
<TABLE>
<CAPTION>
Percent of Shares
Beneficially Owned
--------------------------
Number of Shares Before After
Name and Address of Beneficial Owner(1)(2) Beneficially Owned(1) Offering Offering
- ------------------------------------------ --------------------- -------- --------
<S> <C> <C> <C>
Michael E. Noonan ....................................... 38,782(3) 3.06% 1.40%
Robert L. Dover .......................................... 40,000(4) 3.15 1.44
VentureTek L.P. ......................................... 322,852(5) 26.25 11.83
Steve Gorlin ............................................. 202,013(6) 16.42 7.40
TransMillennial Resource Corporation ..................... 158,048(7) 12.85 5.79
Donald Sallee ............................................ 126,114 10.25 4.62
All executive officers and directors
as a group (6 persons).................................. 118,782(8) 8.81 4.17
</TABLE>
- ------------
(1) Except as otherwise indicated, each of the parties listed above has sole
voting and investment power over the shares owned. Unless otherwise
indicated, the address is c/o Laminating Technologies, Inc., 291 North
Industrial Way, Canton, Georgia 30115.
(2) Includes Escrow Shares. See "-- Escrow Shares" below.
(3) Includes 25,027 shares issuable upon exercise of immediately exercisable
options granted to Mr. Noonan by TMR and 13,755 shares issuable upon
exercise of immediately exercisable options granted by Steve Gorlin. Does
not include an additional 77,564 shares issuable upon exercise of options
granted to Mr. Noonan by Mr. Gorlin that are not exercisable within 60
days.
(4) Includes 40,000 immediately exercisable options to purchase Common Stock.
(5) Does not include 36,897 shares issuable upon the exercise of immediately
exercisable warrants issued to the Underwriter in March 1994. The General
Partner of VentureTek is C. David Selingut. Mr. Selingut may be considered
a beneficial owner of the shares owned by VentureTek by virtue of his
authority as General Partner to vote and/or dispose of such shares.
VentureTek is a limited partnership, the limited partners of which consist
of the children and grandchildren of J. Morton Davis. Mr. Davis is the sole
stockholder of the Underwriter. The address of such stockholder is 39
Broadway, New York, New York 10006.
(6) Includes 91,319 shares subject to options granted by Mr. Gorlin to Michael
E. Noonan.
(7) Includes 25,027 shares subject to options granted by TMR to Michael E.
Noonan.
(8) Includes 118,782 shares issuable upon exercise of options that are
immediately exercisable. Does not include 77,564 shares issuable upon
exercise of options that are not exercisable within 60 days.
Steve Gorlin may be deemed a "founder" of the Company, as such term is
defined in the Securities Act.
Escrow Shares
In connection with the Offering, the holders of Common Stock have agreed to
place, on a pro rata basis, 410,000 shares, or one-third of the outstanding
shares of Common Stock of the Company before the Offering, into escrow pursuant
to an escrow agreement (the "Escrow Agreement") between such holders and
American Stock Transfer & Trust Company, as escrow agent. The Escrow Shares are
not transferable or assignable; however, the Escrow Shares may be voted by the
beneficial holders thereof. The Escrow Shares also include one-third of the
shares of Common Stock underlying the options granted to Michael E. Noonan by
Steve Gorlin and TMR, which shares shall remain subject to the Escrow Agreement
upon exercise of such options.
36
<PAGE>
The Escrow Shares will be released from escrow if, and only if, one or more
of the following conditions are met:
(a) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings (all as audited by the
Company's independent public accountants) (the "Minimum Pretax
Income") amounts to at least $3,100,000 million for the fiscal year
ending December 1, 1997;
(b) the Minimum Pretax Income amounts to at least $4,400,000 million for
the fiscal year ending December 31, 1998;
(c) the Minimum Pretax Income amounts to at least $5,700,000 million for
the fiscal year ending December 31, 1999;
(d) the Closing Price (as defined in the Escrow Agreement) of the Common
Stock averages in excess of $12.50 per share for 30 consecutive
business days during the 18-month period commencing on the date of
this Prospectus;
(e) the Closing Price of the Common Stock averages in excess of $16.75 per
share for 30 consecutive business days during the 18-month period
commencing with the nineteenth month from the date of this Prospectus;
or
(f) during the periods specified in (d) or (e) above, the Company is
acquired by or merged into another entity in a transaction in which
the value of the per share consideration received by the stockholders
of the Company on the date of such transaction or at any time during
the applicable period set forth in (d) or (e), respectively, equals or
exceeds the applicable levels set forth in (d) or (e), respectively.
The Minimum Pretax Income amounts set forth above shall (i) be calculated
exclusively of any extraordinary earnings, including any charge to income
relating to the Bridge Financing and repayment of the Notes or resulting from
release of the Escrow Shares and (ii) be increased proportionately, with certain
limitations, in the event additional shares of Common Stock or securities
convertible into, exchangeable for or exercisable into Common Stock are issued
after completion of the Offering. The Closing Price amounts set forth above are
subject to adjustment in the event of any stock splits, reverse stock splits or
other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Share and including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. If none of the applicable Minimum Pretax Income or Closing Price levels
set forth above have been met by March 31, 2000, the Escrow Shares, as well as
any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge (not deductible for income tax purposes) to
reportable earnings, which would equal the fair market value of such shares on
the date of release. Such charge could substantially increase the loss or reduce
or eliminate the Company's net income, if any, for financial reporting purposes
for the period during which such shares and options are, or become probable of
being, released from escrow. Although the amount of compensation expense
recognized by the Company will not affect the Company's total stockholders'
equity, it may have a negative effect on the market price of the Company's
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note G of Notes to Financial Statements.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the Underwriter and should not
be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.
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CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a prospectus with respect to an offering by the Selling Securityholders
of 997,500 Class A Warrants, 997,500 Class B Warrants and 1,995,000 shares of
Common Stock issuable upon exercise of such Class A and Class B Warrants. The
Selling Securityholder Warrants are being issued to the Selling Securityholders
as of the effective date of the Offering upon the automatic conversion of all of
the Company's outstanding Bridge Warrants. The Class A Warrants are identical to
the Class A Warrants included in the Units offered hereby. All of the Selling
Securityholder Warrants issued upon conversion of the Bridge Warrants, the
Common Stock and Class B Warrants issuable upon exercise of such Class A
Warrants and the Common Stock issuable upon exercise of the Class B Warrants
will be registered, at the Company's expense, under the Securities Act and are
expected to become tradeable on or about the effective date of the Offering,
subject to the following contractual restriction: Each Selling Securityholder
has agreed (i) not to sell, transfer, or otherwise dispose publicly the Selling
Securityholder Warrants except after the time periods and in the percentage
amounts set forth below, on a cumulative basis, and (ii) not to exercise the
Selling Securityholder Warrants for a period of one year from the closing of
this offering. Purchasers of the Selling Securityholder Warrants will not be
subject to such restrictions.
Percentage Eligible
Lock-Up Period for Resale
-------------- ----------------
Before 90 days after Closing ......................... 0%
Between 91 and 150 days .............................. 25%
Between 151 and 210 days ............................. 50%
Between 211 and 270 days ............................. 75%
After 270 days ....................................... 100%
After the one year period following the effective date of the Offering, the
Selling Securityholders may exercise and sell the Common Stock issuable upon
exercise of the Selling Securityholder Warrants without restriction if a current
prospectus relating to such Common Stock is in effect and the securities are
qualified for sale. The Company will not receive any proceeds from the sale of
the Selling Securityholder Warrants. Sales of Selling Securityholder Warrants
issued upon conversion of the Bridge Warrants or the securities underlying such
Class A Warrants or even the potential of such sales could have an adverse
effect on the market prices of the Units, the Common Stock and the Warrants.
With the exception of Doanld Sallee, Melvin Stein, the Malcolm Levenson
Trust and Steiro Company, each of which is a Conversion Investor and/or
principal stockholder of the Company and who purchased an aggregate of $495,000
principal amount of Bridge Notes and 247,500 Bridge Warrants, there are no
material relationships between any of the Selling Securityholders and the
Company, nor have any such material relationships existed within the past three
years. The Company has been informed by the Underwriter that there are no
agreements between the Underwriter and any Selling Securityholder regarding the
distribution of the Selling Securityholder Warrants or the underlying
securities.
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices or in negotiated transactions, a combination of such methods of sale or
otherwise.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholder Warrants may not
simultaneously engage in market-making activities with respect to any securities
of the Company during the applicable "cooling-off" period (at least two and
possibly nine business days) prior to the commencement of such distribution.
Accordingly, in the event the Underwriter or Blair & Co. is
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engaged in a distribution of the Selling Securityholder Warrants, neither of
such firms will be able to make a market in the Company's securities during the
applicable restrictive period. However, neither the Underwriter nor Blair & Co.
has agreed to nor is either of them obligated to act as broker-dealer in the
sale of the Selling Securityholder Warrants and the Selling Securityholders may
be required, and in the event Blair & Co. is a market-maker, will likely be
required, to sell such securities through another broker-dealer. In addition,
each Selling Securityholder desiring to sell Warrants will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-6 and 10b-7, which provisions
may limit the timing of the purchases and sales of shares of the Company's
securities by such Selling Securityholder.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discount and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Amended and Restated Certificate of Incorporation
and By-laws, the Warrant Agreement among the Company, the Underwriter and
American Stock Transfer & Trust Company, as warrant agent, pursuant to which the
Warrants will be issued, and the Underwriting Agreement between the Company and
the Underwriter, copies of all of which have been filed with the Commission as
exhibits to the Registration Statement of which this Prospectus is a part.
Effective upon the closing of this Offering, the authorized capital stock
of the Company will consist of 20,000,000 shares of Common Stock, par value $.01
per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share.
Units
Each Unit consists of one share of Common Stock, one redeemable Class A
Warrant and one redeemable Class B Warrant. Each Class A Warrant entitles the
holder thereof to purchase one share of Common Stock and one redeemable Class B
Warrant. Each Class B Warrant entitles the holder thereof to purchase one share
of Common Stock. The Common Stock and Warrants comprising the Units are
separately transferable immediately upon issuance.
Common Stock
Immediately prior to the date hereof there were 1,230,000 shares of Common
Stock outstanding held by 26 stockholders of record. Holders of Common Stock
have the right to cast one vote for each share held of record on all matters
submitted to a vote of holders of Common Stock, including the election of
directors. There is no right to cumulate votes for the election of directors.
Stockholders holding a majority of the voting power of the capital stock issued
and outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of the Company's stockholders,
and the vote by the holders of a majority of such outstanding shares is required
to effect certain fundamental corporate changes such as liquidation, merger or
amendment of the Company's Certificate of Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata based on
the number of shares held, when, as and if declared by the Board of Directors,
from funds legally available therefor, subject to the rights of holders of any
outstanding preferred stock. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities, subject to the
rights of the holders of any outstanding preferred stock, shall be distributed,
pro rata, among the holders of the Common Stock. Holders of Common Stock are not
entitled to preemptive or subscription or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when issued, fully paid and non-assessable.
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Redeemable Warrants
Class A Warrants. Each Class A Warrant entitles the registered holder to
purchase one share of Common Stock and one Class B Warrant at an exercise price
of $6.50 at any time until 5:00 P.M., New York City time, on 2001. Commencing
one year from the date of this Prospectus, the Class A Warrants are redeemable
by the Company on 30 days' written notice at a redemption price of $.05 per
Class A Warrant if the "closing price" of the Company's Common Stock for any 30
consecutive trading days ending within 15 days of the notice of redemption
averages in excess of $9.10 per share. "Closing price" shall mean the closing
bid price if listed in the over-the-counter market on Nasdaq or otherwise or the
closing sale price if listed on the Nasdaq National Market or a national
securities exchange. All Class A Warrants must be redeemed if any are redeemed.
Class B Warrants. Each Class B Warrant entitles the registered holder to
purchase one share of Common Stock at an exercise price of $8.75 at any time
after issuance until 5:00 P.M. New York City Time, on , 2001. Commencing one
year from the date of this Prospectus, the Class B Warrants are redeemable by
the Company on 30 days' written notice at a redemption price of $.05 per Class B
Warrant, if the closing price (as defined above) of the Company's Common Stock
for any 30 consecutive trading days ending within 15 days of the notice of
redemption averages in excess of $12.25 per share. All Class B Warrants must be
redeemed if any are redeemed.
General. The Class A Warrants and Class B Warrants will be issued pursuant
to a warrant agreement (the "Warrant Agreement") among the Company, the
Underwriter and American Stock Transfer & Trust Company, New York, New York, as
warrant agent (the "Warrant Agent"), and will be evidenced by warrant
certificates in registered form. The Warrants provide for adjustment of the
exercise price and for a change in the number of shares issuable upon exercise
to protect holders against dilution in the event of a stock dividend, stock
split, combination or reclassification of the Common Stock or upon issuance of
shares of Common Stock at prices lower than the market price of the Common
Stock, with certain exceptions.
The exercise prices of the Warrants were determined by negotiation between
the Company and the Underwriter and should not be construed to be predictive of
or to imply that any price increases in the Company's securities will occur.
The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Common Stock for issuance upon the exercise of
the Class A Warrants and the Class B Warrants. A Warrant may be exercised upon
surrender of the Warrant certificate on or prior to its expiration date (or
earlier redemption date) at the offices of the Warrant Agent, with the form of
"Election to Purchase" on the reverse side of the Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price (by
certified or bank check payable to the order of the Company) for the number of
shares with respect to which the Warrant is being exercised. Shares issued upon
exercise of Warrants and payment in accordance with the terms of the Warrants
will be fully paid and non-assessable.
For the life of the Warrants, the holders thereof have the opportunity to
profit from a rise in the market value of the Common Stock, with a resulting
dilution in the interest of all other stockholders. So long as the Warrants are
outstanding, the terms on which the Company could obtain additional capital may
be adversely affected. The holders of the Warrants might be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain any
needed capital by a new offering of securities on terms more favorable than
those provided for by the Warrants.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Preferred Stock
Immediately prior to the date hereof the Company was authorized to issue up
to 5,250,000 shares of Preferred Stock, of which 250,000 shares of Series A
Preferred Stock were outstanding. Effective upon the closing of this offering,
the Series A Preferred Stock will be automatically converted into Common Stock
and retired, and the Company will be authorized to issue up to 5,000,000 shares
of "blank-check" Preferred Stock. The Board of Directors will have the authority
to issue this Preferred Stock in one or more series and to fix the number of
shares and the relative rights, conversion rights, voting rights and terms of
redemption (including sinking fund provisions) and liquidation preferences,
without further vote or action by the stockholders. If shares of Preferred Stock
with
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voting rights are issued, such issuance could affect the voting rights of the
holders of the Company's Common Stock by increasing the number of outstanding
shares having voting rights, and by the creation of class or series voting
rights. If the Board of Directors authorizes the issuance of shares of Preferred
Stock with conversion rights, the number of shares of Common Stock outstanding
could potentially be increased by up to the authorized amount. Issuance of
Preferred Stock could, under certain circumstances, have the effect of delaying
or preventing a change in control of the Company and may adversely affect the
rights of holders of Common Stock. Also, Preferred Stock could have preferences
over the Common Stock (and other series of preferred stock) with respect to
dividend and liquidation rights. The Company currently has no plans to issue any
Preferred Stock.
Unit Purchase Options
The Company has agreed to grant to the Underwriter, upon the closing of the
Offering, the Unit Purchase Option to purchase up to 150,000 Units. These Units
will, when issued, be identical to the Units offered hereby, except that the
Class A Warrants and the Class B Warrants included in the Unit Purchase Options
are subject to redemption by the Company, in accordance with the terms of the
Warrant Agreement, at any time after the Unit Purchase Options have been
exercised and the underlying Warrants are outstanding. The Unit Purchase Options
cannot be transferred, sold, assigned or hypothecated for one year, except to
any officer of the Underwriter or members of the selling group or their
officers. The Unit Purchase Options are exercisable during the four-year period
commencing one year from the date of this Prospectus at an exercise price of $
per Unit (120% of the initial public offering price) subject to adjustment in
certain events to protect against dilution. The holders of the Unit Purchase
Options have certain demand and piggyback registration rights. See
"Underwriting."
Registration Rights
Beginning one year from the date of this Prospectus, the holders of the
Unit Purchase Options will have demand and piggy-back registration rights
relating to such options and the underlying securities and the Underwriter will
have certain demand and piggy-back registration rights with respect to 36,897
warrants issued to it in March 1994 and the Common Stock into which such
warrants are exercisable. See "Underwriting." The Company has also granted
certain demand and piggyback registration rights to Michael E. Noonan, the
Company's Chairman President and Chief Executive Officer, with respect to the
shares issuable upon exercise of an aggregate of 116,346 options granted to Mr.
Noonan by Steve Gorlin and TMR, which registration rights will be exercisable
beginning 13 months from the date of this Prospectus.
Except as set forth above, no stockholder of the Company, nor any holder of
warrants to purchase shares of the Company's Common Stock, has any registration
rights.
Transfer Agent
American Stock Transfer & Trust Company, New York, New York, will act as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
Business Combination Provisions
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under such statute a corporation
may not engage in any business combination with any interested stockholder for a
period of three years after the date such person became an interested
stockholder unless certain conditions are satisfied. The statute contains
provisions enabling a corporation to avoid the statute's restrictions.
The Company has not sought to "elect out" of the statute and, therefore,
upon closing of the Offering and the registration of its shares of Common Stock
under the Exchange Act, the restrictions imposed by such statute will apply to
the Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
2,730,000 shares of Common Stock. Of these shares, the 1,500,000 shares of
Common Stock included in the Units offered hereby will be freely transferable
without restriction or further registration under the Securities Act, unless
purchased by affiliates of the Company as that term is defined in Rule 144 under
the Securities Act ("Rule 144") described below. The 1,230,000 shares of Common
Stock currently outstanding (giving effect to the Debt Conversion, the
conversion of the Series A Preferred Stock and the reverse stock split) are
"restricted securities" or owned by affiliates within the meaning of Rule 144
and may not be sold publicly unless they are registered under the Securities Act
or are sold pursuant to Rule 144 or another exemption from registration.
Approximately 137,631 of the Restricted Shares will become eligible for sale
immediately following the date of the Prospectus and, subject to compliance with
Rule 144 under the Securities Act, approximately 483,355 of the Restricted
Shares will be eligible for sale in the public market beginning 90 days from the
date of this Prospectus. The remaining Restricted Shares will become eligible
for sale pursuant to Rule 144 between June 1997 and April 1998. However, holders
of all of the outstanding shares have agreed not to sell or otherwise dispose of
any shares of Common Stock without the Underwriter's prior written consent for a
period of 13 months after the date of this Prospectus. In addition, 410,000 of
such shares are Escrow Shares and are subject to the restrictions on transfer
set forth in the Escrow Agreement. See "Principal Stockholders -- Escrow Shares"
and "Underwriting."
In general, under Rule 144, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least two years that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) an amount equal to the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least three years is entitled to sell such
shares under Rule 144(k) without regard to the volume or other resale
requirements. The Commission has recently proposed an amendment to the holding
period requirements of Rule 144 to permit resales of restricted securities after
a one-year holding period rather than a two-year holding period, and to permit
unrestricted resales by non-affiliates pursuant to Rule 144(k) after a two-year
holding period rather than a three-year holding period. In the event such
proposal is adopted, the dates upon which certain of the outstanding restricted
securities will become eligible for sale under Rule 144 will be accelerated.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period. If all the requirements of Rule 701 are
met, an aggregate of 120,000 shares subject to outstanding vested stock options
may be sold pursuant to such rule at the end of this 90-day period, subject to
an agreement by all option holders not to sell or otherwise dispose of any
shares of Common Stock for a period of 13 months after the date of this
Prospectus without the Underwriter's prior written consent.
Pursuant to registration rights acquired in the Bridge Financing, the
Company has, concurrently with the Offering, registered for resale on behalf of
the Selling Securityholders, the Selling Securityholder Securities, subject to
the contractual restriction that the Selling Securityholders agreed (i) not to
exercise the Selling Securityholder Warrants for a period of one year for the
closing of the Offering and (ii) not to sell the Selling Securityholder Warrants
except pursuant to the restrictions set forth below:
Percentage Eligible
Lock-Up Period for Resale
-------------- ----------------
Before 90 days after closing ........................... 0%
Between 91 and 150 days after closing .................. 25%
Between 151 and 210 days after closing.................. 50%
Between 211 and 270 days after closing.................. 75%
After 270 days after closing ........................... 100%
The Underwriter also has demand and piggyback registration rights with
respect to the securities underlying the Unit Purchase Option and with respect
to 36,897 warrants issued in March 1994 and the Common Stock underlying such
warrants. The Company has also granted certain demand and piggyback registration
rights to Michael E.
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Noonan, the Company's Chairman, President and Chief Executive Officer. See
"Description of Securities -- Registration Rights" and "Underwriting."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices and the ability of the Company to
raise equity capital in the future.
UNDERWRITING
D. H. Blair Investment Banking Corp., the Underwriter, has agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase from the
Company the 1,500,000 Units offered hereby on a "firm commitment" basis, if any
are purchased. It is expected that Blair & Co. will distribute as a selling
group member substantially all of the Units offered hereby. It is also expected
that Blair & Co. will make a market in the Company's securities following the
Offering. Blair & Co. is substantially owned by family members of J. Morton
Davis, including limited partners of a principal stockholder of the Company. Mr.
Davis is the sole stockholder of the Underwriter.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers who are members of the NASD, at such prices
less concessions of not in excess of $ per Unit, of which a sum not in excess of
$ per Unit may in turn be reallowed to other dealers who are members of the
NASD. After the commencement of the Offering, the public offering price, the
concession and the reallowance may be changed by the Underwriter.
The Company has granted to the Underwriter an option exercisable during the
30-day period commencing on the date of this Prospectus, to purchase from the
Company at the public offering price, less underwriting discounts, up to 225,000
additional Units for the purpose of covering over-allotments, if any.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter a non-accountable expense allowance equal
to 3% of the gross proceeds derived from the sale of Units offered hereby,
including any Units purchased pursuant to the Underwriter's overallotment
option.
All of the Company's current stockholders, officers and directors have
agreed not to sell, assign, transfer or otherwise dispose publicly of any of
their shares of Common Stock for a period of 13 months after the date of this
Prospectus without the prior written consent of the Underwriter.
The Underwriter has the right to designate one individual for nomination to
the Company's Board of Directors for a period of five years after the completion
of the Offering, although it has not yet selected any such designee. Such
designee may be a director, officer, partner, employee or affiliate of the
Underwriter.
During the five-year period after the date of this Prospectus, in the event
the Underwriter originates a financing or a merger, acquisition or transaction
to which the Company is a party, the Underwriter will be entitled to receive a
finder's fee in consideration for origination of such transaction. The fee is
based on a percentage of the consideration paid in the transaction ranging from
7% of the first $1,000,000 to 2 1/2% of any consideration in excess of
$9,000,000.
The Company and the Underwriter have entered into a consulting agreement
pursuant to which the Underwriter will act as investment banker for the Company
for a period of two years for a fee of $35,000 per year commencing on the
closing of this Offering.
The Company has agreed not to solicit Warrant exercises other than through
the Underwriter, unless the Underwriter declines to make such solicitation. Upon
any exercise of the Warrants after the first anniversary of the date of this
Prospectus, the Company will pay the Underwriter a fee of 5% of the aggregate
exercise price of the Warrants, if (i) the market price of the Company's Common
Stock on the date the Warrants are exercised is greater than the then exercise
price of the Warrants; (ii) the exercise of the Warrants was solicited by a
member of the NASD; (iii) the warrant holder designates in writing that the
exercise of the Warrant was solicited by a member of the NASD and designates in
writing the broker-dealer to receive compensation for such exercise; (iv) the
Warrants are not held in a discretionary account; (v) disclosure of compensation
arrangements was made both at the time of the Offering and at the time of
exercise of the Warrants; and (vi) the solicitation of exercise of the Warrant
was not in violation of Rule 10b-6 promulgated under the Exchange Act.
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Rule 10b-6 may prohibit Blair & Co. from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Rule 10b-6 may provide) prior
to any solicitation by the Underwriter of the exercise of Warrants until the
later of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriter may have to receive a fee
for the exercise of Warrants following such solicitation. As a result, Blair &
Co. may be unable to provide a market for the Company's securities during
certain periods while the Warrants are exercisable.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Unit Purchase Options to purchase up to 150,000
Units, substantially identical to the Units being offered hereby, except that
the Class A Warrants and Class B Warrants included therein are each subject to
redemption by the Company, in accordance with the terms of the Warrant
Agreement, at any time after the Unit Purchase Options have been exercised and
the underlying warrants are outstanding. The Unit Purchase Options will be
exercisable during the four-year period commencing one year after the date of
this Prospectus at an exercise price of $ per Unit, subject to adjustment in
certain events to protect against dilution, and are not transferable for a
period of one year after the date of this Prospectus except to officers of the
Underwriter or to members of the selling group. The Company has agreed to
register during the four-year period commencing one year after the date of this
Prospectus, on two separate occasions, the securities issuable upon exercise
thereof under the Securities Act, the initial such registration to be at the
Company's expense and the second at the expense of the holders. The Unit
Purchase Option includes a provision permitting the holders to elect a cashless
exercise. The Company has also granted certain "piggy-back" registration rights
to holders of the Unit Purchase Option.
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the public offering price of the Units
offered hereby and the terms of the Warrants have been determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth or other established criteria of value. Among
the factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of and the prospects for the
industry in which the Company competes, the present state of the Company's
development and its future prospects, an assessment of the Company's management
and the Company's capital structure.
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts to exceed 5% of the total number of the Units offered
hereby.
The Underwriter acted as Placement Agent for the Bridge Financing in April
and May 1996 for which it received a Placement Agent fee of $199,500 and a
non-accountable expense allowance of $59,850.
In September 1993, the Underwriter loaned $30,000 to the Company and in
March 1994, the Underwriter loaned an additional $100,000 to the Company, each
of which loans bore interest at 10% per annum. The principal amount of all of
such indebtedness was repaid in April 1996 and the accrued interest of
approximately $30,000 will be paid out of the proceeds of this Offering.
In connection with the March 1994 loan, the Company granted to the
Underwriter warrants to purchase 36,897 shares of Common Stock of the Company.
Each such warrant entitles the Underwriter to purchase one share of Common Stock
at an exercise price of $2.7102 at any time until 5:00 p.m., March 25, 1999,
subject to adjustment in certain events to protect against dilution. The
Underwriter has certain demand and piggyback registration rights with respect to
such warrants. See "Description of Securities -- Registration Rights."
The Commission is conducting an investigation concerning various business
activities of the Underwriter and Blair & Co., a selling group member which will
distribute substantially all of the Units offered hereby. The investigation
appears to be broad in scope, involving numerous aspects of the Underwriter's
and Blair & Co.'s compliance with the Federal securities laws and compliance
with the Federal securities laws by issuers who securities were underwritten by
the Underwriter or Blair & Co., or in which the Underwriter or Blair & Co. made
over-the-counter markets, persons associated with the Underwriter or Blair &
Co., such issuers and other persons. The Company has been advised by the
Underwriter that the investigation has been ongoing since at least 1989 and that
it is cooperating with the investigation. The Underwriter cannot predict whether
this investigation will ever result in any type of formal enforcement action
against the Underwriter or Blair & Co., or, if so, whether any such action might
have an adverse effect on the Underwriter or the securities offered hereby. The
Company has been advised that Blair & Co. will make a market in the securities
following this offering. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could affect the liquidity or price of
such securities.
44
<PAGE>
VentureTek L.P., a limited partnership whose limited partners consist of
the children and grandchildren of J. Morton Davis, the sole stockholder of the
Underwriter, beneficially owns approximately 26.2% of the outstanding shares of
Common Stock before this Offering. Substantially all of the limited partners of
VentureTek are also the principal stockholders of Blair & Co., a selling group
member which will distribute substantially all of the Units offered hereby. In
addition, the Underwriter owns warrants to purchase 36,897 shares of Common
Stock of the Company. As a result of such stockholdings, the Underwriter may be
deemed to be an "affiliate" of the Company by the NASD. Accordingly, this
Offering is being made pursuant to Schedule E to the NASD ByLaws. Under Schedule
E to the By-Laws of the NASD, when a member of the NASD, such as the
Underwriter, participates in the public distribution of securities of a company
in which it or its affiliates owns 10% or more of the outstanding voting
securities, and where there is no "bona fide independent market" for such
securities, the public offering price can be no higher than that recommended by
a qualified independent underwriter. The independent investment banking firm of
RAS Securities Corp. ("RAS") has recommended a maximum initial public offering
price of $5.00 per Unit. Pursuant to Schedule E to the NASD By-Laws, the Units
are being offered at a price no greater than the maximum recommended by RAS,
which firm has informed the Company that it has performed "due diligence" with
respect to information contained in the Registration Statement of which this
prospectus is a part. The NASD and the Commission have indicated that, in their
view, a qualified independent underwriter, such as RAS, may be deemed to be an
underwriter, as the term is defined in the Securities Act. The Underwriter will
pay a fee of $50,000 to RAS for its services in connection with recommending the
maximum initial public offering price of the Units in this Offering. The Company
has agreed to indemnify RAS against certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York. Certain
legal matters will be passed upon for the Underwriter by Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, New York, New York. The statements relating to
patents and proprietary rights, including statements in the sections entitled
"Risk Factors -- Dependence on Patents and Proprietary Technology" and "Business
- -- Patents and Proprietary Rights," have been passed upon by William R. Hinds,
Esq., special patent counsel. Bachner, Tally, Polevoy & Misher LLP represents
the Underwriter in other matters.
EXPERTS
The consolidated financial statements of Laminating Technologies, Inc. as
of March 31, 1996 and for each of the fiscal years ended March 31, 1996 and
March 31, 1995 and the period from April 19, 1993 (commencement of operations)
to March 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Richard A. Eisner & Company, LLP, independent auditors, as set
forth in their report thereon (which contains an explanatory paragraph with
respect to the substantial doubt raised about the Company's ability to continue
as a going concern, as discussed in Note A to the Financial Statements)
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company is not currently a reporting company under the Exchange Act.
The Company has filed a Registration Statement on Form SB-2 under the Securities
Act with the Commission in Washington, D.C. with respect to the Units offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
Units offered hereby, reference is hereby made to the Registration Statement and
such exhibits, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at 500 West Madison (Suite 1400), Chicago, Illinois
60661. Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
Following the Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish to its
stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
45
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
------------
I N D E X
<TABLE>
<CAPTION>
PAGE
NUMBER
-------
<S> <C>
REPORT OF INDEPENDENT AUDITORS....................................................... F-2
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1996 AND
MARCH 31, 1996 (PRO FORMA)......................................................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31,
1995, THE YEAR ENDED MARCH 31, 1996 AND THE PERIOD FROM APRIL 19,
1993 (COMMENCEMENT OF
OPERATIONS) THROUGH MARCH 31, 1996 ................................................ F-4
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY FOR THE PERIOD
FROM APRIL 19, 1993 (COMMENCEMENT OF OPERATIONS) THROUGH MARCH 31,
1994, THE YEAR ENDED MARCH 31, 1995, AND THE YEAR ENDED MARCH 31,
1996 AND
MARCH 31, 1996 (PRO FORMA)......................................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED MARCH 31,
1995, THE YEAR ENDED MARCH 31, 1996, THE PERIOD FROM APRIL 19, 1993
(COMMENCEMENT OF
OPERATIONS) THROUGH MARCH 31, 1996 ................................................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Laminating Technologies, Inc. and subsidiary
Atlanta, Georgia
We have audited the accompanying consolidated balance sheet of Laminating
Technologies, Inc. and subsidiary (a development stage company) as at March 31,
1996, and the related consolidated statements of operations, changes in capital
deficiency and cash flows for each of the years in the two year period ended
March 31, 1996 and for the period from April 19, 1993 (commencement of
operations) through March 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 enumerated above present fairly,
in all material respects, the consolidated financial position of Laminating
Technologies, Inc. and subsidiary at March 31, 1996 and the consolidated results
of their operations, and their consolidated cash flows for each of the years in
the two year period ended March 31, 1996 and for the period from April 19, 1993
through March 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
A, to the financial statements, the Company has sustained recurring losses from
operations, has a net capital deficiency and has a working capital deficiency
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
New York, New York
May 17, 1996
F-2
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, March 31,
1996 1996
---------- -----------
(Pro Forma)
(Note L)
A S S E T S
<S> <C> <C>
Current assets:
Cash ................................................................................... $ 1,347 $ 615,039
Accounts receivable (net of allowance for doubtful
accounts of $20,000) ................................................................. 9,321 9,321
Other current assets ................................................................... 3,000 3,000
Deferred financing cost ................................................................ -- 314,350
----------- -----------
Total current assets ............................................................. 13,668 941,710
Fixed assets, net (Notes B[2] and C) ..................................................... 6,169 6,169
Organization costs (net of accumulated amortization of $2,768) ........................... 692 692
----------- -----------
T O T A L ........................................................................ $ 20,529 $ 948,571
=========== ===========
L I A B I L I T I E S
Current liabilities:
Notes payable-- current ................................................................ $ 1,047,842 $ 71,592
Notes payable-- stockholders ........................................................... 350,000 --
Due to stockholders .................................................................... 31,036 11,485
Accounts payable ....................................................................... 315,156 264,156
Payroll taxes payable .................................................................. 89,779 51,023
Accrued expenses ....................................................................... 182,798 74,596
Accrued interest ....................................................................... 86,782 18,357
----------- -----------
Total current liabilities ........................................................ 2,103,393 491,209
Notes payable, less current maturities ................................................... 5,000 --
Due to related parties (Note J) .......................................................... 428,346 --
Bridge notes payable (net of $665,000 discount) .......................................... -- 1,330,000
----------- -----------
Total liabilities ................................................................ 2,536,739 1,821,209
----------- -----------
Commitments and other matters (Note H)
CAPITAL DEFICIENCY
(Note F)
Series A convertible preferred stock, par value $.01, 2,500,000 shares
authorized, 250,000 shares (pro forma 0 shares)
issued and outstanding (liquidation value of $625,000) ................................. 2,500 --
Common stock, par value $.01, 10,000,000 shares authorized,
679,764 shares (pro forma 1,230,000 shares) issued and outstanding ..................... 6,797 12,300
Additional paid-in capital ............................................................... 1,850,466 3,503,742
Deficit accumulated during the development stage ......................................... (4,375,973) (4,388,680)
----------- -----------
Total capital deficiency ......................................................... (2,516,210) (872,638)
----------- -----------
T O T A L ........................................................................ $ 20,529 $ 948,571
=========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report and to the
accompanying notes to consolidated financial statements.
F-3
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
April 19, 1993
(Commencement
Year Ended March 31, of Operations)
Through
1995 1996 March 31, 1996
----------- ----------- --------------
<S> <C> <C> <C>
Net sales ........................................................ $ 86,486 $ 119,412 $ 341,785
Cost of goods sold ............................................... 300,077 277,454 1,015,773
----------- ----------- -----------
Gross (loss) ..................................................... (213,591) (158,042) (673,988)
Selling, general and administrative expenses ..................... 1,223,044 1,042,290 3,303,045
----------- ----------- -----------
Operating (loss) ................................................. (1,436,635) (1,200,332) (3,977,033)
Interest expense, net ............................................ 44,327 100,874 166,350
Cancellation of debt ............................................. (121,738) (121,738)
Loss on abandonment of fixed assets .............................. 49,099 49,277 98,376
----------- ----------- -----------
NET (LOSS) ....................................................... (1,530,061) (1,228,745) (4,120,021)
Cumulative dividend on preferred stock ........................... 50,000 50,000 125,000
----------- ----------- -----------
NET (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................................... $(1,580,061) $(1,278,745) $(4,245,021)
=========== =========== ===========
Net (loss) per share of common stock ............................. $ (2.70) $ (2.02)
=========== ===========
Weighted average number of common shares
outstanding .................................................... 586,269 632,719
=========== ===========
Supplementary pro forma:
Net (loss) per share of common stock ........................... $ (1.28) $ (1.04)
=========== ===========
Weighted average number of common shares
outstanding .................................................. 1,230,000 1,230,000
=========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report and to the
accompanying notes to consolidated financial statements.
F-4
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY
(Note F)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
Par Value $.01 Par Value $.01 Stock Additional
------------------ ------------------- Subscription Paid-in Treasury
Shares Amount Shares Amount Receivable Capital Stock
------ --------- ------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in connection with the
acquisition of the assets of Cool-R Enterprises,
Inc. in April 1993 (Note D) .................... 168,114 $ 1,681 $ (1,681)
Common stock issued in connection with
obtaining rights to developed technology
in April 1993 (Note D) ......................... 150,126 1,501 (1,501)
Issuance of common stock for cash and
settlement of debt in April 1993 (Note D)....... 235,221 2,352 635,148
Cash contributed by stockholder .................. 12,500
Issuance of convertible preferred stock for cash
in September 1993 .............................. 250,000 $ 2,500 497,500
Common stock issued to an officer in connection
with the signing of an employment agreement
in October 1993 ................................ 46,122 461 $ (1,250) 124,539
Net (loss) for the period April 19, 1993
(commencement of operations) through
March 31, 1994..................................
------- --------- --------- --------- --------- ---------- ---------
Balance-- March 31, 1994 ......................... 250,000 2,500 599,583 5,995 (1,250) 1,266,505
Issuance of common stock for cash in
May 1994 ....................................... 3,690 37 19,963
Common stock issued as consideration for
compensation in August 1994 .................... 50,662 507 136,799
Services contributed by stockholder .............. 30,000
Net (loss) for the year ..........................
------- --------- --------- --------- --------- ---------- ---------
Balance-- March 31, 1995 ......................... 250,000 2,500 653,935 6,539 (1,250) 1,453,267
Issuance of common stock as settlement of
notes payable to a stockholder in June 1995..... 33,208 332 89,668
Receipt of stock subscription receivable ......... 1,250
Common stock purchased for treasury .............. (126,114) $(150,000)
Common stock issued from treasury ................ 126,114 150,000
Common stock contributed to treasury and
cancelled (Note D).............................. (7,379) (74) 74
Contribution to capital (Note J) ................. 307,457
Net (loss) for the year ..........................
------- --------- --------- --------- --------- ---------- ---------
Balance-- March 31, 1996 ......................... 250,000 2,500 679,764 6,797 -0- 1,850,466 -0-
Pro forma adjustments (Note L):
Warrants issued in connection with Bridge
Notes (Note L).................................. 665,000
Conversion of debt to common stock ............... 361,061 3,611 974,961
Conversion of preferred stock to common stock..... (250,000) (2,500) 184,486 1,845 655
Common stock issued as consideration for
compensation ................................... 4,689 47 12,660
------- --------- --------- --------- --------- --------- ---------
-0- $ -0- 1,230,000 $ 12,300 $ -0- $3,503,742 $ -0-
======= ========= ========= ========= ========= ========== =========
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
----------- -----------
<S> <C> <C>
Common stock issued in connection with the
acquisition of the assets of Cool-R Enterprises,
Inc. in April 1993 at (Note D) ................. $ (255,952) $ (255,952)
Common stock issued in connection with
obtaining rights to developed technology
in April 1993 (Note D) ......................... -0-
Issuance of common stock for cash and
settlement of debt in April 1993 (Note D)....... 637,500
Cash contributed by stockholder .................. 12,500
Issuance of convertible preferred stock for cash
in September 1993 .............................. 500,000
Common stock issued to an officer in connection
with the signing of an employment agreement
in October 1993 ................................ 123,750
Net (loss) for the period April 19, 1993
(commencement of operations) through
March 31, 1994.................................. (1,361,215) (1,361,215)
----------- -----------
Balance-- March 31, 1994 ......................... (1,617,167) (343,417)
Issuance of common stock for cash in
May 1994 ...................................... 20,000
Common stock issued as consideration for
compensation in August 1994 .................... 137,306
Services contributed by stockholder .............. 30,000
Net (loss) for the year .......................... (1,530,061) (1,530,061)
----------- -----------
Balance-- March 31, 1995 ......................... (3,147,228) (1,686,172)
Issuance of common stock as settlement of
notes payable to a stockholder in June 1995..... 90,000
Receipt of stock subscription receivable ......... 1,250
Common stock purchased for treasury .............. (150,000)
Common stock issued from treasury ................ 150,000
Common stock contributed to treasury and
cancelled (Note D).............................. -0-
Contribution to capital (Note J) ................. 307,457
Net (loss) for the year .......................... (1,228,745) (1,228,745)
----------- -----------
Balance-- March 31, 1996 ......................... (4,375,973) (2,516,210)
Pro forma adjustments (Note L):
Warrants issued in connection with Bridge
Notes (Note L).................................. 665,000
Conversion of debt to common stock ............... 978,572
Conversion of preferred stock to common stock..... -0-
Common stock issued as consideration for
compensation ................................... (12,707) -0-
----------- -----------
$(4,388,680) $ (872,638)
=========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report and to the
accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
April 19,1993
(Commencement
Year Ended March 31, of Operations)
------------------------------ Through
1995 1996 March 31, 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .............................................................. $(1,530,061) $(1,228,745) $(4,120,021)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts ................................... -- 7,000 20,000
Depreciation and amortization ..................................... 52,566 34,158 148,145
Compensation recorded for fair value of common
shares issued in excess of price paid by employee ............... 137,306 261,056
Services contributed by stockholder ............................... 30,000 30,000
Noncash finance charge ............................................ 19,551 19,551
Loss on disposal of fixed assets .................................. 49,099 49,277 122,375
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ...................... 2,215 4,877 (16,891)
(Increase) decrease in inventories .............................. (24,657) 70,454 59,701
(Increase) decrease in other assets ............................. (4,602) 17,998 13,017
Increase (decrease) in due to related party ..................... 718,753 71,329 790,082
Increase in accounts payable and accrued expenses ............... 170,639 228,761 545,810
----------- ----------- -----------
Net cash (used in) operating activities ..................... (398,742) (725,340) (2,127,175)
----------- ----------- -----------
Cash flows from investing activities:
Acquisitions of fixed assets .......................................... (13,364) (14,733) (234,305)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of notes payable ............................................. 400,000 459,250 1,057,750
(Repayment of) notes payable .......................................... (24,498) (52,118) (231,291)
Proceeds of notes payable-- stockholders .............................. 38,700 350,000 458,700
(Repayment of) notes payable-- stockholders ........................... (10,705) (7,995) (18,700)
Advances from stockholders ............................................ 2,000 9,485 11,485
(Repayment of) capital leases payable ................................. (13,318) (20,288) (41,367)
Proceeds from sale of common stock .................................... 20,000 612,500
Proceeds from sale of preferred stock ................................. 500,000
Proceeds from stock subscription receivable ........................... 1,250 1,250
Cash contributed by stockholder ....................................... 12,500
----------- ----------- -----------
Net cash provided by financing activities ................... 412,179 739,584 2,362,827
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH ......................................... 73 (489) 1,347
Cash-- beginning of period .............................................. 1,763 1,836 -0-
----------- ----------- -----------
CASH-- END OF PERIOD .................................................... $ 1,836 $ 1,347 $ 1,347
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .............................. $ 31,190 $ 28,206 $ 80,911
Noncash transactions:
Common stock subscribed ............................................. 1,250
Common stock issued for developed technology ........................ 406,875
Common stock issued as settlement of note payable
to stockholder .................................................... 90,000 135,000
Due to stockholder for shares purchased for treasury ................ 19,551 19,551
Cancellation of debt obligation in exchange for fixed assets ............ 54,279 54,279
Settlement of related party debt by capital contribution ................ 307,457 307,457
Acquisition of assets and assumption of liabilities of
Cool-R Enterprises, Inc. (Note D).
</TABLE>
Attention is directed to the foregoing accountants' report and to the
accompanying notes to consolidated financial statements.
F-6
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A) -- The Company and Basis of Presentation:
Laminating Technologies, Inc. and subsidiary, (the "Company"), formerly New
Cooler Corp., is a development stage company that markets and sells packaging
and display products, that are designed to retain the temperature of their
contents. The Company was incorporated on March 29, 1993 and in April 1993
completed three significant transactions in conjunction with commencing
operations, including the acquisition of substantially all of the assets and
assumption of substantially all of the liabilities of Cool-R Enterprises, Inc.
("Cool-R"), obtaining the rights to developed technology and selling shares of
the Company's common stock to provide working capital (see Note D).
As reflected in the accompanying financial statements, the Company has
incurred losses from operations since inception, resulting in a substantial
working capital deficiency and capital deficiency. While the Company has
realized proceeds of approximately $1,185,000 from a bridge financing and has
converted $973,135 of debt, interest accrued thereon and $428,346 due to a
related party to equity (Notes E and L), management's business plan will require
financing and it is planning an initial public offering of its common stock for
which it has a letter of intent from an underwriter (see Note G). There is no
assurance that the proposed public offering will be successful or that any other
financing will be available. These factors raise substantial doubt as to the
ability of the Company to continue as a going concern. The financial statements
do not include any adjustment that might be necessary if the Company is unable
to continue as a going concern.
In April 1996, the Board of Directors and stockholders approved a reverse
split of approximately 2.71022 to 1. Such split has been retroactively reflected
in the accompanying financial statements.
(NOTE B) -- Summary of Significant Accounting Policies:
[1] Principles of consolidation:
The accompanying financial statements have been prepared on a consolidated
basis. They include the accounts of the Company and its wholly-owned subsidiary,
Revenue Process Development, Inc. All intercompany transactions and balances
have been eliminated in consolidation.
[2] Fixed assets:
Machinery, furniture and equipment, including property under capital lease
arrangements, are carried at cost. Depreciation is provided using the
straight-line method over the useful lives of the assets.
[3] Inventory:
Inventory is recorded at lower of cost or market.
[4] Cost of goods sold:
Cost of goods sold includes the cost of items manufactured as well as the
cost of samples.
[5] Loss per share of common stock:
Net loss per share of common stock is based on the weighted average number
of shares outstanding during each period. Supplementary pro forma loss per share
gives effect to the conversions of debt to equity and preferred stock into
common stock (see Note L).
[6] Income taxes:
The Company has applied to the accompanying financial statements provisions
required by accounting standards under which deferred income taxes are provided
for temporary differences between financial statement and taxable income or
loss.
[7] Research and development:
The Company expenses costs of research and development activities as
incurred.
F-7
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE B) -- Summary of Significant Accounting Policies: (continued)
[8] 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[9] Major customers and concentration of credit risk:
As a result of the Company's limited sales volume, the percentage of net
sales and accounts receivable balances outstanding relating to any one customer
is significant.
[10] Stock based compensation:
The Company accounts for employee stock based compensation including stock
options under the basis of Accounting Principles Board Opinion No. 25 and
expects to do so in the future. The requirements of Financial Accounting
Standards Board No. 123 on stock based compensation will require additional
disclosures commencing in 1997.
[11] Fair Value of Financial Instruments:
The carrying value of cash, accounts receivables and accounts payables
approximates the fair value because of the short term maturity of those
instruments.
For other debt instruments, the carrying value approximates the fair value
in consideration of the subsequent and pending financings.
(NOTE C) -- Fixed Assets:
Fixed assets at March 31, 1996 are summarized as follows:
Machinery and equipment.................................... $ 8,518
Furniture and fixtures .................................... 2,181
-------
T o t a l ............................................. 10,699
Less accumulated depreciation ............................. (4,530)
-------
B a l a n c e ......................................... $ 6,169
=======
At March 31, 1996, the machinery and equipment listed above was held
under capital lease.
(NOTE D) -- Formation of the Company:
In April 1993 the Company completed three significant transactions in
conjunction with commencing operations. These include the acquisition of
substantially all of the assets and assumption of substantially all of the
liabilities of Cool-R, obtaining the rights to developed technology and selling
shares of the Company's common stock to provide working capital.
The Company acquired substantially all of the assets and assumed
substantially all of the liabilities of Cool-R for 168,114 shares of its common
stock. The owners of Cool-R, the predecessor entity, became the principal owners
of the Company. Based on the continuity of the acquired entity and common
ownership after this transaction, the
F-8
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE D) -- Formation of the Company: (continued)
combination was recorded at Cool-R's historical cost basis. In connection
therewith the following recorded account balances were recorded:
Accounts receivable............................................ $ 12,430
Inventory ..................................................... 59,701
Fixed assets .................................................. 86,762
Other assets .................................................. 18,093
Accounts payable .............................................. (46,908)
Accrued expenses .............................................. (81,797)
Notes payable ................................................. (219,900)
Notes payable - stockholder.................................... (45,000)
Capital leases payable ........................................ (39,333)
Deficit ....................................................... 255,625
The Company also obtained the rights to developed technology from a
stockholder of Cool-R and the Company for 150,126 shares of its common stock. In
connection with this transaction, the Company treated the developed technology
obtained at the stockholder's historical cost basis which was $0. Subsequently,
7,379 of these shares were contributed to treasury and cancelled by the Company.
Additionally, the Company issued 235,221 shares of its common stock to two
investors for an aggregate amount of $637,500. In connection with the issuance
of stock the Company retired $45,000 of debt due to one of the investors which
is reflected in the accompanying schedule of assets purchased and liabilities
assumed as notes payable -- stockholder. The noteholder owned stock in both
Cool-R and Laminating Technologies, Inc. Net proceeds from this transaction
amounted to $592,500.
(NOTE E) -- Notes Payable and Capital Lease Obligations:
Notes payable at March 31, 1996 are summarized as follows:
Notes payable to bank due April 1996, interest
at prime rate plus 2%, secured by the
Company's inventory, fixed assets and accounts
receivable and the personal guaranty of a
stockholder ....................................... $ 220,000
Note payable to underwriter due on
demand, interest at 10%, unsecured ................ 130,000
Notes payable to third parties past due,
interest at 10%, unsecured......................... 626,250
Notes payable to third party past due,
interest at 10%, unsecured ........................ 40,109
Capital lease obligations ........................... 6,483
Other notes payable ................................. 30,000
----------
1,052,842
Less current portion ................................ 1,047,842
----------
$ 5,000
==========
Notes payable to stockholders at March 31, 1996 are summarized as follows:
Note payable past due, interest at
10% unsecured...................................... $ 350,000
==========
See Note L with respect to the conversion of $976,250 of the above debt
(plus $63,539 of interest accrued thereon and $428,346 due to a related party)
to Bridge Notes ($495,000) and equity ($973,135). Additionally, the Company
repaid the notes due to the bank and underwriter, including interest thereon,
from the proceeds of the Bridge financing.
F-9
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE F) -- Capital Deficiency:
[1] Common stock:
Upon incorporation in March 1993 the Company authorized 10,000,000 shares
of its $.01 par value common stock. The shares of common stock have unlimited
voting rights.
[2] Convertible preferred stock:
In September 1993 the Company authorized and issued 250,000 shares of its
$.01 par value Series A convertible preferred stock (the "Preferred"). In August
1994 the Company increased the number of authorized shares of Preferred to
2,500,000.
The Preferred has no voting rights. The holders of the Preferred are
entitled to cumulative quarterly dividends of $.05 per share which are due upon
the redemption of the shares. The liquidation value of each share of Preferred
is equal to $2.00 plus cumulative dividends (including dividends accrued from
the previous quarterly dividend). The Preferred will have a preference on
liquidation equal to the liquidation value.
Each share of the Preferred will be convertible into two shares of common
stock (subject to anti-dilution protection and stock splits). The Preferred will
only be convertible into common stock in connection with a registered public
offering, the sale of the Company or if the Company declares any dividend or
other distribution to the holders of all of the issued and outstanding shares of
common stock.
Accordingly, should the public offering be consummated, all 250,000 shares
of preferred stock will be converted to 184,486 shares of common stock.
[3] Warrants:
The Company has outstanding warrants to purchase 36,897 shares of its
common stock which are held by the underwriter of the proposed initial public
offering who assisted in raising capital for the Company. The options, which
were issued on March 25, 1994, have an exercise price of $2.71 and are
exercisable through March 25, 1999.
(NOTE G) -- Proposed Public Offering:
The Company has signed a letter of intent with an underwriter with respect
to a proposed public offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection therewith the Company
anticipates incurring substantial expenses which, if the offering is not
consummated, will be charged to expense.
The Company expects to offer 1,500,000 units at $5.00 per unit. Each unit
consists of one share of common stock, one redeemable Class A warrant and one
redeemable Class B warrant. Each Class A warrant will entitle the holder to
purchase one share of Class A common stock and one Class B warrant at an
exercise price of $6.50. Each Class B warrant will entitle the holder to
purchase one share of Class A common stock at an exercise price of $8.75.
In connection with such offering, the underwriter has required, as a
condition of the offering, that an aggregate of 410,000 shares of the Company's
common stock be designated as forfeitable shares ("forfeitable shares") and
placed in escrow. The forfeitable shares are not assignable nor transferable
until certain earnings or market criteria have been met. If the conditions are
not met by March 31, 2000, all shares remaining in escrow will be returned to
the Company as treasury shares for cancellation thereof as a contribution to
capital. The forfeitable shares will be released, to the stockholders, in the
event specified levels of pretax income of the Company for the years ending
December 31, 1997 to December 31, 1999 are achieved or the market price of the
Company's common stock attains specified targets during the 36 month period
commencing on the effective date of the proposed public offering. There will be
a charge to earnings for the fair value of these shares upon their release. Such
charge will not be deductible for income tax purposes.
Additionally, the Company has granted an option to the underwriter,
exercisable over a period of four years commencing one year from the date of the
offering, to purchase up to 150,000 units at 120% of the initial public offering
price.
F-10
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE H) -- Commitments and Other Matters:
[1] Payroll taxes:
The Company has accepted an Offer in Compromise (the "Offer") from the
Internal Revenue Service with respect to withholding and social security taxes
not remitted for the three quarters ended September 30, 1994. The amount due
aggregated approximately $98,000, including penalties and interest of
approximately $30,000. Under the terms of the Offer, interest and penalties
would be waived upon payment of the full amount of taxes due. Accordingly,
$68,000 was paid to the Internal Revenue Service to satisfy the obligation
including approximately $38,000 paid with proceeds of the Bridge Financing.
Additionally, the Company received a Notice of Proposed Assessment (the
"Notice") from the Georgia Department of Revenue in August 1995. The Notice
stipulates an amount due of approximately $15,000 plus interest and penalties
for withholding taxes not remitted for the period January 1994 through August
1994. The Company paid the amount during the year ended March 31, 1996.
[2] Employment contract:
The Company is negotiating an employment contract with its Chief Executive
Officer. The Officer is also a member of the Board of Directors. The contract is
expected to provide for a multi-year term and for an annual salary of $144,000.
In April 1996 two principal stockholders of the Company agreed to grant to
an officer options to purchase an aggregate of 116,346 of their shares of common
stock at an exercise price of $1 per share. Such options, which are fully
vested, contain a predefined schedule for their exercise. In connection
therewith, compensation expense will be recognized, in an amount equal to the
difference between the exercise price and the fair value of the shares, on the
date of grant.
[3] Consulting agreements:
The Company has entered into one year agreements with two of its
stockholders to provide management and consulting services for aggregate fees of
$84,000. Additionally, one agreement, which is with the founder of the Company,
provides for a bonus of $60,000 upon securing a patent on the developed
technology and an additional $40,000 upon the stockholder securing multiple
patents.
Additionally, the Company has entered into a two year consulting agreement
with the underwriter to provide investment banking services. The agreement
commences on the closing of the public offering and provides for an annual fee
of $35,000.
[4] Contingency:
A predecessor to the Company may have entered into license agreements
regarding the developed technology owned by the Company. Even though no executed
agreement has been produced by the Company or other parties, there can be no
assurance that such license agreements do not exist or as to the terms of any
such licenses. In the event that any previous license agreements exist, they may
adversely affect the Company's ability to utilize its technology or enter into
additional licenses in the future.
(NOTE I) -- Income Taxes:
At March 31, 1996 the Company had available net operating loss
carryforwards to reduce future taxable income of approximately $4,100,000. The
net operating loss carryforwards expire in various amounts through 2011. The
Company's ability to utilize its net operating loss carryforwards may be subject
to annual limitations pursuant to Section 382 of the Internal Revenue Code if
future changes in ownership occur.
The Company has not filed any income tax returns since its inception.
F-11
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE I) -- Income Taxes: (continued)
Accounting standards require the recognition of deferred tax assets and
liabilities for both the expected future tax impact of differences between the
financial statements and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from net operating loss carryforwards.
Additionally, consideration of a valuation allowance is required to reflect the
likelihood of realization of deferred tax assets. At March 31, 1996 the Company
has a deferred tax asset of approximately $1,650,000 representing the benefits
of its net operating loss carryforward which has been fully reserved by a
valuation allowance since realization of its benefit is uncertain. The
difference between the combined federal (34%) and state (6%) statutory tax rate
of 40% and the Company's effective tax rate of 0% is due to the increase in the
valuation allowance of approximately $612,000 and $492,000 or the years ended
March 31, 1995 and March 31, 1996, respectively, and $1,650,000 for the period
from commencement of operations through March 31, 1996 and permanent differences
resulting from nondeductible amortization, the tax effect of which was
approximately $45,000 for the years ended March 31, 1995 and March 31, 1996, and
$135,000 for the period from commencement of operations through March 31, 1996.
(NOTE J) -- Related Party Transactions:
TransMillenial Resource Corporation ("TMR") provided management services to
the Company. Management fees incurred for the year ended March 31, 1995 and
March 31, 1996 were $175,000 and $45,000, respectively.
In addition, TMR advanced funds to the Company and paid certain of its
obligations, resulting in a balance of $735,803 due to TMR. TMR agreed to
contribute $307,457 of such debt to the capital of the Company and to convert
the remaining balance at March 31, 1996 of $428,346 into 158,048 shares of the
Company's common stock. The conversion is expected to be completed prior to the
proposed initial public offering. Two of the Company's former officers are
shareholders of TMR.
The Company was located in office space which was leased by TMR. Rent on
such space is included in the indebtedness described above.
In September 1994, the Company entered into an agreement with SourceOne,
Inc., an employment agency which is a wholly owned subsidiary of TMR. All
employees of the Company became employees of SourceOne, which was contracted to
provide such employees to the Company. The agreement has been terminated. Fees
incurred under this agreement are included in the indebtedness described above.
Also in September 1994, the Company entered into an agreement with Revenue
Process Development, Inc. ("RPD"), a marketing firm. TMR owned 100% of RPD. RPD
provides marketing, billing and collection services for the Company. In July
1995, the Company purchased all the outstanding stock of RPD from TMR for
$2,000. The acquisition was accounted for as a purchase (see Note B[1]).
In June 1995 the Company entered into an agreement with one of its
stockholders to repurchase 126,114 shares of common stock for $150,000. The
shares were simultaneously sold for approximately $85,000 to a third party. The
Company sold the shares from treasury at a discount to induce the third party to
loan the Company $250,000. As a result the Company recorded a deferred financing
cost of $65,000, which was amortized over the term of the lend, which was due in
December 1995. Accordingly, the full amount was charged to earnings in the year
ended March 31, 1996.
(NOTE K) -- Stock Option Plan:
In 1996, the Board of Directors adopted and the Company's stockholders
approved the Amended and Restated 1996 Stock Option Plan (the "Plan"). Pursuant
to the Plan, as amended, incentive stock options and nonqualified stock options
may be granted to purchase up to 250,000 shares of the Company's common stock
through March 2006. Incentive stock options are to be granted at a price not
less than the fair market value of the Company's common stock at the date of
grant. If a stockholder owns 10% or more of the Company's outstanding stock, the
exercise price may not be less than 110% of the fair market value of the
Company's common stock at the date of grant and its term must not exceed five
years. Options may be granted to employees, consultants, and directors of
F-12
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE K) -- Stock Option Plan: (continued)
the Company and must be exercised within a ten-year period after the date
granted. Nonqualified stock options are exercised at a price to be determined by
the Board of Directors for a period of ten years after the grant date. To date,
120,000 options have been granted at an exercise price of $4.00 per share.
Additionally, the provisions of the Plan provide for the automatic grant of
nonqualified stock options to purchase shares of common stock ("Director
Options") to directors of the Company who are not employees or principal
stockholders of the Company ("Eligible Directors"). Eligible Directors of the
Company will be granted a Director Option to purchase 10,000 shares of common
stock on the date of this prospectus at a per share exercise price equal to the
initial public offering price of the units. Future Eligible Directors will be
granted a Director Option to purchase 10,000 shares of common stock on the date
of election or appointment. Further, commencing on the day immediately following
the date of the annual meeting of stockholders for the Company's fiscal year
ending March 31, 1997, each Eligible Director, other than directors who received
an Initial Director Option since the last annual meeting, will be granted a
Director Option to purchase 1,000 shares of common stock ("Automatic Grant") on
the day immediately following the date of each annual meeting of stockholders,
as long as such director is a member of the Board of Directors. The exercise
price for each share subject to a Director Option shall be equal to the fair
market value of the common stock on the date of grant, except for directors who
receive incentive options and who own more than 10% of the voting power, in
which case the exercise price shall be not less than 110% of the fair market
value on the date of grant. Director Options are exercisable in four equal
annual installments, commencing six months from the date of grant. Director
Options will expire the earlier of 10 years after the date of grant or 90 days
after the termination of the director's service on the Board of Directors.
(NOTE L) -- Pro Forma Balance Sheet:
During April and May 1996, the Company completed two private placements for
an aggregate of $1,500,000 (net proceeds of approximately $1,185,000) principal
amount of Bridge Notes bearing interest at an annual rate of 10% and warrants to
purchase an aggregate of 997,500 shares of Class A common stock at a price of
$6.50 per share. In connection with these private placements the Company paid
fees of approximately $314,000 which has been recorded as deferred financing
fees and will be charged to expense over the term of the notes. Additionally,
$495,000 of existing debt and interest accrued thereon was converted to Bridge
Notes. The notes are due the earlier of April 1997 or at the closing of the
proposed initial public offering. The Company has valued the Bridge loan
warrants at $.67 each (an aggregate of $665,000) which will be accounted for as
debt discount and will be charged to expense over the term of the notes. If the
Bridge Notes are repaid upon the completion of the proposed public offering the
unamortized balance of deferred financing cost and debt discount will be charged
to expense.
During April 1996 the Company and certain noteholders agreed to convert
$978,572 of debt, interest accrued thereon, and $428,346 due to a related party
into 361,067 shares of Class A common stock and $495,000 of Bridge Notes.
It is anticipated that the Company's preferred stock will be converted into
184,486 shares of common stock upon the consummation of the public offering.
During April 1996, the Company also paid an aggregate amount of
approximately $572,000 from the proceeds of the Bridge financing to satisfy
existing obligations including debt, accrued compensation and related costs and
certain fees associated with the offering.
Subsequent to March 31, 1996 the Company agreed to issue 4,689 shares of
common stock to employees valued at $12,642 which will be charged to expense as
compensation.
The pro forma balance sheet and statements of changes in stockholders'
equity give effect to the foregoing transactions as if they had occurred on
March 31, 1996. The pro forma balance sheet and statements of changes in
stockholders' equity should be read in conjunction with the historical audited
financial statements and notes.
F-13
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by the Underwriter.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone 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
any implication that the information herein contained is correct as of any time
subsequent to the date of this Prospectus.
------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 7
Use of Proceeds ........................................................... 15
Dividend Policy ........................................................... 15
Capitalization ............................................................ 16
Dilution .................................................................. 18
Selected Financial Data ................................................... 19
Management's Discussion and
Analysis of Financial Condition and
Results of Operations ................................................... 20
Business .................................................................. 22
Management ................................................................ 29
Certain Transactions ...................................................... 34
Principal Stockholders .................................................... 36
Concurrent Offering ....................................................... 38
Description of Securities ................................................. 39
Shares Eligible for Future Sale ........................................... 42
Underwriting .............................................................. 43
Legal Matters ............................................................. 45
Experts ................................................................... 45
Additional Information .................................................... 45
Index to Financial Statements ............................................. F-1
------------
Until __________, 1996, 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 and with respect to
their unsold allotments or subscriptions.
================================================================================
================================================================================
1,500,000 Units
LAMINATING
TECHNOLOGIES, INC.
Consisting of
1,500,000 shares of Common Stock,
1,500,000 Redeemable Class A
Warrants and
1,500,000 Redeemable Class B
Warrants
----------------
PROSPECTUS
----------------
D.H. BLAIR INVESTMENT BANKING CORP.
_______________, 1996
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE , 1996
PROSPECTUS
LAMINATING TECHNOLOGIES, INC.
997,500 Redeemable Class A Warrants
997,500 Shares of Common Stock and
997,500 Redeemable Class B Warrants issuable upon exercise of the
Redeemable Class A Warrants and 997,500 Shares of
Common Stock issuable upon exercise of the Redeemable Class B Warrants
This Prospectus relates to 997,500 Redeemable Class A Warrants (the
"Selling Securityholder Warrants" or the "Class A Warrants") of Laminating
Technologies, Inc., a Delaware corporation (the "Company"), held by holders (the
"Selling Securityholders"), the 997,500 shares of Common Stock, $.01 par value
("Common Stock"), and 997,500 Redeemable Class B Warrants ("Class B Warrants")
issuable upon the exercise of the Selling Securityholder Warrants, and 997,500
shares of Common Stock issuable upon exercise of such Class B Warrants. The
Selling Securityholder Warrants and the Class B Warrants are referred to herein
collectively as the "Warrants" and the securities issuable upon exercise of the
Selling Securityholder Warrants, together with the Selling Securityholder
Warrants, are sometimes collectively referred to herein as the "Selling
Securityholder Securities." The Selling Securityholder Warrants were issued to
the Selling Securityholders in exchange for warrants they received in a private
placement by the Company in April and May 1996 (the "Bridge Financing"). See
"Selling Securityholders" and "Plan of Distribution." Each Selling
Securityholder Warrant entitles the holder to purchase, at an exercise price of
$6.50, subject to adjustment, one share of Common Stock and one Class B Warrant,
and each Class B Warrant entitles the holder to purchase, at an exercise price
of $8.75, subject to adjustment, one share of Common Stock. The Warrants are
exercisable at any time after issuance through the fifth anniversary of the date
of this Prospectus provided that the Selling Securityholders have agreed not to
exercise the Selling Securityholder Warrants for a period of one year from the
date of this Prospectus and not to sell the Selling Securityholder Warrants
except after the restrictive periods described under "Plan of Distribution."
Commencing one year from the date hereof, the Warrants are subject to redemption
by the Company for $.05 per Warrant, upon 30 days' written notice, if the
average closing bid price of the Common Stock exceeds $9.10 per share with
respect to the Class A Warrants and $12.25 share with respect to the Class B
Warrants (subject to adjustment in each case) for 30 consecutive business days
ending within 15 days of the date of the notice of redemption. See "Description
of Securities."
The securities offered by the Selling Securityholders by this Prospectus
may be sold from time to time by the Selling Securityholders or by their
transferees. The distribution of the Class A Warrants, Common Stock and the
Class B Warrants offered hereby by the Selling Securityholders may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary brokers' transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders.
The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. In the event the Selling
Securityholder Warrants and Class B Warrants are exercised, the Company will
receive gross proceeds of $6,483,750 and $8,728,125, respectively. See "Selling
Securityholders" and "Plan of Distribution."
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
(the "Offering") of 1,500,000 Units, each Unit consisting of one share of Common
Stock, one Class A Warrant and one Class B Warrant, was declared effective by
the Securities and Exchange Commission (the "Commission"). The Company will
receive approximately $5,925,000 in net proceeds from the Offering (assuming no
exercise of the Underwriter's over-allotment option) after payment of
underwriting discounts and commissions and estimated expenses of the Offering.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS BEGINNING ON PAGE 7 ."
------------
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.
------------
The date of this Prospectus is , 1996
A-1
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of up to 997,500 Class A Warrants, 997,500 shares of Common
Stock and 997,500 Class B Warrants issuable upon exercise of such Class A
Warrants and 997,500 shares of Common Stock issuable upon exercise of such Class
B Warrants may be offered for resale by investors who received their Class A
Warrants in exchange for warrants received in the Bridge Financing.
The following table set forth certain information with respect to each
Selling Securityholder for whom the Company is registering the Selling
Securityholder Securities for resale to the public. The Company will not receive
any of the proceeds from the sale of such securities. To the Company's knowledge
there are no material relationships between any of the Selling Securityholders
and the Company, nor have any such material relationships existed within the
past three years.
<TABLE>
<CAPTION>
Number of
Class A Warrants
Beneficially
owned and maximum
Selling Securityholders number to be sold (1)
----------------------- --------------------
<S> <C>
Columbia Funding ....................................................... 50,000
Stephen Comeau ......................................................... 25,000
Tom N. Davidson Revocable Living Trust.................................. 50,000
Nathan Eisen ........................................................... 12,500
Jerome Grushkin & Esther Grushkin JTROS................................. 12,500
Jerome J. Grushkin Defined Benefit Plan................................. 12,500
Melvin L. Katten ....................................................... 12,500
Frank G. Lake III ...................................................... 25,000
Benjamin Lehrer ........................................................ 12,500
Levine & Staller PA TTEE ............................................... 25,000
George Lionikis Sr ..................................................... 25,000
Joseph O. Manzi ........................................................ 50,000
Efrain Martinez ........................................................ 50,000
Albert Milstein ........................................................ 12,500
Lloyd A. Moriber, M.D .................................................. 25,000
Karen A. Omahen ........................................................ 25,000
Poseidon Capital Pension and Profit Sharing Plan........................ 12,500
William Rands .......................................................... 25,000
Jesse D. Roggen ........................................................ 12,500
Marc Roberts ........................................................... 75,000
Gary J. Strauss ........................................................ 25,000
Donald Sallee .......................................................... 175,000
Melvin Stein ........................................................... 25,000
Malcolm Levenson Trust ................................................. 37,500
The Steiro Company ..................................................... 10,000
Byron M. Allen ......................................................... 12,500
The Frank & Brynde Berkowitz Foundation................................. 25,000
Kenneth Cohen & Sherry Cohen JTROS...................................... 25,000
Robert M. Freeman ...................................................... 50,000
Stuart Gruber .......................................................... 12,500
Edward D. Hurley Keogh Plan ............................................ 12,500
Richard A. Nelson & Elaine M. Nelson-- JTROS............................ 25,000
Wolfson Equities ....................................................... 12,500
-------
Total .......................................................... 997,500
=======
</TABLE>
- ----------
(1) Does not include shares of Common Stock issuable upon exercise of the Class
A Warrants and issuable upon exercise of the Class B Warrants issuable upon
exercise of the Class A Warrants. The Selling Securityholders have agreed
not to exercise the Class A Warrants being offered hereby for a period of
one year from the date of this Prospectus. With the exception of Donald
Sallee, Melvin Stein, Malcolm Levenson Trust and the Steiro Company, who
will own 4.6%, 1.9%, 1.5% and 1.5%, respectively, of the outstanding Common
Stock of the Company after this Offering, none of the Selling
Securityholders will beneficially own in excess of 1% of the outstanding
shares of Common Stock after the Offering.
A-2
<PAGE>
PLAN OF DISTRIBUTION
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the amount of the Selling Securityholders) in the over-the-counter market or
in negotiated transactions, through the writing of options on the securities, a
combination of such methods of sale or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale or
at negotiated prices.
The Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Each Selling Securityholder has agreed (i) not to sell, transfer or
otherwise dispose publicly the Selling Securityholder Warrants except after the
time periods and in the percentage amounts set forth below, on a cumulative
basis, and (ii) not to exercise the Selling Securityholder Warrants for a period
of one year after the closing of this offering. Purchasers of the Selling
Securityholder Warrants will not be subject to such restrictions.
Percentage Eligible
Lock Up Period for Resale
----------- -------------
Before 90 days after Closing .............................. 0%
Between 91 and 150 days ................................... 25%
Between 151 and 210 days .................................. 50%
Between 211 and 270 days .................................. 75%
After 270 days ............................................ 100%
Under applicable rules and regulations under the Securities Exchange Act of
1934 ("Exchange Act"), any person engaged in the distribution of the Selling
Securityholder Warrants may not simultaneously engage in market making
activities with respect to any securities of the Company during the applicable
"cooling-off" period (at least two, and possibly nine, business days) prior to
the commencement of such distribution. Accordingly, in the event the Underwriter
of the Company's initial public offering or D.H. Blair & Co. Inc. ("Blair") is
engaged in a distribution of the Selling Securityholder Warrants, neither of
such firms will be able to make a market in the Company's securities during the
applicable restrictive period. However, neither the Underwriter nor Blair have
agreed to nor are either of them obliged to act as broker/dealer in the sale of
the Selling Securityholder Warrants and the Selling Securityholders may be
required, and in the event Blair is a market maker, will likely be required, to
sell such securities through another broker/dealer. In addition, each Selling
Securityholder desiring to sell Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an underwritten offering by
the Company of 1,500,000 Units by the Company and up to 225,000 additional Units
to cover over-allotments, if any.
A-3
<PAGE>
[ALTERNATE PAGE]
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by the Underwriter.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone 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
any implication that the information herein contained is correct as of any time
subsequent to the date of this Prospectus.
------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.....................................................
Risk Factors...........................................................
Dividend Policy........................................................
Capitalization.........................................................
Dilution...............................................................
Selected Financial Data................................................
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................................................
Business...............................................................
Management.............................................................
Certain Transactions...................................................
Principal Stockholders.................................................
Selling Securityholders................................................
Plan of Distribution...................................................
Concurrent Public Offering.............................................
Description of Securities..............................................
Shares Eligible for Future Sale........................................
Legal Matters..........................................................
Experts................................................................
Additional Information.................................................
Index to Financial Statements.......................................... F-1
------------
Until ______________, 1996, 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 and with respect to
their unsold allotments or subscriptions.
================================================================================
================================================================================
LAMINATING
TECHNOLOGIES, INC.
997,500 Redeemable Class A Warrants
997,500 Shares of Common Stock and
997,500 Redeemable Class B Warrants
issuable upon exercise of the
Redeemable Class A Warrants and
997,500 Shares of Common Stock
issuable upon exercise of the
Class B Warrants
----------------
PROSPECTUS
----------------
, 1996
================================================================================
<PAGE>
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers
The Amended and Restated Certificate of Incorporation and By-Laws of the
Registrant provide that the Registrant shall indemnify any person to the full
extent permitted by the Delaware General Corporation Law (the "GCL"). Section
145 of the GCL, relating to indemnification, is hereby incorporated herein by
reference.
In accordance with Section 102(a)(7) of the GCL, the Amended and Restated
Certificate of Incorporation of the Registrant eliminates the personal liability
of directors to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director with certain limited exceptions set forth
in Section 102(a)(7).
The Registrant also intends to enter into indemnification agreements with
each of its officers and directors, the form of which is filed as Exhibit 10.8
and reference is hereby made to such form.
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriter of the Registrant, its
officers and directors.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's non-accountable
expense allowance) are as follows:
Amount
-------------
SEC Registration Fee ............................. $ 24,046.00
NASD Filing Fees ................................. 7,473.00
Nasdaq Filing Fees ............................... *
Printing and Engraving Expense ................... *
Accounting Fees and Expenses ..................... *
Legal Fees and Expenses .......................... *
Blue Sky Fees and Expenses ....................... *
Transfer Agent's Fees and Expenses ............... *
Miscellaneous Expenses ........................... *
-------------
Total......................... $ *
=============
- ----------
* To be completed by amendment.
Item 26. Recent Sales of Unregistered Securities
The following discussion gives retroactive effect to the reverse stock
split effected in April 1996. During the past three years, the Registrant has
sold and issued the following unregistered securities:
In September 1993, the Company issued 250,000 shares of Series A
Convertible Preferred Stock to VentureTek L.P. for aggregate consideration of
$500,000 in cash. In October 1993, the Company issued 46,122 shares of Common
Stock to the Chief Executive Officer for aggregate consideration of $1,250. In
May 1994, the Company issued 3,690 shares of Common Stock to an investor for
$20,000. In August 1994, the Company converted an aggregate of $137,305 of wages
payable to employees of the Company into 50,662 shares of Common Stock of the
Company at a rate of one share for every $2.7102 of indebtedness. In June 1995,
the Company issued 33,208 shares of Common Stock to a former president and
director of the Company for the relinquishment of $90,000 of indebtedness of the
Company to that individual. In June 1995, the Company issued 126,114 shares of
Common Stock to Donald Sallee for an aggregate purchase price of approximately
$85,000.
In April 1996, pursuant to debt conversion agreements dated March 21, 1996,
the Company converted an aggregate of $978,556 of indebtedness of the Company
into 361,061 shares of Common Stock at a rate of one share for every $2.7102 of
indebtedness. In April 1996, the Company issued an aggregate of 4,689 shares of
Common Stock as compensation to an ex-employee for accrued wages at a rate of
approximately $2.7102 per share and as a signing bonus to a current employee.
II-1
<PAGE>
In April and May 1996, the Company issued 39.9 units, each unit consisting
of a note in the principal amount of $50,000 bearing interest at 10% per annum
and warrants to purchase 25,000 shares of Common Stock at an exercise price of
$4.00 per share (assuming the offering contemplated by this Registration
Statement is not consummated), to 32 accredited investors for an aggregate
purchase price of $1,995,000. The units were issued pursuant to an exemption
from registration provided by Regulation D promulgated under Section 4(2) of the
Securities Act. The Underwriter acted as the Registrant's placement agent in
connection with this private placement. In connection therewith, the Registrant
paid sales commissions in the amount of $199,500 and a non-accountable expense
allowance in the aggregate amount of $59,850.
Except as otherwise noted, the above transactions were private transactions
not involving a public offering and were exempt from the registration provisions
of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
sale of securities was without the use of an underwriter, and the certificates
evidencing the shares bear a restrictive legend permitting the transfer thereof
only upon registration of the shares or an exemption under the Securities Act of
1933, as amended.
Item 27. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
1.1 --Form of Underwriting Agreement
3.1 --Restated Certificate of Incorporation of the Registrant
3.2 --By-laws of the Registrant
4.1 --Form of Bridge Note
4.2 --Form of Warrant Agreement
4.3 --Form of Underwriter's Unit Purchase Option
5.1* --Opinion of Bachner, Tally, Polevoy & Misher LLP
10.1* --Employment Agreement between the Registrant and Michael E. Noonan
10.2* --Registration Rights Agreement between the Registrant and Michael E. Noonan
10.3 --Escrow Agreement between the Registrant, American Stock Transfer & Trust Company
and certain securityholders of the Registrant
10.4 --Form of Debt Conversion Agreement between the Registrant and the Conversion Investors
10.5 --Memorandum of Understanding dated August 26, 1994 between the Registrant and TMR, as amended
10.6 --Outsourcing Agreement dated September 1, 1994 between the Registrant and TMR
10.7 --Amended and Restated 1996 Stock Option Plan
10.8 --Form of Indemnification Agreement
23.1* --Consent of Bachner, Tally, Polevoy & Misher LLP-- Included in Exhibit 5.1
23.2 --Consent of William R. Hinds, Esq. -- Included on Page II-5
23.3 --Consent of Richard A. Eisner & Company, LLP -- Included on Page II-6
24.1 --Power of Attorney -- Included on Page II-7
27.1 --Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment.
Item 28. Undertakings
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act,
II-2
<PAGE>
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement, and
(iii) Include any additional or changed material information on
the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this offering.
(2) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act as part of this registration statement as
of the time it was declared effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of such securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
CONSENT OF COUNSEL
The consent of Bachner, Tally, Polevoy & Misher LLP will be contained in
its opinion to be filed as Exhibit 5.1 to the Registration Statement.
II-4
<PAGE>
CONSENT OF COUNSEL
The undersigned hereby consents to the use of my name, and the statement
with respect to me appearing under the heading "Legal Matters" included in the
Registration Statement and to the incorporaction by reference of this consent
pursuant to Rule 439(b) under the Securities Act of 1933, as amended (the "Act")
into any subsequent registration statement for the same offering that may be
filed pursuant to Rule 462(b) under the Act.
WILLIAM R. HINDS
Arlington, Virginia
June 21, 1996
II-5
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report dated May 17, 1996 on our audits of the financial statements of
Laminating Technologies, Inc. We also consent to the references to our firm
under the captions "Selected Financial Data" and "Experts".
RICHARD A. EISNER & COMPANY, LLP
New York, New York
June 20, 1996
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement or Amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, State of Georgia on the 21st
day of June, 1996.
LAMINATING TECHNOLOGIES, INC.
By: /s/ Michael E. Noonan
----------------------------------------
Michael E. Noonan, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Michael E. Noonan,
his true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement or Amendment thereto has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL E. NOONAN Chairman of Board, President June 21, 1996
------------------------- and Chief Executive Officer
Michael E. Noonan (principal executive officer)
/s/ JERRY A. ROSS Chief Financial Officer June 21, 1996
------------------------- (principal financial
Jerry A. Ross and accounting officer)
/s/ ROBERT L. DOVER Secretary and Director June 21, 1996
-------------------------
Robert L. Dover
/s/ RONALD L. CHRISTENSEN Director June 21, 1996
--------------------------
Ronald L. Christensen
/s/ WILLIAM WARREN Director June 21, 1996
-------------------------
William Warren
</TABLE>
II-7
1,500,000 UNITS
(each Unit consisting of (i) one share of Common
Stock, par value $.01 per share, (ii) one redeemable Class A
warrant to purchase
one share of Common Stock and one redeemable Class B warrant,
and (iii) one redeemable Class B warrant)
LAMINATING TECHNOLOGIES, INC.
UNDERWRITING AGREEMENT
D.H. Blair Investment Banking Corp. ____________, 1996
As Representative of the Several Underwriters
44 Wall Street
New York, New York 10005
Laminating Technologies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A (the
"Underwriters") of this Underwriting Agreement (the "Agreement"), for whom you
are acting as representative (the "Representative"), an aggregate of 1,500,000
Units, each unit being hereinafter referred to as a "Unit" and consisting of (i)
one share of Common Stock, par value $.01 per share ("Common Stock" or
"Shares"), (ii) one redeemable Class A warrant ("Class A Warrants") to purchase
one share of Common Stock and one redeemable Class B warrant ("Class B
Warrants") at an exercise price of $6.50 at any time until the fifth anniversary
of the date of this Agreement, and (iii) one Class B Warrant to purchase one
share of Common Stock at an exercise price of $8.75 at any time until the fifth
anniversary of the date of this Agreement. The Class A Warrants and Class B
Warrants are together referred to as the "Warrants." The Class A Warrants and
Class B Warrants are each subject to redemption, in certain instances,
commencing one year after the date of this Agreement. In addition, the Company
proposes to grant to the Underwriters (or, at its option, the Representative,
individually) the option referred to in Section 2(b) hereof to purchase all or
any part of an aggregate of 225,000 additional Units. Unless the context
otherwise requires, the term "Units" shall include the 225,000 additional Units
referred to above.
The aggregate of 1,500,000 Units to be sold by the Company, together with
all or any part of the 225,000 Units which the Underwriters have the option to
purchase, and the Shares and Warrants comprising such Units, are herein called
the "Units." The Common Stock of the Company to be outstanding after giving
effect to the sale of the Shares is herein called the "Common Stock." The Shares
and Warrants included in the Units (including the Units which the Underwriters
have the option to purchase) are herein collectively called the "Securities."
You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Units, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect
<PAGE>
to the purchase of the Units by the several Underwriters on whose behalf you are
signing this Agreement, as follows:
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters 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 by the Company 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, either (A) if the Company
relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Units that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if
the Company does not rely on Rule 434 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 in the case of
either clause (i)(A) or (i)(B) of this sentence, as have been provided to
and approved by the Representative 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
the Representative 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); the term
"Prospectus" means (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule 424(b)(7) under
the Act, together with the Preliminary Prospectus identified therein that such
Term Sheet supplements, (B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act, or (C) if the Company does not rely on Rule 434 under the Act and
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
2
<PAGE>
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; and the term "Term Sheet" means any
term sheet that satisfies the requirements of Rule 434 under the Act. Any
reference to the "date" of a Prospectus that includes a Term Sheet shall mean
the date of such Term Sheet.
(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 Closing
Date (as hereinafter defined) or the Option Closing Date, as the case may be,
(i) the Registration Statement and Prospectus will in all respects conform to
the requirements of the Act and the Rules and Regulations; and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus on the inside front cover page of the Prospectus with respect to
stabilization, under the heading "Underwriting" and the identity of counsel to
the Underwriters under the heading "Legal Matters" constitute the only
information furnished in writing by or on behalf of the several Underwriters 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 State of Delaware, with full
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus and is duly qualified to do business as
a foreign corporation and is in good standing in all other jurisdictions in
which the nature of its business or the character or location of its properties
requires such qualification, except where failure to so qualify will not
materially affect the Company's business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the Company as
of March 31, 1996 is as set forth in the Prospectus under "Capitalization"; the
shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been granted or entered into by the Company; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid
3
<PAGE>
and nonassessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Units as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock, except as described in the
Registration Statement.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms 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 and no personal liability
will attach to the ownership thereof. The Warrant Agreement has been duly
authorized and, when executed and delivered pursuant to this Agreement, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms. The
Warrants and the Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase Option have been
duly authorized and, when duly issued and delivered, such Warrants will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option. The Shares included in the Unit Purchase Option (and the shares
of Common Stock issuable upon exercise of such Warrants) when issued and sold,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement, the Unit Purchase Option, the M/A Agreement, the
Consulting Agreement and the Escrow Agreement have been duly and validly
authorized, executed and delivered by the Company. The Company has full power
and lawful 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 with the
authorization, issue and sale of the Units or the Unit Purchase Option, except
such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, 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 indenture, mortgage, deed of trust,
loan
4
<PAGE>
agreement or other agreement or instrument to which the Company is a party or by
which the Company may be 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 articles 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 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) Richard A. Eisner & Co., LLP, which has given its report on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, 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 if the Prospectus is not in existence, the most
recent Preliminary 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
financial 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. The information set forth under
the captions "Dilution," "Capitalization" and "Selected Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein. The pro forma financial information filed as part
of the Registration Statement or included in the Prospectus (or such preliminary
prospectus) has been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, and includes all
adjustments necessary to present fairly the pro forma financial condition and
results of operations at the respective dates and for the respective periods
indicated and all assumptions used in preparing such pro forma financial
statements are reasonable.
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(k) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), 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 is material to the business of the Company, 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 adverse change or any
development involving, so far as the Company can now reasonably foresee a
prospective adverse change in the condition (financial or other), net worth,
results of operations, business, key personnel or properties of it which would
be material to the business or financial condition of the Company and the
Company has not become a party to, and neither the business nor the property of
the Company has become the subject of, any material litigation whether or not in
the ordinary course of business.
(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 condition
(financial or other), 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 are imminent which might be expected to adversely affect the conduct of
the business, property or operations or the financial condition or results of
operations of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company.
(n) The Company has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of such business and had not received any
notice of conflict with the asserted rights of others in respect thereof. To the
best knowledge of the Company, none of the activities or business of the Company
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 impact upon the condition (financial or
otherwise), business, property, prospective results of operations, or net worth
of the Company.
(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
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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 Units to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts, agreements and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of the
Units hereby.
(s) The Company has no subsidiaries.
(t) 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.
(u) Except as previously disclosed in writing by the Company to the
Representative, no officer, director or stockholder of the Company has any
affiliation or association with any member of the National Association of
Securities Dealers Inc. ("NASD").
(v) The Company is not, and upon receipt of the proceeds from the sale of
the Units will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(w) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Units other than the Preliminary Prospectus, Prospectus, the
Registration Statement or the other materials permitted by the Act, if any.
(x) The conditions for use of Form SB-2, as set forth in the General
Instructions thereto, have been satisfied.
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(y) There are no business relationships or related-party transactions of
the nature described in Item 404 of Regulation S-K involving the Company and any
person described in such Item that are required to be disclosed in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and that have not been so disclosed.
(z) The Company has complied with all provisions of Section 517.075 Florida
Statutes relating to doing business with the Government of Cuba or with any
person or affiliate located in Cuba.
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 Underwriters, and each such Underwriter
agrees, severally and not jointly, to buy from the Company at $___ per Unit, at
the place and time hereinafter specified, the number of Units set forth opposite
the names of the Underwriters in Schedule A attached hereto (the "First Units"),
plus any additional Units which such Underwriters may become obligated to
purchase pursuant to the provisions of Section 9 hereof. The First Units shall
consist of 1,500,000 Units to be purchased from the Company.
Delivery of the First Units against payment therefor shall take place at
the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, New York,
New York 10005 (or at such other place as may be designated by agreement between
you and the Company) at 10:00 a.m., New York City time, on _______, 1996, or at
such later time and date as you may designate, 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 several Underwriters (or,
at its option, to the Representative, individually) to purchase all or any part
of an aggregate of an additional 225,000 Units at the same price per Unit as the
Underwriters shall pay for the First Units being sold pursuant to the provisions
of subsection (a) of this Section 2 (such additional Units being referred to
herein as the "Option Units"). This option may be exercised within 45 days after
the effective date of the Registration Statement upon notice by the
Representative 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 Representative but shall not be earlier than four nor later
than ten full business days after the exercise of said option, 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 D.H. Blair Investment Banking Corp., 44 Wall
Street, New York, New York 10005. The number of Option Units to be purchased by
each Underwriter, if any, shall bear the same percentage to the total number of
Option Units
8
<PAGE>
being purchased by the several Underwriters pursuant to this subsection (b) of
Section 2 as the number of Units such Underwriter is purchasing bears to the
total number of the First Units being purchased pursuant to subsection (a) of
this Section 2, as adjusted, in each case by the Representative in such manner
as the Representative may deem appropriate. The Option granted hereunder may be
exercised only to cover overallotments in the sale by the Underwriters of First
Units referred to in subsection (a) above. In the event the Company declares or
pays a dividend or distribution on its Common Stock, whether in the form of
cash, shares of Common Stock or any other consideration, prior to the Option
Closing Date, such dividend or distribution shall also be paid on the Option
Units on the Option Closing Date.
(c) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriters 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 two full business days prior to the Closing Dates. Time shall
be of the essence and delivery at the time and place specified in this Agreement
is a further condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Units to be purchased by
the Underwriters hereunder will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the respective purchase
prices by the several Underwriters, by 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 Underwriters (or the Representative,
individually) exercise the option to purchase from the Company all or any
portion of the Option Units pursuant to the provisions of subsection (b) above,
payment for such Units shall be made to or upon the order of the Company by
certified or bank cashier's checks payable in New York Clearing House funds at
the offices of D.H. Blair Investment Banking Corp., at the time and date of
delivery of such Units as required by the provisions of subsection (b) above,
against receipt of the certificates for such Units by the Representative for the
respective accounts of the several Underwriters registered in such names and in
such denominations as the Representative may request.
It is understood that you, individually and not as Representative of the
several Underwriters, may (but shall not be obligated to) make any and all
payments required pursuant to this Section 2 on behalf of any Underwriters whose
check or checks shall not have been received by the Representative at the time
of delivery of the Units to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or underwriters
of any of its or their obligations hereunder. It is also understood that you,
individually rather than all of the Underwriters, may (but shall not be
obligated to) purchase the Option Units referred to in subsection (b) of this
Section 2, but only to cover overallotments.
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<PAGE>
It is understood that the several Underwriters propose 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
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If required, the Company
will file the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto with the Commission in the manner and within
the time period required by Rules 434 and 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 the Prospectus, Term Sheet or 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 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 all of the Underwriters 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 your opinion, may be 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
confirm the advice in writing, 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 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
Underwriters 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 several
Underwriters 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
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<PAGE>
within such period as a Prospectus is required under the Act to be delivered in
connection with sales by an 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 or counsel
for the Underwriters should be set forth in an amendment of the Registration
Statement or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Units or in
case it shall be necessary to amend or supplement the Prospectus to comply with
law or with the Rules and Regulations, the Company will notify 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 Underwriters, except that in case any
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, as amended (the "Exchange Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Units.
(b) The Company will use its best efforts to qualify to register the Units
for sale under the securities or "blue sky" laws of such jurisdictions as the
Representative 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 Underwriters may reasonably request.
(c) If the sale of the Units provided for herein is not consummated for any
reason caused by the Company, the Company shall pay all costs and expenses
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 Representative.
(d) The Company will use its best efforts to (i) cause a registration
statement under the Securities Exchange Act of 1934 to be declared effective
concurrently with the completion of this offering and will notify the
Representative in writing immediately upon
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<PAGE>
the effectiveness of such registration statement, and (ii) if requested by the
Representative, to obtain a listing on the Pacific Stock Exchange and to obtain
and keep current a listing in the Standard & Poor's or Moody's Industrial OTC
Manual.
(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 after the date hereof,
(i) as soon as practicable after the end of each fiscal year, a balance sheet of
the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as practicable after the end of each of the first three fiscal quarters of
each fiscal year, consolidated summary financial information of the Company for
such quarter in reasonable detail; (iii) as soon as they are 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 several Underwriters such number of conformed copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the several Underwriters may reasonably request. The
Company will deliver to or upon the order of the several Underwriters, 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 the Underwriters may reasonably request.
The Company will deliver to the Underwriters 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 Underwriters may
from time to time reasonably request. The Company, not later than (i) 5:00 p.m.,
New York City time, on the date of determination of the public offering price,
if such determination occurred at or prior to 12:00 noon, New York City time, on
such date or (ii) 6:00 p.m., New York City time, on the business day following
the date of determination of the public offering price, if such determination
occurred after 12:00 noon, New York City time, on such date, will deliver to the
Underwriters, without charge, as many copies of the Prospectus
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and any amendment or supplement thereto as the Underwriters may reasonably
request for purposes of confirming orders that are expected to settle on the
First Closing Date.
(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 12 consecutive months beginning after
the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the Units for
the purposes set forth under "Use of Proceeds" in the Prospectus, and will file
such reports with the Commission with respect to the sale of the Units and the
application of the proceeds therefrom as may be required pursuant to Rule 463
under the Act.
(j) The Company will, promptly upon your request, 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
reasonable opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
counsel to the several Underwriters, may be reasonably necessary or advisable in
connection with the distribution of the Units, and will use its best efforts to
cause the same to become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum number of its
authorized but unissued securities which are issuable upon exercise of the Unit
Purchase Option outstanding from time to time.
(l) For a period of 13 months after the First Closing Date, no officer,
director or stockholder of the Company (the "Principal Stockholders") 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 Representative.
In order to enforce this covenant, the Company shall impose stop-transfer
instructions with respect to the shares owned by the Principal Stockholders
until the end of such period.
(m) During the five-year period after the date of this Agreement, you,
individually, and not as Representative of the Underwriters, shall have the
right of first refusal (the "Right of First Refusal") to purchase for your own
account or to act as underwriter or agent for any and all public or private
offerings of the securities of the Company, or any successor to or subsidiary of
the Company or other entity in which the Company has an equity interest
(collectively referred to herein as the "Company"), by the Company (the
"Subsequent Company Offering") or any secondary offering of the Company's
securities by the Principal Stockholders (the "Secondary Offering").
Accordingly, if during such period, the Company intends to make a Subsequent
Company Offering or the Company receives notification from any of such Principal
Stockholders of its securities of such holder's intention to make a Secondary
Offering, the
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Company shall notify you in writing of such intention and of the proposed terms
of the offering. The Company shall thereafter promptly furnish you with such
information concerning the business, condition and prospects of the Company as
you may reasonably request. If within thirty (30) business days after the
receipt of such notice of intention and statement of terms you do not accept in
writing such offer to act as underwriter or agent with respect to such offering
upon the terms proposed, the Company and each of the Principal Stockholders
shall be free to negotiate terms with other underwriters with respect to such
offering and to effect such offering on such proposed terms within six months
after the end of such 30 business days. Before the Company and/or any of the
Principal Stockholders shall accept any modified proposal from such underwriter,
your preferential right shall be reinstated and the same procedure with respect
to such modified proposal as provided above shall be adopted. The failure by you
to exercise your Right of First Refusal in any particular instance shall not
affect in any way such right with respect to any other Subsequent Company
Offering or Secondary Offering. By execution of this Agreement, each of the
Principal Stockholders agrees to be bound by the terms of this Section 3(m)
concerning any proposed Secondary Offering of the Company's securities.
(n) Prior to 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 Warrants on the Nasdaq SmallCap Market (or a
listing on such other market or exchange as the Underwriters consent to), and
will effect and maintain such listing for at least five years after the date of
this Agreement.
(o) The Company and each of the Principal Stockholders represents that it
or he has not taken and agree that it or he will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Units, Shares or the Warrants or to facilitate the sale or
resale of the Securities.
(p) On the Closing Date and simultaneously with the delivery of the Units,
the Company shall execute and deliver to you, individually and not as
representative of the Underwriters, the Unit Purchase Option. The Unit Purchase
Option will be substantially in the form of the Representative's Unit Purchase
Option filed as an Exhibit to the Registration Statement.
(q) During the 18 month period commencing on the date of this Agreement,
the Company will not, without the prior written consent of the Representative,
grant options to purchase shares of Common Stock at an exercise price less than
the greater of (i) the initial public offering price of the Units (without
allocating any value to the Warrants) or (ii) the fair market value of the
Common Stock on the date of grant. During the six-month period commencing on the
date of this Agreement, the Company will not, without the prior written consent
of the Representative, grant options to any current officer of the Company.
During the three-year period after the First Closing Date, the Company will not,
without the prior written consent of the Representative, offer or sell any of
its securities pursuant to Regulation S under the Act.
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(r) The Company will not, without the prior written consent of the
Representative, grant registration rights to any person which are exercisable
sooner than 13 months after the First Closing Date.
(s) Michael E. Noonan shall be the President and Chief Executive Officer of
the Company on the Closing Dates. The Company has obtained key person life
insurance on the life of Mr. Noonan in an amount of not less than [$2 million]
and will use its best efforts to maintain such insurance during the five-year
period commencing on the First Closing Date, unless his employment with the
Company is earlier terminated. In such event, the Company will obtain a
comparable policy on the life of his successor for the balance of the five-year
period. For a period of 13 months after the First Closing Date, the compensation
of the executive officers of the Company shall not be increased from the
compensation levels disclosed in the Prospectus.
(t) On the Closing Date and simultaneously with the delivery of the Units,
the Company shall execute and deliver to you, individually and not as
representative of the Underwriters, an agreement with you regarding mergers,
acquisitions, joint ventures and certain other forms of transactions, in the
form previously delivered to the Company by you (the "M/A Agreement").
(u) On the Closing Date and simultaneously with the delivery of the Units,
the Company shall execute and deliver to you, and pay the first annual payment
under, a two-year consulting agreement in the form previously delivered to the
Company by you (the "Consulting Agreement").
(v) So long as any Warrants are outstanding, 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 each Underwriter and dealer as many copies of each
such Prospectus as such Underwriter or dealer may reasonably request. The
Company shall not call for redemption any of the Warrants unless a registration
statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, for so long as any Warrant is outstanding, the
Company will promptly notify the Representative of any material change in the
business, financial condition or prospects of the Company.
(w) Upon the exercise of any Warrant or Warrants after _______, 1997, the
Company will pay D.H. Blair Investment Banking Corp., in its individual capacity
and not as representative of the Underwriters, a fee of 5% of the aggregate
exercise price of the Warrants, of which ____% may be reallowed to the dealer
who solicited the exercise (which may also be D.H. Blair Investment Banking
Corp. or an affiliate thereof if (i) the market price of the Company's Common
Stock is greater than the exercise price of the Warrants on the date of
exercise; (ii) the exercise of the Warrant was solicited by a member of the
National
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Association of Securities Dealers, Inc., (iii) the Warrant is not held in a
discretionary account; (iv) the disclosure of compensation arrangements has been
made in documents provided to customers, both as part of the original offering
and at the time of exercise; and (v) the solicitation of the Warrant was not in
violation of Rule 10b-6 promulgated under the Exchange Act. The Company agrees
not to solicit the exercise of any Warrants other than through D.H. Blair
Investment Banking Corp. or an affiliate thereof and will not authorize any
other dealer to engage in such solicitation without the prior written consent of
D.H. Blair Investment Banking Corp.
(x) For a period of five years after the Effective Date, the Company (i),
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 fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's quarterly report on Form 10-Q
and the mailing of quarterly financial information to stockholders and (ii)
shall not change its accounting firm without the prior written consent of the
Chairman or the President of the Representative.
(y) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute at least four of such volumes to the individuals
designated by the Representative or counsel to the Underwriters.
(z) For a period of five years after the First Closing Date, (i) the
Representative shall have the right, but not the obligation, to designate one
director of the Board of Directors of the Company and (ii) the Company shall
engage a public relations firm acceptable to the Underwriter.
(zz) The Company shall, for a period of six years after the date of this
Agreement, submit which reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
4. Conditions of Underwriters' Obligation. The obligations of the several
Underwriters to purchase and pay for the Units which they have respectively
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 City time, on
the date on which the amendment to the registration statement originally filed
with respect to the Units or to the Registration Statement, as the case may be,
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containing information regarding the initial public offering price of the Units
has been filed with the Commission, or such later time and date as shall have
been agreed to by the Representative; if required, the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement thereto
shall have been filed with the Commission in the manner and within the time
period required by Rule 434 and 424(b) under the Act; 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 reasonable satisfaction of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, counsel to the several Underwriters;
(b) At the First Closing Date, you shall have received the opinion,
together with copies of such opinion for each of the other several Underwriters,
dated as of the First Closing Date, of Bachner, Tally, Polevoy & Misher LLP,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriters, 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 State
of Delaware, with full 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 the State
of Georgia and in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained, or is in the process of obtaining, all licenses, permits and
other governmental authorizations necessary to the conduct of its
business as described in the Prospectus, (b) such licenses, permits
and other governmental authorizations obtained are in full force and
effect, and (c) the Company is in all material respects complying
therewith;
(iii) the authorized capitalization of the Company as of March
31, 1996 is as set forth under "Capitalization" in the Prospectus; all
shares of the Company's outstanding stock requiring authorization for
issuance by the Company's Board of Directors have been duly
authorized, validly issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock of the Company have not been issued
in violation of the preemptive rights of any stockholder and the
stockholders of the Company do not
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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 Stock; the Common Stock, the Warrants, the Unit Purchase
Option and the Warrant Agreement conform to the respective
descriptions thereof contained in the Prospectus; the Shares have
been, and the shares of Common Stock to be issued upon exercise of the
Warrants and the Unit Purchase Option, upon issuance in accordance
with the terms of such Warrants, the Warrant Agreement and Unit
Purchase Option have been duly authorized and, when issued and
delivered, will be duly and validly issued, fully paid,
non-assessable, free of preemptive rights and no personal liability
will attach to the ownership thereof; 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 and no shareholders of the Company have any rescission
rights with respect to Company securities; a sufficient number of
shares of Common Stock has been reserved for issuance upon exercise of
the Warrants and Unit 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 Units as contemplated by this
Agreement gives rise to any registration rights or other rights, other
than those which have been waived or satisfied for or relating to the
registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option, the Warrant
Agreement, the M/A Agreement, the Consulting Agreement and the Escrow
Agreement have been duly and validly authorized, executed and
delivered by the Company and, assuming due execution by each other
party hereto or thereto, each constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law;
(v) the certificates evidencing the shares of Common Stock are in
valid and proper legal form; the Warrants will be exercisable for
shares of Common Stock of the Company in accordance with the terms of
the Warrants and at the prices therein provided for; at all times
during the term of the Warrants the shares of Common Stock of the
Company issuable upon exercise of the Warrants have been duly
authorized and reserved for issuance upon such exercise and such
shares, when issued
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<PAGE>
upon such exercise in accordance with the terms of the Warrants and at
the price provided for, will be duly and validly issued, fully paid
and non-assessable;
(vi) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could
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, the Unit
Purchase Option, the M/A Agreement, the Consulting Agreement or the
Escrow Agreement, or of any action taken or to be taken by the Company
pursuant to this Agreement, the Warrant Agreement, the Unit Purchase
Option, the M/A Agreement, the Consulting Agreement or the Escrow
Agreement; and no such proceedings are known to such counsel to be
contemplated against the Company; 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;
(vii) the Company is not in violation of or default under, nor
will the execution and delivery of this Agreement, the Unit Purchase
Option, the Warrant Agreement, the M/A Agreement, the Consulting
Agreement or the Escrow Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, result in a breach or
violation of, or constitute a default under the Certificate of
Incorporation or By-laws, 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
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 may be bound or in violation of any
material order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or
foreign;
(viii) 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) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
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<PAGE>
(ix) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause such counsel to have reason to
believe that the Registration Statement or any amendment thereto at
the time it became effective or as of the Closing Dates contained any
untrue statement of a material fact required to be stated therein or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any supplement thereto contains any untrue statement of
a material fact or omits to state a material fact necessary in order
to make statements therein, in light of the circumstances under which
they were made, not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the Prospectus
and any supplement thereto, for the financial statements, notes
thereto and other financial information and schedules contained
therein, as to which such counsel need express no opinion);
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts,
agreements and other documents are accurate and fairly present the
information required to be shown, and such counsel is familiar with
all contracts and other documents 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, agreements or other documents 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;
(xi) no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Units by the Company, in connection with the
execution, delivery and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein, or
the issuance of the Unit Purchase Option or the Securities underlying
the Unit Purchase Option, other than registrations or qualifications
of the Units under applicable state or foreign securities or Blue Sky
laws and registration under the Act;
(xii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds," "Management" and "Description
of Securities" have been reviewed by such counsel and insofar as they
refer to descriptions of agreements, statements of law, descriptions
of statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects;
20
<PAGE>
(xiii) the Units, the Common Stock and the Warrants have been
duly authorized for quotation on the Nasdaq SmallCap Market; and
(xiv) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature described in
Item 404 of Regulation S-K involving the Company and any person
described in such Item that are required to be disclosed in the
Prospectus and which have not been so disclosed.
(c) At the First Closing Date, you shall have received the opinion,
addressed to the Underwriters, dated as of the First Closing Date, of William R.
Hinds, Esq., special patent counsel to the Company, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) we have carefully read and analyzed the material set forth in
the Prospectus under the headings "Risk Factors - Dependence on
Patents and Proprietary Technology" and "Business - Patents and
Proprietary Rights" and, in our opinion, such material accurately and
adequately discloses the Company's patent position and did not, at the
time the Registration Statement became effective and does not contain
an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading;
(ii) the patent applications referred to in the Prospectus were
properly filed and the Patent and Trademark Office has not taken
substantive action with respect thereto; there has not been any public
use or sale by the Company prior to the filing of any of the patents
or patent applications which would affect their validity and, in such
counsel's opinion, the claims contained in the applications represent
valid patent claims; such counsel has no reason to believe that
patents will not issue with respect thereto or that the claims
contained in the applications conflict with the rights of others;
(iii) there are no facts which would preclude the Company from
having clear title to the United States patents and United States
patent applications owned by the Company;
(iv) the Company has not received any notice challenging the
validity or enforceability of any of the United States patents owned
by, or licensed to, the Company;
21
<PAGE>
(v) the Company does not lack or will not be unable to obtain any
rights or licenses to use United States patents necessary to its
business as currently conducted;
(vi) there are no material legal or governmental proceedings
pending or threatened with respect to any patents of the Company; and
(vii) there have been no claims asserted against the Company
relating to the potential infringement of or conflict with any
patents, trademarks, copyrights or trade secrets of others; such
counsel has conducted a search for existing United States patents with
claims that might cover the Company's technology particularly as it
relates to LTI Processed and, in such counsel's opinion, the Company's
technology including LTI Processed does not infringe any United States
patents.
Such opinions shall also cover such matters incident to the transactions
contemplated hereby as the Representative or counsel for the Underwriters 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 New York 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) 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 Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, counsel to the several Underwriters, and you shall have
received from such counsel a signed opinion, dated as of the First Closing Date,
together with copies thereof for each of the other Underwriters, with respect to
the validity of the issuance of the Units, the form of the Registration
Statement and Prospectus (other than the financial statements and other
financial data contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall have furnished
to counsel for the several Underwriters such documents as they may reasonably
request for the purpose of enabling them to render such opinion.
(d) You shall have received a letter prior to the effective date of the
Registration Statement and again on and as of the First Closing Date from
Richard A. Eisner & Co., LLP, independent public accountants for the Company,
substantially in the form approved by you, and including estimates of the
Company's revenues and results of operations for the period ending at the end of
the month immediately preceding the effective date and results of the comparable
period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct with the same
effect as if made
22
<PAGE>
on and as of the Closing Dates 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 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
agreement not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus; and (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 Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated as of the First
Closing Date, evidencing compliance with the provisions of this subsection (e).
(f) Upon exercise of the option provided for in Section 2(b) hereof, the
obligations of the several Underwriters (or, at its option, the Representative,
individually) 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 Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
counsel to the several Underwriters.
(ii) At the Option Closing Date, there shall have been delivered
to you as Representative the signed opinion of Bachner, Tally, Polevoy
&
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<PAGE>
Misher LLP, counsel for the Company, dated as of the Option Closing
Date, in form and substance satisfactory to Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, counsel to the several Underwriters,
together with copies of such opinion for each of the other several
underwriters, which opinion shall be substantially the same in scope
and substance as the opinion furnished to you at the First Closing
Date pursuant to Section 4(b) hereof, except that such opinion, where
appropriate, shall cover the Option Units.
(iii) At the Option Closing Date, there shall have been delivered
to you a certificate of the Chairman of the Board or the President and
the principal financial or accounting officer of the Company, dated
the Option Closing Date, in form and substance satisfactory to
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, counsel to the
several Underwriters, substantially the same in scope and substance as
the certificate furnished to you at the First Closing Date pursuant to
Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you a letter in form and substance satisfactory to you from Richard
A. Eisner & Co., LLP, dated the Option Closing Date and addressed to
the Underwriters confirming the information in their letter referred
to in Section 4(d) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days
prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units shall be
satisfactory in form and substance to you, and you and Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, counsel to the several
Underwriters, shall have been furnished with all such documents,
certificates, and opinions as you may 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.
(g) 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
Units, Common Stock or the Warrants and no proceedings for the taking of such
action shall have been instituted or shall be pending, or, to the knowledge of
the Representative or the Company, shall be contemplated by the Commission or
the NASD. The
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<PAGE>
Company represents that at the date hereof it has no knowledge that any such
action is in fact contemplated by the Commission or the NASD. The Company shall
have advised the Underwriters of any NASD affiliation of any of its officers,
directors, stockholders or their affiliates.
(h) The estimated revenues and earnings of the Company for the three months
ending June 30, 1996 will be greater than those of the three months ended March
31, 1996.
(i) If any of the conditions herein provided for in this Section 4 shall
not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be cancelled
at, or at any time prior to, each Closing Date by the Representative. Any such
cancellation shall be without liability of the Underwriters 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 condition that 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 condition to the obligations of the Company provided for in this
Section 5 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
option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the 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 attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and will reimburse, as incurred, such Underwriters 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)
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 or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements
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<PAGE>
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent, but only to the extent, that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of the Underwriters 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. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, 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 all 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 (i) in reliance upon and in conformity with written
information furnished to the Company by you or by any Underwriter through you
specifically for use in the preparation thereof and (ii) relates to the
transactions effected by the Underwriters in connection with the offer and sale
of the Units contemplated hereby. This indemnity agreement will be in addition
to any liability which the Underwriters 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 6, 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 6. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
26
<PAGE>
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 if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
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 such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Representative, it is advisable for the Representative or such Underwriters or
controlling persons 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 Underwriter or such controlling person, 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 all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the Act in
any case in which (i) any Underwriter makes claim for indemnification pursuant
to Section 6 hereof 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, or
(ii) contribution under the Act may be required on the part of any Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
any such 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) in either such case (after
contribution from others) in such proportions that all such Underwriters are
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion; provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriters 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
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supplied by the Company, or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if the respective obligations of the Company and
the Underwriters to contribute pursuant to this Section 7 were to be determined
by pro rata or per capita allocation of the aggregate damages (even if the
Underwriters in the aggregate were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 7 and (b) that
the contribution of each contributing Underwriter shall not be in excess of its
proportionate share (based on the ratio of the number of Units purchased by such
Underwriter to the number of Units purchased by all contributing Underwriters)
of the portion of such losses, claims, damages or liabilities for which the
Underwriters are responsible. 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 any Underwriter and each person who
controls any Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons 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 Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of the
Units to the Underwriters 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 (which fees
shall not exceed $150,000) 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, or the Term Sheet, the fee of the NASD
in connection with the filing required by the NASD relating to the offering of
the Units contemplated hereby; all expenses, including reasonable fees and
disbursements of counsel to the Underwriters, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Representative shall designate; the cost of printing and furnishing to the
several Underwriters copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, the Agreement Among Underwriters,
Selling Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney
and the Blue Sky Memorandum, any fees relating to the listing of the Units,
Common Stock and Warrants on the Nasdaq SmallCap Market or any other securities
exchange, the cost of printing the certificates representing the
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<PAGE>
securities comprising the Units, the fees of the transfer agent and warrant
agent the cost of publication of at least three "tombstones" of the offering (at
least one of which shall be in national business newspaper and one of which
shall be in a major New York newspaper) and the cost of preparing at least four
hard cover "bound volumes" relating to the offering, in accordance with the
Underwriters' request. 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 Underwriters 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 D.H. Blair Investment Banking Corp., in its individual
rather than representative capacity, a non-accountable expense allowance of
$_______, of which $_______ has been paid. In the event the overallotment option
is exercised, the Company shall pay to D.H. Blair Investment Banking Corp. at
the Option Closing Date an additional amount 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 Representative (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 Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled), the Company shall be liable for the
accountable expenses of the Representative, including legal fees up to a maximum
of $45,000 (excluding blue sky fees). In the event the transactions contemplated
hereby are not consummated by reason of any action of the Company or because of
a breach by the Company of any covenant, representation or warranty herein, the
Company shall be liable for the accountable expenses of the Representative,
including legal fees, up to a maximum of $180,000.
(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Representative 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 Representative and the other Underwriters,
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 attorneys' fees), to which the
Representative or such other 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. Substitution of Underwriters.
If any Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase the First Units hereunder, or shall fail to take
up and pay for the number
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<PAGE>
of First Units set forth opposite their respective names in Schedule A hereto
upon tender of such First Units in accordance with the terms hereof, then:
(a) If the aggregate number of First Units which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of First Units, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the First
Units which such defaulting Underwriter or Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters so default and the agreed number of
First Units with respect to which such default or defaults occurs is more than
10% of the total number of First Units, the remaining Underwriters shall have
the right to take up and pay for (in such proportion as may be agreed upon among
them) the First Units which the defaulting Underwriter or Underwriters agreed
but failed to purchase. If such remaining Underwriters do not, at the First
Closing Date, take up and pay for the First Units which the defaulting
Underwriter or Underwriters agreed but failed to purchase, the time for delivery
of the First Units shall be extended to the next business day to allow the
several Underwriters the privilege of substituting within 24 hours (including
nonbusiness hours) another underwriter or underwriters satisfactory to the
Company. If no such underwriter or underwriters shall have been substituted as
aforesaid, within such 24 hour period, the time of delivery of the First Units
may, at the option of the Company, be again extended to the next following
business day, if necessary, to allow the Company the privilege of finding within
24 hours (including nonbusiness hours) another underwriter or underwriters to
purchase the First Units which the defaulting Underwriter or Underwriters agreed
but failed to purchase. If it shall be arranged for the remaining Underwriters
or substituted Underwriters to take up the First Units of the defaulting
Underwriter or Underwriters as provided in this Section 9, (i) the Company or
the Representative shall have the right to postpone the time of delivery for a
period of not more than seven business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective numbers
of First Units to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken at the basis of the underwriting obligation for all
purposes of this Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the First Units agreed to be
purchased by the defaulting Underwriters or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such First Units as aforesaid, then this
Agreement shall terminate.
If, following exercise of the option provided in Section 2(b) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Units at the Option Closing
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Date, or shall fail to take up and pay for the number of Option Units, which
they become obligated to purchase at the Option Closing Date upon tender of such
Option Units in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Units of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Units, the Underwriters shall be entitled to
purchase the number of Option Units for which there is no default or, at their
election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. 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 City
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective date of the
Registration Statement as you in your discretion shall first commence the
initial public offering by the Underwriters of any 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 Units, or the time when the Units
are first generally offered by you to dealers by letter or telegram, 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, 13, 14,
15 and 16 shall remain in effect notwithstanding such termination.
11. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14, 15 and 16
hereof, may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2(b) hereof, if exercised, may be cancelled at any
time prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriters
for the resale of the Units agreed to be purchased hereunder by reason of (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq SmallCap Market or the Nasdaq National Market having been suspended or
limited; (iii) material governmental restrictions having been imposed on trading
in securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by federal or New York state
authorities; (v) an outbreak of international hostilities or other national or
international calamity or crisis or change in economic or political conditions
having occurred; (vi) a pending or threatened legal or governmental proceeding
or action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could materially
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<PAGE>
adversely affect the Company; (vii) except as contemplated by the
Prospectus, the Company is merged or consolidated into or acquired by another
company or group or there exists a binding legal commitment for the foregoing or
any other material change of ownership or control occurs; (viii) the passage by
the Congress of the United States or by any state legislative body or federal or
state agency or other authority of any act, rule or regulation, 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 Representative to have a material
impact on the business, financial condition or financial statements of the
Company or the market for the securities offered pursuant to the Prospectus;
(ix) any adverse change in the financial or securities markets beyond normal
market fluctuations having occurred since the date of this Agreement; or (x) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11 or in Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
12. Unit Purchase Option.
At or before the First Closing Date, the Company will sell to D.H. Blair
Investment Banking Corp. (for its own account and not as Representative of the
several Underwriters), or its designees for an aggregate consideration of $100
and upon the terms and conditions set forth in the form of Unit Purchase Option
annexed as an Exhibit to the Registration Statement, a Unit Purchase Option to
purchase an aggregate of 120,000 Units. In the event of conflict in the terms of
this Agreement and the Unit Purchase Option, the language of the Unit Purchase
Option shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company or its Principal Stockholders, where
appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in writing, if
sent to the Underwriters, will be mailed, delivered and confirmed to them at
D.H. Blair Investment Banking Corp., 40 Wall Street, New York, New York 10005,
Attention: Mr. Martin A. Bell, Vice Chairman, with a copy sent to Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel,
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153 East 53rd Street, New York, New York, 10022, Attention: Spencer G. Feldman,
Esq., or if sent to the Company, will be mailed, delivered and confirmed to it
at Laminating Technologies, Inc., 170 North Industrial Way, Canton, Georgia
30115, Attention: Mr. Michael E. Noonan, Chairman, President and Chief Executive
Officer, with a copy sent to Bachner, Tally, Polevoy & Misher LLP, 380 Madison
Avenue, New York, New York 10017, Attention: Sheldon E. Misher, Esq.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
several Underwriters, the Company and, to the extent expressed, the Principal
Stockholders, any person controlling the Company or any of the several
Underwriters, 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 any of the several Underwriters of the Units. All of the
obligations of the Underwriters hereunder are several and not joint.
16. Applicable Law.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of New York applicable to agreements made and to be entirely
performed within New York.
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 several Underwriters in accordance with
its terms.
Very truly yours,
LAMINATING TECHNOLOGIES, INC.
By:______________________________________
Michael E. Noonan
Chairman, President and
Chief Executive Officer
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<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
D.H. BLAIR INVESTMENT BANKING CORP.
By:_______________________________________
For itself and as Representative
of the several Underwriters
We hereby agree to be bound by the provisions of Sections 3(l), (m) and (o)
and 13 hereof.
- ------------------------------
Michael E. Noonan
- ------------------------------
Jerry A. Ross
- ------------------------------
Robert L. Dover
34
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SCHEDULE A
----------
Underwriter Number of Units to be Purchased
- ----------- -------------------------------
D.H. Blair Investment Banking Corp .......
Total: Units
=========
35
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF LAMINATING TECHNOLOGIES, INC.
Laminating Technologies, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
A. The name of the Corporation is Laminating Technologies, Inc. The
Certificate of Incorporation of the Corporation was originally filed with the
Secretary of State of Delaware on March 18, 1996.
B. This Amended and Restated Certificate of Incorporation which restates
and integrates and further amends the Certificate of Incorporation of the
Corporation, was duly adopted in accordance with the provisions of Sections 242
and 245 of the General Corporation Law, and was approved by written consent of
the stockholders of the Corporation in accordance with the provisions of Section
228 of the General Corporation Law.
C. (1) Each issued and outstanding share of the Common Stock of the
Corporation on April 12, 1996 shall be, without any further action on the part
of the Corporation or any stockholder, automatically changed and reclassified
into 0.368973471 of a share of Common Stock of the Corporation (the
"Recapitalization") and each certificate representing outstanding shares of
Common Stock shall automatically and without further action on the part of the
holder thereof represent the number of shares of Common Stock issuable as a
result of the Recapitalization with respect to the number of shares of Common
Stock represented by such certificate.
(2) No fractional shares of Common Stock shall be issued in connection with
the Recapitalization and the Corporation will pay any fractional shares at the
fair market value thereof as determined by the Board of Directors.
(3) The Recapitalization shall be deemed to be effectuated immediately upon
the filing of this Amended and Restated Certificate of Incorporation.
D. The Restated Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Laminating Technologies, Inc.
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ARTICLE II
The registered office of the Corporation is to be located at 1013 Centre
Road in the City of Wilmington, in the County of New Castle, in the State of
Delaware. The name of its registered agent at that address is Corporation
Service Company.
ARTICLE III
The nature of the Corporation's business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation is authorized to issue is
25,250,000 shares. 20,000,000 shares shall be Common Stock, par value $.01 per
share, and 5,250,000 shares shall be Preferred Stock, par value $.01 per share,
of which 250,000 shares shall be designated Series A Convertible Preferred Stock
(the "Series A Preferred Stock").
B. Rights, Preferences and Restrictions of Preferred Stock. The Preferred
Stock authorized by this Amended and Restated Certificate of Incorporation may
be issued from time to time in one or more series. The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock are as set forth below in this Article IV (B).
The Board of Directors is hereby authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon additional
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or of any of them. The Board of Directors is also
authorized to increase or decrease the number of shares of any series (other
than the Series A Preferred Stock), prior or subsequent to the issue of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
(1) Dividends
(a) Entitlement. The holders of the Series A Preferred Stock shall be
entitled to receive dividends for each share of Series A Preferred Stock
(the "Series A Dividends") in an amount equal to $0.05 per share on each
Dividend Payment Date (as defined below). Series A Dividends shall begin to
accrue on each outstanding share of Series A Preferred Stock on the date of
issuance of such shares. So long as any shares of Series A Preferred Stock
remain outstanding, Series A Dividends shall be payable quarterly in
arrears, on the same day of the month on which the first of the shares of
Series A Preferred Stock was issued (each such date being hereinafter
referred to as a "Dividend Payment Date"). Series A Dividends shall be
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payable, when and as declared by the Board of Directors, in accordance with the
Bylaws of the Corporation and out of funds legally available therefor. In the
event any Series A Dividends are not declared and paid on a Dividend Payment
Date, such dividends shall accumulate, it being the intention of the Corporation
that the Series A Dividends be cumulative. All shares of the Common Stock of the
Corporation shall rank junior to the Series A Preferred Stock as to dividends
and to rights upon liquidation, dissolution or winding up of the Corporation.
(b) Restrictions on Dividend Payments. So long as any shares of Series A
Preferred Stock remain outstanding, no dividend shall be paid or declared, or
other distribution made on the shares of any class ranking on a parity with or
junior to, upon dissolution or liquidation or as to dividends, the Series A
Preferred Stock, nor shall any shares of any class or series ranking on a parity
with or junior to, upon dissolution or liquidation or as to dividends, the
Series A Preferred Stock be purchased, redeemed or otherwise acquired for any
consideration, if any Series A Dividends, or any portion thereof, on outstanding
shares of the Series A Preferred Stock for any past Dividend Payment Date shall
not have been paid; provided, however, that the restrictions of this
subparagraph (b) shall not prohibit the Corporation from (i) purchasing all (but
not less than all) of the shares of Common Stock held by any officer, director
or employee of the Corporation in connection with the termination of employment
of such officer or employee or removal of such director, or (ii) exercising its
right to purchase or redeem any of its shares pursuant to the terms of that
certain Shareholder Agreement between the Corporation and its shareholders dated
April 20, 1993, as the same may be modified or amended from time to time.
(c) Shares Held by Corporation. For the purposes of this paragraph (1), no
share of Series A Preferred Stock shall be deemed to be issued or outstanding at
any time at which it is held by or for the account of the Corporation or by or
for the account of any majority-owned subsidiary of the Corporation.
(2) Rights on Liquidation, Dissolution, or Winding Up.
(a) Liquidation Value. The liquidation value for each share of Series A
Preferred Stock (the "Liquidation Value") initially shall be equal to $2.00 and
shall be subject to increase from time to time, so that the Liquidation Value
will at all times be equal to the sum of $2.00, plus (i) the arrearages of any
accumulated Series A Dividends payable but undeclared and unpaid, and (ii) an
accrual in respect of the Series A Dividends prorata (based on a 365-day year)
from the immediately preceding Dividend Payment Date to the date of the event
requiring or permitting a determination of the Liquidation Value.
(b) Payment. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the holders of the
Series A Preferred Stock then outstanding shall be entitled to be paid, out of
the assets of the Corporation available for distribution to its shareholders,
before any payment shall be made to the holders of Common Stock or any shares
ranking on liquidation junior to the Series A Preferred Stock, an amount per
share equal to the Liquidation Value. If upon voluntary or involuntary
liquidation, dissolution,
-3-
<PAGE>
or winding up of the affairs of the Corporation, the assets of the Corporation
available for distribution to its shareholders shall be insufficient to pay the
holders of the Series A Preferred Stock and of any shares ranking on liquidation
on a parity with the Series A Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of such Series A Preferred Stock and
of such parity shares shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment shall have been made to the holders of the Series A
Preferred Stock and of any shares ranking on liquidation on a parity with the
Series A Preferred Stock of the full amount to which such shares shall be
entitled as aforesaid, no further payments or distributions shall be made with
respect to the Series A Preferred Stock.
(c) Mergers, Consolidations, Etc. The merger or consolidation of the
Corporation into or with any other corporation, the merger or consolidation of
any other corporation into or with the Corporation, or the sale, transfer,
mortgage, pledge or lease of all or any part of the assets of the Corporation
shall not be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this paragraph (2); and the sale, transfer or
exchange of all or substantially all of the assets of the Corporation in
exchange for securities of another corporation followed by the liquidation of
the Corporation and the distribution of such securities to the shareholders of
this Corporation shall not be deemed to be a liquidation, dissolution or winding
up of the Corporation, within the meaning of this paragraph (2), provided that
as a result of such sale, transfer or exchange and liquidation the holders of
Series A Preferred Stock shall receive shares of the transferee corporation
having the same rights as the Series A Preferred Stock, including, without
limitation, conversion rights based upon the Series A Preferred Conversion Price
as referred to in subparagraph (d) of paragraph (3). The entitlement of the
holders of Series A Preferred Stock in the case of the merger or consolidation
of the Corporation into or with any other corporation or the merger or
consolidation of any other corporation into or with the Corporation, shall be:
(x) if the Corporation shall not be the surviving corporation in such
transaction, to receive shares of the surviving corporation having the same
rights as the Series A Preferred Stock, including, without limitation,
conversion rights based upon the Series A Preferred Conversion Price as referred
to in subparagraph (d) of paragraph (3), or (y) if the Corporation is the
surviving corporation in such a transaction, that the transaction does not
effect any amendment or repeal of any of the terms and provisions of the
outstanding Series A Preferred Stock in a manner adversely affecting the holders
thereof, and which if made through an amendment to the Certificate of
Incorporation would require authorization by the vote referred to in
subparagraph (b) of paragraph (4). No such merger or consolidation transaction
shall be effected unless provision for such entitlement is made or shall result
and be met for the holders of Series A Preferred Stock, unless such transaction
shall, in addition to any other vote required, be authorized by the vote
referred to in subparagraph (b) of paragraph (4).
(d) Notification. Written notice of any voluntary or involuntary
dissolution, liquidation, or winding up of the affairs of the Corporation within
the meaning of paragraphs
-4-
<PAGE>
(2)(b) and (2)(c), stating a payment date and the place where the distributable
amounts shall be payable, shall be given by first-class mail, postage prepaid,
not less than 30 days prior to the payment date stated therein, to each record
holder of Series A Preferred Stock at his address as the same shall appear on
the stockholder records of the Corporation.
(3) Conversion Rights. into such number of fully paid and nonassessable
shares of Common Stock, or otherwise pursuant to paragraph (4)(d) below, for
each share of Series A Preferred Stock equal to the quotient of the Liquidation
Value divided by the Series A Preferred Conversion Price for that share (as
defined in paragraph (4)(d)) (as last adjusted and then in effect) rounded to
the nearest one-tenth of a share
(a) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for such stock. Each share of Series A Preferred Stock shall be convertible into
the number of fully paid and nonassessable shares of Common Stock equal to a
fraction, the numerator of which is the Liquidation Value and the denominator of
which is the Series A Preferred Conversion Price for that share (as defined in
paragraph (4)(d)) (as last adjusted and then in effect) rounded down to the
nearest share. The number of shares of Common Stock into which each share of
each series of Preferred Stock is convertible is hereinafter collectively
referred to as the "Conversion Rate" for such series.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Rate for such series immediately upon the closing of the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1or Form SB-2 (or any
equivalent successor forms) under the Securities Act of 1933, as amended.
(c) Surrender of Shares. In order for any holder of Series A Preferred
Stock to be entitled to convert the same into Common Stock, he shall surrender
the certificate or certificates for such Series A Preferred Stock at the office
of the Corporation or of any transfer agent for the Preferred Stock, duly
endorsed to the Corporation or in blank or accompanied by proper instruments of
transfer to the Corporation or in blank, and shall give written notice to the
Corporation at its principal executive offices that he elects to convert said
shares of Series A Preferred Stock and shall state in writing therein the name
or names in which he wishes the certificate or certificates for shares of Common
Stock issuable on such conversion to be issued. Every such notice of election to
convert shall constitute a contract between the holder of such Series A
Preferred Stock and the Corporation (i) whereby such holder shall be deemed to
subscribe for the amount of Common Stock which he will be entitled to receive
upon such conversion and, in payment and satisfaction of such subscription, to
surrender the Series A Preferred Stock to be converted and to release the
Corporation from all obligation thereon, and (ii) whereby the Corporation shall
be deemed to agree that the surrender of the certificate or certificates for
such Series A Preferred Stock and the extinguishment of obligation thereon shall
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constitute full payment of such subscription for the Common Stock so subscribed
for and to be issued upon such conversion.
(d) Issuance of Conversion Shares. The Corporation will as soon as
practicable after such deposit of certificates for Series A Preferred Stock,
accompanied by the written notice and the statement above prescribed, issue and
deliver to the person for whose account such shares of Series A Preferred Stock
were so surrendered, or to his nominee or nominees, a certificate or
certificates for the number of full shares of Common Stock to which he shall be
entitled as aforesaid, together with a check or cash in respect of any fraction
of a share as hereinafter provided in paragraph (4)(i). Subject to the following
provisions of this paragraph (4), such conversion shall be deemed to have been
made on the Business Day on which the Corporation shall have received the shares
of Series A Preferred Stock to be converted and the notice and statement above
prescribed, and the person or persons entitled to receive the Common Stock
issuable upon conversion of such Series A Preferred Stock shall be deemed for
all purposes to have become the record holder or holders of such Common Stock
and to have ceased to be the holder of the shares of Series A Preferred Stock
surrendered for conversion on such Business Day. The Corporation shall not be
required to convert, and no surrender of any shares of Series A Preferred Stock
shall be effective for that purpose, while the shareholder records of the
Corporation are closed for any purpose, but the surrender of any shares of
Series A Preferred Stock for conversion during any period while such records are
closed shall become effective for conversion immediately upon the reopening of
such records, as if the conversion had been made on the date such shares of
Series A Preferred Stock were surrendered, and on the basis of conversion in
effect on the date of such surrender. Nothing in the preceding sentence shall
require the Corporation to effect conversions otherwise than during business
hours upon a Business Day, and shares of Series A Preferred Stock which are
surrendered for conversion upon a day which is not a Business Day shall be
deemed to be so surrendered upon the next succeeding Business Day.
(e) Conversion Price; Adjustment. The Series A Preferred Conversion Price
shall initially be equal to Two Dollars ($2.00) and shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall at any time or from time to time after the
date of original issuance of the first share of the Series A Preferred Stock
(the "Base Date") issue any shares of Common Stock, other than the Excluded
Stock (as hereinafter defined), without consideration or for a consideration per
share, or issue any shares of Preferred Stock or other securities convertible
into, exchangeable for or exercisable for shares of Common Stock, other than
Excluded Stock, without consideration or for a consideration per share of
underlying Common Stock less than the Series A Preferred Conversion Price in
effect immediately prior to such issue, the Series A Preferred Conversion Price
in effect immediately prior to each such issue shall be reduced to the price per
share at which the Corporation issued or sold such additional shares of stock.
For the purposes of any adjustment of the Series A Preferred Conversion Price
pursuant to this clause (i), the following provisions shall be applicable:
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(A) In the case of the issuance of Common Stock in whole or in part
for cash, the consideration shall be deemed to be the amount of cash paid
therefor, plus the value of any property other than cash received by the
Corporation as provided in paragraph (B) of this clause (i), less any
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(B) In the case of the issuance of Common Stock for consideration in
whole or in part in property or consideration other than cash, the value of
such property or consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the
aggregate Current Market Price (as hereinafter defined) of the shares of
Common Stock being issued, less any cash consideration paid for such
shares.
(C) In the case of the issuance of (I) options to purchase or rights
to subscribe for Common Stock, (II) securities convertible into or
exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities;
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in paragraphs
(A) and (B) above), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum purchase price
provided in such options or rights for the Common Stock covered
thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options
to purchase, or rights to subscribe for, such convertible or
exchangeable securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration
equal to the consideration received by the Corporation for any such
securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation
upon the conversion or exchange of such securities or the exercise of
any related options or rights (determined in the manner provided in
paragraphs (A) and (B) above); and
(3) if there is any decrease in the conversion or exercise price
of, or any increase in the number of shares to be received upon
exercise, conversion or
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exchange of any such options, rights or convertible or exchangeable
securities (other than a change resulting from the antidilution
provisions thereof), the Series A Preferred Conversion Price shall be
automatically lowered to reflect such change.
(ii) "Excluded Stock" shall mean:
(A) Common Stock issued upon conversion of any shares of Series A
Preferred Stock;
(B) Securities issued pursuant to the acquisition of another
corporation, partnership, joint venture, trust or other entity by the
Corporation by merger, consolidation, stock acquisition, share
exchange, reorganization, or otherwise whereby the Corporation, or its
shareholders of record immediately prior to the effectiveness of such
transaction, directly or indirectly own at least the majority of the
voting power of such other entity or the resulting or surviving
corporation immediately after such transaction;
(C) Common Stock issued to the Chief Executive Officer of the
Corporation in connection with his purchase of shares of Common Stock
or exercise of options to purchase additional shares of Common Stock,
pursuant to the employment agreement entered into by such officer and
the Corporation prior to the Base Date; and
(D) Common Stock issued to employees, consultants or others who
provide services to the Corporation, pursuant to any options to
purchase or rights to subscribe for such Common Stock granted pursuant
to an option or rights plan approved by the Corporation's Board of
Directors (or its Compensation Committee), but not to exceed 150,000
shares of Common Stock, giving effect to appropriate adjustment to
prevent dilution thereof.
(iii) If the Corporation shall at any time after the Base Date fix a record
date for the subdivision, a share dividend or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders of
Common Stock entitled to receive such subdivision, share dividend or split-up
(or the date of such subdivision, share dividend or split-up, if no record date
is fixed), the Series A Preferred Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of the Series A Preferred Stock shall be increased in proportion to
such increase in outstanding shares.
(iv) If, at any time after the Base Date, the number of shares of Common
Stock outstanding is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date fixed for such combination (or the
date of such combination, if no record date is fixed), the Series A Preferred
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of Series A Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares.
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(v) If, at any time after the Base Date, there shall be any capital
reorganization, or any reclassification of the capital stock of the Corporation
(other than a change in par value or from par value at no par value or from no
par value to par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), or the consolidation or merger of the
Corporation with or into another corporation (other than a consolidation or
merger described in clause (ii) above or in which the Corporation is the
continuing corporation and which does not result in any change in the powers,
designations, preferences and rights (or the qualifications, limitations or
restrictions, if any) of the Series A Preferred Stock) (an "Extraordinary
Transaction"), the Series A Preferred Conversion Price with respect to the
Series A Preferred Stock outstanding after the Extraordinary Transaction shall
be adjusted to provide that the shares of Series A Preferred Stock outstanding
immediately prior to the effectiveness of the Extraordinary Transaction shall be
convertible into the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from or surviving
such Extraordinary Transaction which the holder of the number of shares of
Common Stock deliverable (immediately prior to the effectiveness of the
Extraordinary Transaction) upon conversion of such Series A Preferred Stock
would have been entitled to receive upon such Extraordinary Transaction. The
provisions of this subparagraph (e)(v) shall similarly apply to successive
Extraordinary Transactions.
(vi) All calculations under this paragraph (4)(e) shall be made to the
nearest one cent ($.01) or to the nearest share, as the case may be.
(vii) As used herein, the Current Market Price at any date of one share of
Common Stock shall be deemed to be the average of the daily closing prices for
the thirty (30) consecutive business days ending on the fifth (5th) business day
before the day in question (as adjusted for any share dividend, split-up,
combination or reclassification that took effect during such thirty (30)
business day period) as follows:
(A) If the Common Stock is listed or admitted for trading on a
national securities exchange, the closing price for each day shall be the
last reported sales price regular way or, in case no such reported sales
took 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 listed or admitted to trading.
(B) If the Common Stock is not at the time listed or admitted for
trading on any such exchange, then such price as shall be equal to the last
reported sale price, or, if there is no such sale price, the average of the
last reported bid and asked prices, as reported by the Nasdaq Stock Market
("Nasdaq") on such day.
(C) If, on any day in question, the security shall not be listed or
admitted to trading on a national securities exchange or quoted on Nasdaq,
then such price shall be equal to the last reported bid and asked prices on
such day as reported by the National Quotation Bureau, Inc. or any similar
reputable quotation and reporting service, if such quotation is not
reported by the National Quotation Bureau, Inc.
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(D) If the Common Stock is not traded in such manner that the
quotations referred to in this clause (vii) are available for the period
required hereunder, the Current Market Price shall be determined by the
Board of Directors of the Corporation.
(viii) In any case in which the provisions of this paragraph (4)(e) shall
require that an adjustment shall become effective immediately after a record
date for an event, the Corporation may defer until the occurrence of that event
(A) issuing to the holder of any share of Series A Preferred Stock converted
after such record date and before the occurrence of such event the additional
shares of capital stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock; provided, however, that the Corporation shall deliver to such
holder a true bill or other appropriate instrument evidencing such holder's
right to receive such additional Series A Preferred Stock, in such case, upon
the occurrence of the event requiring such adjustment.
(ix) No adjustment in the Series A Preferred Conversion Price shall be
required under this paragraph (4)(e) unless such adjustment would require a
decrease of at least two cents ($0.02); provided, however, that any adjustments
which by reason of the foregoing are not required at the time to be made shall
be carried forward and taken into account and included in determining the amount
of any subsequent adjustment. If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive any
dividend or distribution or any subscription or purchase rights and shall,
thereafter and before the distribution to shareholders of any such dividend,
distribution, or subscription or purchase rights, legally abandon its plan to
pay or deliver such dividend, distribution, or subscription or purchase rights,
then no adjustment in the Series A Preferred Conversion Price shall be required
by reason of the taking of such record.
(f) Notices of Adjustment. Whenever the Series A Preferred Conversion Price
is adjusted pursuant to this paragraph (4), the Corporation shall promptly mail
to each holder of record of Series A Preferred Stock a certificate signed by the
President or Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the events requiring the adjustment and the method by which
such adjustment was calculated and specifying the Series A Preferred Conversion
Price after giving effect to such adjustment. Failure to file any certificate or
notice or to publish or mail any notice, or any defect in any certificate or
notice, pursuant to this paragraph (4), shall not affect the legality or
validity of the adjustment in the Series A Preferred Conversion Price or of any
transaction giving rise thereto.
(g) Taxes. The issuance of share certificates on conversion of shares of
Series A Preferred Stock shall be made free of any tax in respect of such issue
(other than any income tax that may become due). The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares in a name
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other than that of the holder of the shares of Series A Preferred Stock
converted, and the Corporation shall not be required to issue or deliver any
such share certificate unless and until the person or persons requesting the
issuance thereof shall have paid to the Corporation the amount of any such tax
or shall have established to the satisfaction of the Corporation that such tax
has been paid.
(h) Reservation of Shares. The Corporation shall at all times reserve and
keep available, out of its authorized and unissued shares, solely for the
purpose of effecting the conversion of Series A Preferred Stock, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series A Preferred Stock from time to time
outstanding. The Corporation shall from time to time, in accordance with the
General Corporation Law, use its best efforts to cause the number of authorized
shares of its Common Stock to be increased if at any time the number of
authorized shares of Common Stock remaining unissued shall not be sufficient to
permit the conversion of all of the then outstanding shares of Series A
Preferred Stock.
(i) Fractional Shares. The Corporation shall not be required to issue
fractional shares of Common Stock or scrip upon conversion of Series A Preferred
Stock. As to any final fraction of a share of Common Stock which a holder of one
or more shares of Series A Preferred Stock would otherwise be entitled to
receive upon conversion of shares of Series A Preferred Stock in the same
transaction, the Corporation shall pay a cash adjustment in respect of such
final fraction in an amount equal to the Liquidation Value per share of Series A
Preferred Stock.
(j) Notices. Any notice to holders of the Series A Preferred Stock shall be
sent by first-class mail, postage prepaid, to each holder of Series A Preferred
Stock at such holder's address as it appears on the Corporation's records.
Notice of the Corporation's intention to effect a registered public offering of
securities shall include a copy of (i) each registration statement filed by the
Corporation under the Securities Act and each amendment thereof and each exhibit
and schedule thereto, and (ii) each order of the Securities and Exchange
Commission declaring any such registration statement to be effective. Notice of
the declaration of any dividend or distribution shall include a description of
the cash, securities or property to be distributed and the record date for
determining the holders of Common Stock entitled to receive such dividend or
distribution.
(k) Treasury Stock. For the purposes of this paragraph (4), the number of
shares of Common Stock at any time outstanding shall not include shares then
owned or held by or for the account of the Corporation or any majority-owned
subsidiary.
(4) Voting Rights.
(a) Non-Voting Shares. Except as set forth in this paragraph (4) or as
expressly required by applicable provisions of the General Corporation Law, the
holders of record of the shares of Series A Preferred Stock shall not be
entitled to vote the Series A
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Preferred Stock with respect to any matter coming before any meeting of the
shareholders, or otherwise to be acted upon by the shareholders, it being the
intention of the Corporation that the Series A Preferred Stock be non-voting
stock.
(b) Amendment to Terms of Series A Preferred Stock. Notwithstanding the
provisions of subparagraph (4)(a), so long as any shares of Series A Preferred
Stock shall be outstanding, the Corporation shall not, without the affirmative
vote at a meeting called for that purpose or the written consent of the holders
of at least a majority of the aggregate number of shares of Series A Preferred
Stock at the time outstanding, or such greater vote as may be required by the
General Corporation Law, adopt any amendment to its Certificate of Incorporation
which would amend or repeal any of the terms and provisions of the outstanding
shares of Series A Preferred Stock in a manner materially affecting the holders
thereof.
(c) Issuance of Parity or Senior Preferred Shares. So long as any shares of
Series A Preferred Stock shall be outstanding, the Corporation shall not,
without the affirmative vote at a meeting called for that purpose or the written
consent of the holders of at least a majority of the aggregate amount of shares
of the Series A Preferred Stock outstanding, take action to authorize or create
any class or series of shares ranking on parity with or prior to the Series A
Preferred Stock, or to increase the authorized number of shares of any such
parity prior class or series. It shall not be deemed to be the creation of any
such parity or prior class or series of shares if the Corporation shall take
action to authorize the creation or issuance of any indebtedness of the
Corporation, notwithstanding that such indebtedness may be subordinate to other
indebtedness of the Corporation, and notwithstanding that such indebtedness may
be convertible at the option of the Corporation or the option of the holder into
shares of the Corporation (but the authorization of any such shares which are on
parity with or prior to the Series A Preferred Stock shall be subject to the
foregoing provisions), and notwithstanding that such indebtedness may be both so
subordinate and so convertible.
(d) Exceptions to Voting Rights. It shall not constitute any amendment or
repeal of the terms and provisions of any of the outstanding shares of Series A
Preferred Stock having an adverse effect on the holders thereof within the
meaning of subparagraph (b) of this paragraph (4) for the Corporation to take
action to authorize or create any other class or series of shares ranking junior
to the Series A Preferred Stock as to either distributions or liquidation
preferences or both; and, except as otherwise provided by law or expressly
otherwise provided herein, any such action may be authorized without the
concurrence of holders of the shares of Series A Preferred Stock.
(5) Relationship to Other Series of Preferred Stock. Without limiting in
any manner the powers of the Board of Directors as expressed in Article II
hereof, and without limiting the rights of the holders of the Series A Preferred
Stock as provided in paragraph (4)(c) above, it is expressly understood that the
Board of Directors, without any action on the part of stockholders, may provide
in a Certificate of Designations providing for any series of Preferred Stock, or
otherwise, such conforming provisions and such restrictions on any series
(including the Series A Preferred Stock) as are reasonably designed to permit
consistent treatment among
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parity series (without materially adversely affecting the rights of the holders
of Series A Preferred Stock), including, without limitation, restrictions on the
payment of distributions on and/or purchase or redemption (or the setting aside
of amounts into a sinking fund for purchase or redemption) of shares ranking on
a parity with or junior to such newly created series, which restrictions are
applicable to such parity or junior series (including the Series A Preferred
Stock).
(6) Meaning of Certain Terms.
(a) For the purposes hereof, shares shall be deemed to rank:
(i) prior to the Series A Preferred Stock if, either as to
distributions or on liquidation, the holders thereof shall be
entitled to the receipt of distributions or of amounts
distributable on liquidation, dissolution, or winding up of the
affairs of the Corporation, as the case may be, in preference or
priority to the holders of the Series A Preferred Stock;
(ii) on a parity with the Series A Preferred Stock if, either as to
distributions or on liquidation, whether or not the distribution
rates, distribution payment dates, or redemption or liquidation
prices per share thereof are different from those of the Series A
Preferred Stock (including, without limitation, whether or not
such other shares shall have the benefit of any provision for any
extra participating preferred distribution), the holders thereof
shall be entitled to the receipt of distributions or of amounts
distributable on liquidation, dissolution, or winding up of the
affairs of the Corporation, as the case may be, in proportion to
their respective distribution rates or liquidation prices,
without preference or priority one over the other as between the
holders of such shares and the holders of the Series A Preferred
Stock; and
(iii) junior to the Series A Preferred Stock if, either as to
distributions or on liquidation, the rights of the holders
thereof shall be subject or subordinate to the rights of the
holders of the Series A Preferred Stock in respect of the receipt
of distributions or of the amounts distributable on liquidation,
dissolution, or winding up of the affairs of the Corporation, as
the case may be.
(b) For the purposes hereof, "Business Day" shall mean any day upon which
commercial banks in the City of Atlanta, Georgia are required to be open for the
transaction of their general banking business.
(7) Certain Provisions Concerning Conversion and Retirement. Upon the
conversion of any of the shares of Series A Preferred Stock pursuant to the
provisions of paragraph (3), such shares of Series A Preferred Stock shall not
be reissued and shall be deemed to be retired.
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C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all classes
of stock at the time outstanding having prior rights as to dividends, and the
rights of series of Preferred Stock which may from time to time come into
existence, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation. Upon the liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation shall be distributed as provided in
Section B2 of this Article IV.
3. Voting Rights. The holder of each share of Common Stock shall have the
right to one vote, and shall be entitled to notice of any stockholders' meeting
in accordance with the bylaws of the Corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
ARTICLE V
The Corporation shall indemnify and advance expenses to the fullest
extent permitted by Section 145 of the General Corporation Law of Delaware, as
amended from time to time, each person who is or was a director or officer of
the Corporation and the heirs, executors and administrators of such a person.
ARTICLE VII
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware, may, on application in a summary way of the Corporation
or of any creditor or stockholder thereof or on the application of any receiver
or receivers appointed for the Corporation under the provisions of Section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for the Corporation under the
provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or a class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
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ARTICLE VIII
The personal liability of directors of the Corporation is hereby eliminated
to the full extent permitted by Section 102(b)(7) of the General Corporation Law
of the State of Delaware as the same may be amended and supplemented.
ARTICLE IX
Subject to the provisions of Article IV, paragraph (4) hereof, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned have hereunto signed this Amended and
Restated Certificate of Incorporation and affirm that the statements made herein
are true under the penalties of perjury, this 21st day of June, 1996.
LAMINATING TECHNOLOGIES, INC.
By: /s/ MICHAEL E. NOONAN
-------------------------------------
Michael E. Noonan
Chief Executive Officer
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BY-LAWS OF
LAMINATING TECHNOLOGIES, INC.
(A Delaware Corporation)
-------------------------
ARTICLE I
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of Laminating
Technologies, Inc. (hereinafter called the "Corporation") for the election of
directors and for the transaction of such other business as may come before the
meeting shall be held following the close of the Corporation's fiscal year, at
such date and time as shall be designated by the Board or Chairman of the Board
or the President, or at such other date and time as the Board shall designate.
Section 2. Special Meeting. Special meetings of the stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board or the
Chairman of the Board or the President. The Board of Directors shall call a
special meeting of the stockholders when requested in writing by stockholders
holding not less than 20% of the outstanding stock of the corporation; such
written request shall state the object of the meeting proposed to be held.
Section 3. Notice of Meetings. Notice of the place, date and time of the holding
of each annual and special meeting of the stockholders and, in the case of a
special meeting, the purpose or purposes thereof shall be given personally or by
mail in a postage prepaid envelope to each
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stockholder entitled to vote at such meeting, not less than ten (10) nor more
than sixty (60) days before the date of such meeting, and, if mailed, it shall
be directed to such stockholder at his address as it appears on the records of
the Corporation, unless he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at some other address. If
mailed, such notice shall be deemed to be delivered when deposited in United
States mail so addressed with postage thereon prepaid. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy. Unless the
Board shall fix after the adjournment a new record date for an adjourned
meeting, notice of such adjourned meeting need not be given if the time and
place to which the meeting shall be adjourned were announced at the meeting at
which the adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 4. Place of Meetings. Meetings of the stockholders may be held at such
place, within or without the State of Delaware, as the Board or other officer
calling the same shall specify in the notice of such meeting, or in a duly
executed waiver of notice thereof.
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Section 5. Quorum. At all meetings of the stockholders the holders of a majority
of the votes of the shares of stock of the Corporation issued and outstanding
and entitled to vote shall be present in person or by proxy to constitute a
quorum for the transaction of any business, except when stockholders are
required to vote by class, in which event a majority of the issued and
outstanding shares of the appropriate class shall be present in person or by
proxy, or except as otherwise provided by statute or in the Certificate of
Incorporation. In the absence of a quorum, the holders of a majority of the
votes of the shares of stock present in person or by proxy and entitled to vote,
or if no stockholder entitled to vote is present, then any officer of the
Corporation may adjourn the meeting from time to time. At any such adjourned
meeting at which a quorum may be present any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Organization. At each meeting of the stockholders the Chairman of the
Board, or in his absence or inability to act, the President, or in the absence
or inability to act of the Chairman of the Board and the President, a Vice
President, or in the absence of all the foregoing, any person chosen by a
majority of those stockholders present, shall act as chairman of the meeting.
The Secretary, or, in his absence or inability to act, the Assistant Secretary
or any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute, the Certificate of
Incorporation, or any certificate duly filed in the office of the Department of
State of Delaware, each holder of
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record of shares of stock of the Corporation having voting power shall be
entitled at each meeting of the stockholders to one vote for every share of such
stock standing in his name on the record of stockholders of the Corporation on
the date fixed by the Board as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such meeting; or
if such record date shall not have been so fixed, then at the close of business
on the day next preceding the day on which the meeting is held; or each
stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact. Any such proxy shall be delivered to the secretary of
such meeting at or prior to the time designated in the order of business for so
delivering such proxies. No proxy shall be valid after the expiration of three
years from the date thereof, unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the stockholder executing it, except in
those cases where an irrevocable proxy is permitted by law. Except as otherwise
provided by statute, these By-Laws, or the Certificate of Incorporation, any
corporate action to be taken by vote of the stockholders shall be authorized by
a majority of the total votes, or when stockholders are required to vote by
class by a majority of the votes of the appropriate class, cast at a meeting of
stockholders by the holders of shares present in person or represented by proxy
and entitled to vote on such action. Unless required by statute, or determined
by the chairman of the meeting to be advisable, the vote on any question need
not be by written ballot. On a vote by written ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. List of Stockholders. The officer who has charge of the stock ledger
of the Corporation, or the transfer agent of the Corporation's stock, if there
be one then acting, shall
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prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held, at
the place where the meeting is to be held, or at the office of the transfer
agent. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing
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of any challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the Certificate of Incorporation, any action
required by Subchapter VII of the General Corporation Law, to be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in this State, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
a corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
ARTICLE II
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation shall be
managed by the Board. The Board may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
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Section 2. Number, Qualifications, Election and Term of Office. The number of
directors of the Corporation shall be fixed from time to time by the vote of a
majority of the entire Board then in office and the number thereof may
thereafter by like vote be increased or decreased to such greater or lesser
number (not less than three) as may be so provided, subject to the provisions of
Section 11 of this Article II. All of the directors shall be of full age and
need not be stockholders. Except as otherwise provided by statute or these
By-Laws, the directors shall be elected at the annual meeting of the
stockholders for the election of directors at which a quorum is present, and the
persons receiving a plurality of the votes cast at such meeting shall be
elected. Each director shall hold office until the next annual meeting of the
stockholders and until his successor shall have been duly elected and qualified,
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Certificate of Incorporation.
Section 3. Place of Meetings. Meetings of the Board may be held at such place,
within or without the State of Delaware, as the Board may from time to time
determine or as shall be specified in the notice or waiver of notice of such
meeting.
Section 4. Annual Meeting. The Board shall meet for the purpose of organization,
the election of officers and the transaction of other business, as soon as
practicable after each annual meeting of the stockholders, on the same day and
at the same place where such annual meeting shall be held. Notice of such
meeting need not be given. Such meeting may be held at any other time or place
(within or without the State of Delaware) which shall be specified in a notice
thereof given as hereinafter provided in Section 7 of this Article II.
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Section 5. Regular Meetings. Regular meetings of the Board shall be held at such
time and place as the Board may from time to time determine. If any day fixed
for a regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day. Notice of regular
meetings of the Board need not be given except as otherwise required by statute
or these By-Laws.
Section 6. Special Meetings. Special meetings of the Board may be called by two
or more directors of the Corporation or by the Chairman of the Board or the
President.
Section 7. Notice of Meetings. Notice of each special meeting of the Board (and
of each regular meeting for which notice shall be required) shall be given by
the Secretary as hereinafter provided in this Section 7, in which notice shall
be stated the time and place (within or without the State of Delaware) of the
meeting. Notice of each such meeting shall be delivered to each director either
personally or by telephone, telegraph, cable or wireless, at least twenty-four
hours before the time at which such meeting is to be held or by first-class
mail, postage prepaid, addressed to him at his residence, or usual place of
business, at least three days before the day on which such meeting is to be
held. If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of notice or who shall attend such meeting without protesting, prior to or at
its commencement, the lack of notice to him. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any regular or
special meeting need not state the purposes of such meeting.
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Section 8. Quorum and Manner of Acting. A majority of the entire Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and, except as otherwise
expressly required by statute or the Certificate of Incorporation, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. Any one or more members of the Board or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment allowing all
participants in the meeting to hear each other at the same time and
participation by such means shall constitute presence in person at a meeting. In
the absence of a quorum at any meeting of the Board, a majority of the directors
present thereat, or if no director be present, the Secretary, may adjourn such
meeting to another time and place, or such meeting, unless it be the annual
meeting of the Board, need not be held. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as provided in Article
III of these By-Laws, the directors shall act only as a Board and the individual
directors shall have no power as such.
Section 9. Organization. At each meeting of the Board, the Chairman of the Board
(or, in his absence or inability to act, the President, or, in his absence or
inability to act, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 10. Resignations. Any director of the Corporation may resign at any time
by giving written notice of his resignation to the Board or Chairman of the
Board or the President or the
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Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 11. Vacancies. Vacancies, including newly created directorships, may be
filled by a majority of the directors then in office, including those who have
so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
Section for the filling of other vacancies.
Section 12. Removal of Directors. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws, any director may be removed,
either with or without cause, at any time, by the affirmative vote of a majority
of the votes of the issued and outstanding shares of stock entitled to vote for
the election of the stockholders called and held for that purpose, or by a
majority vote of the Board of Directors at a meeting called for such purpose,
and the vacancy in the Board caused by any such removal may be filled by such
stockholders or directors, as the case may be, at such meeting, and if the
stockholders shall fail to fill such vacancy, such vacancy shall be filled in
the manner as provided by these By-Laws.
Section 13. Compensation. The Board shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
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Section 14. Action by the Board. To the extent permitted under the laws of the
State of Delaware, any action required or permitted to be taken at any meeting
of the Board or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
ARTICLE III
Executive and Other Committees
Section 1. Executive and Other Committees. The Board may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
Committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the powers of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; provided, however, that in the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Each committee shall keep minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to
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revision or alteration by the Board, provided, however, that third parties shall
not be prejudiced by such revision or alteration. Section 2. General. A majority
of any committee may determine its action and fix the time and place of its
meetings, unless the Board shall otherwise provide. Notice of such meetings
shall be given to each member of the committee in the manner provided for in
Article II, Section 7. The Board shall have the power at any time to fill
vacancies in, to change the membership of, or to dissolve any such committee.
Nothing herein shall be deemed to prevent the Board from appointing one or more
committees consisting in whole or in part of persons who are directors of the
Corporation; provided, however, that no such committee shall have or may
exercise any authority of the Board.
ARTICLE IV
Officers
Section 1. Number and Qualifications. The officers of the Corporation shall
include the Chairman of the Board, the President, one or more Vice Presidents
(one or more of whom may be designated Executive Vice President or Senior Vice
President), the Treasurer, and the Secretary. Any two or more offices may be
held by the same person. Such officers shall be elected from time to time by the
Board, each to hold office until the meeting of the Board following the next
annual meeting of the stockholders, or until his successor shall have been duly
elected and shall have qualified, or until his death, or until he shall have
resigned, or have been removed, as hereinafter provided in these By-Laws. The
Board may from time to time elect a Vice Chairman of the Board, and the Board
may from time to time elect, or the Chairman of the
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Board, or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), as
may be necessary or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such
terms as may be prescribed by the Board or by the appointing authority.
Section 2. Resignation. Any officer of the Corporation may resign at any time by
giving written notice of his resignation to the Board, the Chairman of the
Board, the President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3. Removal. Any officer or agent of the Corporation may be removed,
either with or without cause, at any time, by the vote of the majority of the
entire Board at any meeting of the Board or, except in the case of an officer or
agent elected or appointed by the Board, by the Chairman of the Board or the
President. Such removal shall be without prejudice to the contractual rights, if
any, of the person so removed.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. a. The Chairman of the Board. The Chairman of the Board, if one be
elected, shall, if present, preside at each meeting of the stockholders and of
the Board and shall
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be an ex officio member of all committees of the Board. He shall perform all
duties incident to the office of Chairman of the Board and such other duties as
may from time to time be assigned to him by the Board.
b. The Vice Chairman of the Board. The Vice Chairman of the Board, if one
be elected, shall have such powers and perform all such duties as from time to
time may be assigned to him by the Board or the Chairman of the Board and,
unless otherwise provided by the Board, shall in the case of the absence or
inability to act of the Chairman of the Board, perform the duties of the
Chairman of the Board and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board. Section 6. The
President. The President shall be the chief operating and executive officer of
the Corporation and shall have general and active supervision and direction over
the business and affairs of the Corporation and over its several officers,
subject, however, to the direction of the Chairman of the Board and the control
of the Board. If no Chairman of the Board is elected, or at the request of the
Chairman of the Board, or in the case of his absence or inability to act, unless
there be a Vice Chairman of the Board so designated to act, the President shall
perform the duties of the Chairman of the Board and when so acting shall have
all the powers of, and be subject to all the restrictions upon, the Chairman of
the Board. He shall perform all duties incident to the office of President and
such other duties as from time to time may be assigned to him by the Board or
the Chairman of the Board. Section 7. Vice Presidents. Each Executive Vice
President, each Senior Vice President and each Vice President shall have such
powers and perform all such duties as from time to time may be assigned to him
by the Board, the Chairman of the Board, or the President. They shall, in the
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order of their seniority, have the power and may perform the duties of the
Chairman of the Board and the President.
Section 8. The Treasurer. The Treasurer shall be the chief financial officer of
the Corporation and shall exercise general supervision over the receipt, custody
and disbursement of Corporate funds. He shall have such further powers and
duties as may be conferred upon him from time to time by the President or the
Board of Directors. He shall perform the duties of controller if no one is
elected to that office.
Section 9. The Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the purpose,
the minutes of all meetings of the Board, the committees of the Board and the
stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal be a facsimile, as hereinafter provided) and affix and attest the seal to
all other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed, and
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(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board,
the Chairman of the Board, or the President.
Section 10. Officer's Bonds or Other Security. If required by the Board, any
officer of the Corporation shall give a bond or other security for the faithful
performance of his duties, in such amount and with such surety or sureties as
the Board may require. Section 11. Compensation. The compensation of the
officers of the Corporation for their services as such officers shall be fixed
from time to time by the Board, provided, however, that the Board may delegate
to the Chairman of the Board or the President the power to fix the compensation
of officers and agents appointed by the Chairman of the Board or the President,
as the case may be. An officer of the Corporation shall not be prevented from
receiving compensation by reason of the fact that he is also a director of the
Corporation, but any such officer who shall also be a director shall not have
any vote in the determination of the amount of compensation paid to him.
ARTICLE V
Indemnification
The Corporation shall, to the fullest extent permitted by the laws of the
state of incorporation, indemnify any and all persons whom it shall have power
to indemnify against any and all of the costs, expenses, liabilities or other
matters incurred by them by reason of having been officers or directors of the
Corporation, any subsidiary of the Corporation or of any other corporation for
which he acted as officer or director at the request of the Corporation.
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ARTICLE VI
Contracts, Checks, Drafts, Bank Account, etc.
Section 1. Execution of Contracts. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on behalf of the
Corporation by such officer or officers (including any assistant officer) of the
Corporation as the Board may from time to time direct. Such authority may be
general or confined to specific instances as the Board may determine. Unless
authorized by the Board or expressly permitted by these By-Laws, an officer or
agent or employee shall not have any power or authority to bind the Corporation
by any contract or engagement or to pledge its credit or to render it
pecuniarily liable for any purpose or to any amount.
Section 2. Loans. Unless the Board shall otherwise determine, either (a) the
Chairman of the Board, the Vice Chairman of the Board or the President, singly,
or (b) a Vice President, together with the Treasurer, may effect loans and
advances at any time for the Corporation or guarantee any loans and advances to
any subsidiary of the Corporation, from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, or guarantee of
indebtedness of subsidiaries of the Corporation, but no officer or officers
shall mortgage, pledge, hypothecate or transfer any securities or other property
of the Corporation, except when authorized by the Board.
Section 3. Check, Drafts, etc. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of
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indebtedness of the Corporation, shall be signed in the name and on behalf of
the Corporation by such persons and in such manner as shall from time to time be
authorized by the Board. Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board
may from time to time designate or as may be designated by any officer or
officers of the Corporation to whom such power of designation may from time to
time be delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, checks, drafts and other
orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation, or in such manner as the Board may determine by resolution.
Section 5. General and Special Bank Accounts. The Board may from time to time
authorize the opening and keeping of general and special bank accounts with such
banks, trust companies or other depositories as the Board may designate or as
may be designated by any officer or officers of the Corporation to whom such
power of designation may from time to time be delegated by the Board. The Board
may make such special rules and regulations with respect to such bank accounts,
not inconsistent with the provisions of these By-Laws, as it may deem expedient.
Section 6. Proxies in Respect of Securities of Other Corporations. Unless
otherwise provided by resolution adopted by the Board of Directors, the Chairman
of the Board, the President, or a Vice President may from time to time appoint
an attorney or attorneys or agent or agents, of the Corporation, in the name and
on behalf of the Corporation to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
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corporation, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VII
Shares, Etc.
Section 1. Stock Certificates. Each holder of shares of stock of the Corporation
shall be entitled to have a certificate, in such form as shall be approved by
the Board, certifying the number of shares of the Corporation owned by him. The
certificates representing shares of stock shall be signed in the name of the
Corporation by the Chairman of the Board or the President or a Vice President
and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation (which seal may be a
facsimile, engraved or printed); provided, however, that where any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or is registered by a registrar other than the Corporation or one
of its employees, the signature of the officers of the Corporation upon such
certificates may be facsimiles, engraved or printed. In case any officer who
shall have signed or whose facsimile signature has been placed upon such
certificates shall have ceased to be such
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officer before such certificates shall be issued, they may nevertheless be
issued by the Corporation with the same effect as if such officer were still in
office at the date of their issue.
Section 2. Books of Account and Record of Shareholders. The books and records of
the Corporation may be kept at such places within or without the state of
incorporation as the Board of Directors may from time to time determine. The
stock record books and the blank stock certificate books shall be kept by the
Secretary or by any other officer or agent designated by the Board of Directors.
Section 3. Transfer of Shares. Transfers of shares of stock of the Corporation
shall be made on the stock records of the Corporation only upon authorization by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation may hold any such stockholder of record liable for calls and
assessments and the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the part of any other
person whether or not it shall have express or other notice thereof. Whenever
any transfers of shares shall be made for collateral security and not
absolutely, and both the transferor and transferee request the Corporation to do
so, such fact shall be stated in the entry of the transfer.
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Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost, stolen, or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representative to give the Corporation a bond in such sum, limited or unlimited,
and in such form and with such surety or sureties as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft, or destruction of
any such certificate, or the issuance of a new certificate. Anything herein to
the contrary notwithstanding, the Board, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of Delaware.
Section 6. Fixing of Record Date. In order that the Corporation may determine
the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
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exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of, or to vote at, a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VIII
Offices
Section 1. Principal or Registered Office. The principal registered office of
the Corporation shall be at such place as may be specified in the Certificate of
Incorporation of the Corporation or other certificate filed pursuant to law, or
if none be so specified, at such place as may from time to time be fixed by the
Board. Section 2. Other Offices. The Corporation also may have an office or
offices other than said principal or registered office, at such place or places
either within or without the State of Delaware.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be determined by the Board.
-22-
<PAGE>
ARTICLE X
Seal
The Board shall provide a corporate seal which shall contain the name of
the Corporation, the words "Corporate Seal" and the year and State of Delaware.
ARTICLE XI
Amendments
Section 1. Shareholders. These By-Laws may be amended or repealed, or new
By-Laws may be adopted, at any annual or special meeting of the stockholders, by
a majority of the total votes of the stockholders or when stockholders are
required to vote by class by a majority of the appropriate class, in person or
represented by proxy and entitled to vote on such action; provided, however,
that the notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of these By-Laws,
or the adoption of new By-Laws, is one of the purposes of such meeting. Section
2. Board of Directors. These By-Laws may also be amended or repealed or new
By-Laws may be adopted, by the Board at any meeting thereof; provided, however,
that notice of such meeting shall have been given as provided in these By-Laws,
which notice shall mention that amendment or repeal of the By-Laws, or the
adoption of new By-Laws, is one of the purposes of such meetings. By-Laws
adopted by the Board may be amended or repealed by the stockholders as provided
in Section 1 of this Article XI.
-23-
<PAGE>
ARTICLE XII
Miscellaneous
Section 1. Interested Directors. No contract or other transaction between the
Corporation and any other corporation shall be affected and invalidated by the
fact that any one or more of the Directors of the Corporation is or are
interested in or is a Director or officer or are Directors or officers of such
other corporation, and any Director or Directors, individually or jointly, may
be a party or parties to or may be interested in any contract or transaction of
the Corporation or in which the Corporation is interested; and no contract, act
or transaction of the Corporation with any person or persons, firm or
corporation shall be affected or invalidated by the fact that any Director or
Directors of the Corporation is a party or are parties to or interested in such
contract, act or transaction, or in any way connected with such person or
persons, firms or associations, and each and every person who may become a
Director of the Corporation is hereby relieved from any liability that might
otherwise exist from contracting with the Corporation for the benefit of
himself, any firm, association or corporation in which he may be in any way
interested. Section 2. Ratification. Any transaction questioned in any
stockholders' derivative suit on the grounds of lack of authority, defective or
irregular execution, adverse interest of director, officer or stockholder,
nondisclosure, miscomputation, or the application of improper principles or
practices of accounting, may be ratified before or after judgment, by the Board
of Directors or by the stockholders in case less than a quorum of Directors are
qualified, and, if so ratified, shall have the same force and effect as if the
questioned transaction had been originally duly authorized, and said
ratification shall be binding upon the Corporation and its stockholders, and
-24-
<PAGE>
shall constitute a bar to any claim or execution of any judgment in respect of
such questioned transaction.
-25-
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii)
RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE
ISSUED IN EXCHANGE FOR THIS NOTE.
- --------------------------------------------------------------------------------
LAMINATING TECHNOLOGIES, INC.
No. $
PROMISSORY NOTE
Laminating Technologies, Inc., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ______ or registered assigns (the
"Payee") on the earlier of the closing date of the public offering of securities
by the Company contemplated in the Confidential Term Sheet dated March 12, 1996
or April ___, 1996 (the "Maturity Date") at the offices of the Company, 1920
West Paces Ferry Road, N.W., Atlanta, Georgia 30327, the principal amount of
______ ($____), including interest at the rate of ten percent (10%) per annum
accrued through the Maturity Date, in such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
This Note is issued pursuant to a Subscription Agreement dated as of April
___, 1996, between the Company and the Payee (the "Subscription Agreement"), a
copy of which agreement is available for inspection at the Company's principal
office. Notwithstanding any provision to the contrary contained herein, this
Note is subject and entitled to certain terms, conditions, covenants and
agreements contained in the Subscription Agreement. Any transferee or
transferees of the Note, by their acceptance hereof, assume the obligations of
the Payee in the Subscription Agreement with respect to the conditions and
procedures for transfer of the Note. Reference to the Subscription Agreement
shall in no way impair the absolute and unconditional obligation of the Company
to pay both principal and interest hereon as provided herein.
1. Prepayment
A. The principal amount of this Note may be prepaid by the Company, in
whole or in part, without penalty, at any time.
<PAGE>
2. Covenants of Company
A. The Company covenants and agrees that, so long as this Note shall
be outstanding, it will:
(i) Promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon the Company or upon its income and
profits, or upon any of its property, before the same shall become in default,
as well as all lawful claims for labor, materials and supplies which, if unpaid,
might become a lien or charge upon such properties or any part thereof;
provided, however, that the Company shall not be required to pay and discharge
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings and the Company
shall set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested;
(ii) Do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises and comply with all laws applicable to the Company, except where the
failure to comply would not have a material adverse effect on the Company;
(iii) At all times reasonably maintain, preserve, protect and
keep its property used or useful in the conduct of its business in good repair,
working order and condition, and from time to time make all needful and proper
repairs, renewals, replacements, betterments and improvements thereto as shall
be reasonably required in the conduct of its business;
(iv) To the extent necessary for the operation of its business,
keep adequately insured by all financially sound reputable insurers, all
property of a character usually insured by similar corporations and carry such
other insurance as is usually carried by similar corporations; and
(v) At all times keep true and correct books, records and
accounts.
(vi) Except for the incurrence of any indebtedness (including
without limitation, the incurrence of any guarantee or contingent payment
obligation with respect thereto) secured by a lien, mortgage or guarantee on the
property (whether real or personal) or equipment of the Company and any
refinancings or replacements thereto or trade debt incurred in the ordinary
course of business, not incur any indebtedness whatsoever which indebtedness
does not expressly provide that it is wholly subordinated in right of payment to
the indebtedness evidenced by this Note and any identical Notes issued pursuant
to the Term Sheet.
-2-
<PAGE>
3. Events of Default
A. This Note shall become and be due and payable upon written demand
made by the holder hereof if one or more of the following events, herein called
events of default, shall happen and be continuing:
(i) Default in the payment of the principal and accrued interest
on any of the Notes issued pursuant to the Term Sheet when and as the same shall
become due and payable, whether by acceleration or otherwise;
(ii) Default in the due observance or performance of any material
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof and such default shall continue uncured
for thirty (30) days after written notice thereof, specifying such default,
shall have been given to the Company by the holder of the Note;
(iii) Default in the payment of any outstanding indebtedness in
excess of $25,000 principal amount or in the due observance or performance of
any material covenant, condition or agreement on the part of the Company with
respect to any outstanding indebtedness with the result that such outstanding
indebtedness shall become due and payable prior to the due date otherwise
specified therefor and such default shall continue uncured or such acceleration
shall not be rescinded or annulled within thirty (30) days after written notice
thereof to the Company from the holder of this Note;
(iv) Application for, or consent to, the appointment of a
receiver, trustee or liquidator of the Company or of its property;
(v) Admission in writing of the Company's inability to pay its
debts as they mature;
(vi) General assignment by the Company for the benefit of
creditors;
(vii) Filing by the Company of a voluntary petition in bankruptcy
or a petition or an answer seeking reorganization, or an arrangement with
creditors;
(viii) Entering against the Company of a court order approving a
petition filed against it under the Federal bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within sixty (60)
days;
(ix) The sale by the Company of substantially all of its assets;
or
-3-
<PAGE>
(x) The merger by the Company with or into another corporation,
other than for purposes of changing domicile, where the Company is not the
surviving corporation; or
(xi) A material breach of the Company's representations contained
in the Subscription Agreement.
B. The Company agrees that notice of the occurrence of any event of
default will be promptly given to the holder at his or her registered address by
certified mail.
C. Subject to the provisions of 4(B) hereof, in case any one or more
of the events of default specified above shall happen and be continuing, the
holder of this Note may proceed to protect and enforce his rights by suit in the
specific performance of any covenant or agreement contained in this Note or in
aid of the exercise of any power granted in this Note or may proceed to enforce
the payment of this Note or to enforce any other legal or equitable rights as
such holder.
4. Amendments and Waivers
A. Subject to the provisions of 4(C) and (D) hereof, the covenants set
forth in 2(A) hereof may be waived by the written consent of the holders of a
majority of the outstanding principal amount of the Notes issued pursuant to the
Term Sheet.
B. Subject to the provisions of 4(C) and (D) hereof, the events of
default set forth in clauses (i), (ii), (iii) and (xi) of 3(A) hereof may be
waived by the written consent of the holders of a majority of the outstanding
principal amount of the Notes issued pursuant to the Term Sheet.
C. The Company may amend or supplement this Note with the written
consent of the holders of a majority of the outstanding principal amount of the
Notes issued pursuant to the Term Sheet; provided, however, that without the
consent of each Noteholder, no amendment, supplement or waiver may:
1. reduce the principal amount of Notes whose holders must
consent to any amendment, supplement or waiver;
2. reduce the rate of interest or principal of the Note;
3. extend the maturity date of the Note or the time for payment
of interest by more than one year from the respective date(s) set forth
herein.
-4-
<PAGE>
D. After any waiver, amendment or supplement under this section
becomes effective, the Company shall mail to the holders of the Notes a notice
briefly describing such waiver, amendment or supplement.
5. Miscellaneous
A. The Company may consider and treat the person in whose name this
Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) and the Company shall not
be affected by any notice to the contrary. The registered owner of this Note
shall have the right to transfer it by assignment (subject to the limitations on
transfer contained in the Subscription Agreement) and the transferee thereof
shall, upon his registration as owner of this Note, become vested with all the
powers and rights of the transferor. Registration of any new owner shall take
place upon presentation of this Note to the Company at its offices, 1920 West
Paces Ferry Road, N.W., Atlanta, Georgia 30327, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
B. Payments of interest shall be made as specified above to the
registered owner of this Note. Payment of principal and interest shall be made
to the registered owner of this Note upon presentation of this Note upon or
after maturity.
C. This Note shall be construed and enforced in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name by its Chairman.
LAMINATING TECHNOLOGIES, INC.
By: ______________________________
Michael E. Noonan
Chairman and Chief Executive Officer
-5-
WARRANT AGREEMENT
AGREEMENT, dated as of ____________, 1996, by and among LAMINATING
TECHNOLOGIES, INC., a Delaware corporation ("Company"), AMERICAN STOCK TRANSFER
& TRUST CO., as Warrant Agent (the "Warrant Agent"), and D.H. BLAIR INVESTMENT
BANKING CORP., a New York corporation ("Blair").
W I T N E S S E T H
WHEREAS, in connection with (i) a public offering of up to 1,500,000 units
("Units"), each unit consisting of one share of the Company's Common Stock, par
value $.01 per share ("Common Stock"), one redeemable Class A Warrant ("Class A
Warrants") and one redeemable Class B Warrant ("Class B Warrants"), pursuant to
an Underwriting Agreement (the "Underwriting Agreement"), dated _______________,
1996, between the Company and Blair, (ii) the issuance to Blair or its designees
of Unit Purchase Options to purchase an aggregate of 150,000 additional Units,
to be dated as of __________, 1996 (the "Unit Purchase Options"), and (iii) the
issuance of 997,500 Class A Warrants to certain securityholders of the Company
upon the conversion of warrants acquired by them in a private placement in April
and May 1996, the Company may issue up to 2,647,500 Class A Warrants and
1,650,000 Class B Warrants (the Class A Warrants and Class B Warrants may be
collectively referred to as "Warrants"); and
WHEREAS, each Class A Warrant initially entitles the Registered Holder
thereof to purchase one share of Common Stock and one Class B Warrant and,
accordingly, the Company may issue up to an additional 2,647,500 Class B
Warrants; and
WHEREAS, each Class B Warrant initially entitles the Registered Holder
thereof to purchase one share of Common Stock; and
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 Registered 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:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
<PAGE>
(a) "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof consists of 20,000,000 shares of Common
Stock, par value $.01 per share.
(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 as to each Class A Warrant
and Class B Warrant __________, 1996.
(e) "Purchase Price" shall mean the purchase price to be paid upon exercise
of each Class A Warrant or Class B Warrant in accordance with the terms hereof,
which price shall be $6.50 as to the Class A Warrants and $8.75 as to the Class
B Warrants, subject to adjustment from time to time pursuant to the provisions
of Section 9 hereof, and subject to the Company's right to reduce the Purchase
Price upon notice to all Registered Holders of Warrants.
(f) "Redemption Price" shall mean the price at which the Company may, at
its option in accordance with the terms hereof, redeem the Class A Warrants
and/or Class B Warrants, which price shall be $.05 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 Co., as the
Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 p.m. (New York City time) on
____________, 2001 or, with respect to Warrants which are outstanding as of the
applicable Redemption Date (as defined in Section 8) and specifically excluding
Warrants issuable upon exercise of Unit Purchase Options if the Unit Purchase
Options have not been exercised, the Redemption Date, whichever is earlier;
provided that if such date shall in the State of New York be a holiday or
2
<PAGE>
a day on which banks are authorized or required to close, then 5:00 p.m. (New
York City time) on the next following day which in the State of New York is not
a holiday or a day on which banks are authorized or required to close. Upon
notice to all Registered Holders, the Company shall have the right to extend the
Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Class A Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Common
Stock and one Class B Warrant upon the exercise thereof, in accordance with the
terms hereof, subject to modification and adjustment as provided in Section 9.
(b) A Class B Warrant initially shall entitle the Registered Holder of the
Warrant Certificate 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.
(c) The Class A Warrants and Class B Warrants included in the offering of
Units will be detachable and separately transferable immediately from the shares
of Common Stock constituting part of such Units. The Class B Warrants will also
be detachable and separately transferable immediately from the shares of Common
Stock issued upon exercise of the Class A Warrants.
(d) Upon execution of this Agreement, Warrant Certificates representing the
number of Class A Warrants and Class B 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 as part of the Units.
(e) 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 3,600,000 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(f) 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 Unit Purchase Option; (vi) 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
3
<PAGE>
of shares of Common Stock purchasable upon exercise of the Warrants or the
Target Price(s) therefor made pursuant to Section 8 hereof; and (vii) those
Class B Warrants issued upon exercise of Class A Warrants.
(g) Pursuant to the terms of the Unit Purchase Options, Blair may purchase
up to 150,000 Units, which include up to 150,000 Class A Warrants and 300,000
Class B Warrants. Notwithstanding anything to the contrary contained herein, the
Warrants underlying the Unit Purchase Option shall not be subject to redemption
by the Company except under the terms and conditions set forth in the Unit
Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A as to the Class A Warrants and Exhibit B as to the Class B
Warrants (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 any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Class A Warrants or Class B Warrants may be listed, or to
conform to usage or to the requirements of Section 2(d). 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 letters AW on Class A Warrants of all
denominations and the letters BW on Class B Warrants of all denominations.
(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(a) hereof.
4
<PAGE>
SECTION 4. Exercise.
(a) 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 Warrant 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. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of Blair or such other
investment banks and brokerage houses as the Company shall approve in writing to
the Warrant Agent, certificates shall immediately be issued without prior notice
to the Company or any delay. 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, subject to the provisions of Sections 4(b) and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of any Warrant
after __________, 1997, (i) the market price of the Company's Common Stock is
greater than the then Purchase Price of the Warrant, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD") as designated in writing on the Warrant Certificate
Subscription Form, (iii) the Warrant was not held in a discretionary account,
(iv) disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 (as such rule or any
successor rule may be in effect as of such time of exercise) promulgated under
the Securities Exchange Act of 1934, then the Warrant Agent, simultaneously with
the distribution of the Warrant Proceeds to the Company shall, on behalf of the
Company, pay from the Warrant Proceeds, a fee of 5% (the "Blair Fee") of the
Purchase Price to Blair (of which a portion may be reallowed by Blair to the
dealer who solicited the exercise, which may also be Blair or D.H. Blair & Co.,
Inc.). In the event the Blair Fee is not received within five days of the date
on which the Company receives Warrant Proceeds, then the Blair Fee shall begin
accruing interest at an annual rate of prime plus four (4)%, payable by the
Company to Blair at the time Blair receives the Blair Fee. Within five days
after exercise the Warrant Agent shall send to Blair a copy of the reverse side
of each Warrant exercised. Blair shall reimburse the Warrant Agent, upon
request, for its reasonable
5
<PAGE>
expenses relating to compliance with this section 4(b). In addition, Blair and
the Company may at any time during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant Certificates returned to
the Warrant Agent upon exercise of Warrants. The provisions of this paragraph
may not be modified, amended or deleted without the prior written consent of
Blair.
(c) In order to enforce the provisions of Section 4(b) above, in the event
there is any dispute or question as to the amount or payment of the Blair Fee,
the Warrant Agent is hereby expressly authorized to withhold payment to the
Company of the Warrant Proceeds unless and until the Company establishes an
escrow account for the purpose of depositing the entire amount of the Blair Fee,
which amount will be deducted from the net Warrant Proceeds to be paid to the
Company. The funds placed in the escrow account may not be released to the
Company without a written agreement from Blair that the required Blair Fee has
been received by Blair.
SECTION 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, on which the other shares of outstanding Common Stock of
the Company are then listed or shall be eligible for inclusion in the Nasdaq
National Market or the Nasdaq SmallCap Market if the other shares of outstanding
Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use 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 or Class B Warrants upon
exercise of the Class A Warrants, or the issuance or delivery of any shares upon
exercise of the Class B Warrants; provided, however, that if the shares of
Common Stock or Class B Warrants, as the case may be, are to
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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.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of the terms and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon 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 cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as
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Warrant Agent, or, with the prior written consent of Blair, disposed of or
destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement, will be
immediately detachable from the Common Stock and transferable separately
therefrom.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Class A Warrants or Class B 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.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(g) hereof, on not less than
thirty (30) days notice (the "Redemption Notice") given at any time after
, 1997, to Registered Holders of the Warrants being redeemed, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$.05 per Warrant, provided the Market Price of the Common Stock receivable upon
exercise of such Warrants shall exceed $9.10 with respect to the Class A
Warrants and $12.25 with respect to the Class B Warrants (the "Target Prices"),
subject to adjustment as set forth in Section 8(f), below. Market Price shall
mean (i) the average closing bid price of the Common Stock, for thirty (30)
consecutive business days ending on the Calculation Date as reported by Nasdaq,
if the Common Stock is traded on the Nasdaq SmallCap Market, or (ii) the average
last reported sale price of the Common Stock, for thirty (30) consecutive
business days ending on the Calculation Date, as reported by the primary
exchange on which the Common Stock is traded, if the Common Stock is traded on a
national securities exchange, or by Nasdaq, if the Common Stock is traded on the
Nasdaq National Market. All Warrants of a class must be redeemed if any of that
class are redeemed, provided that the Warrants underlying the Unit Purchase
Option may only be redeemed in compliance with and subject to the terms and
conditions of the Unit Purchase Option. For purposes of this Section 8, the
Calculation Date shall mean a date within 15 days of the mailing of the
Redemption Notice. The date fixed for redemption of the Warrants is referred to
herein as the "Redemption Date."
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The Class B Warrant Redemption Date may not be earlier than thirty-one (31)
days after the Class A Warrant Redemption Date.
(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 request Blair to
mail a Redemption Notice 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 Redemption Notice shall specify (i) the redemption price, (ii) the
Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the redemption price paid, (iv) that Blair will assist each
Registered Holder of a Warrant in connection with the exercise thereof and (v)
that the right to exercise the Warrant shall terminate at 5:00 p.m. (New York
City time) on the business day immediately preceding 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 Blair or 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
City time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the Redemption Notice, 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 Registered 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 Prices
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.
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SECTION 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, except that for
purposes of Section 9, the Calculation Date shall mean the date of the sale or
other transaction referred to in this Section 9) 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)(F) below) for the issuance of such additional shares would purchase at the
Market Price 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 and Class B Warrants purchasable upon the
exercise of each Class A Warrant or the total number of shares of Common Stock
purchasable upon exercise of each Class B Warrant, as applicable, shall (subject
to the provisions contained in Section 9(b) hereof) be such number of shares
(and Class B Warrants, if applicable) (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class A Warrants or Class B Warrants
outstanding, in lieu of the adjustment in the number of shares of Common Stock
(and Class B Warrants, if applicable) purchasable upon the exercise of each
Warrant as hereinabove provided, so that each Class A Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock
and one Class B Warrant, and each Class B 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,
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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 of the
Company under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the Company
shall exercise its option to issue new Warrant Certificates pursuant to Section
2(f) 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
therefor were expressed in the Warrant Certificates when the same were
originally issued.
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(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 Blair 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
(A) to (F) shall also be applicable:
(A) 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.
(B) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $.10 in the
Purchase Price; provided that any adjustments which by reason of this
clause (B) 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.
(C) In case of (1) the sale by the Company for cash (or as a component
of a unit being sold 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 consideration other than cash, if any (such
securities convertible, exercisable or exchangeable into Common Stock 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
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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, if any, 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, other
than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants or options) is less than the Market Price
of the Common Stock on the date of the issuance or sale 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.
(D) 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
Market Price of 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.
(E) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (C) or (D)
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
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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 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 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. 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 referred
to in Paragraph (C) or (D) above, 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.
(F) 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 exercise of any of the options presently outstanding
under the Company's 1996 Stock Option Plan (the "Plan") for officers,
directors and certain other key personnel of the Company; or
(ii) upon the issuance or exercise of any other securities which may
hereafter be granted or exercised under the Plan or under any other
employee benefit plan of the Company; or
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(iii) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the Unit
Purchase Option or upon the sale or exercise of the Unit Purchase Option;
or
(iv) upon the sale of any shares of Common Stock or Convertible
Securities in a firm commitment underwritten public offering, including,
without limitation, shares sold upon the exercise of any overallotment
option granted to the underwriters in connection with such offering; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were
outstanding on the date of the original sale of the Warrants or were
thereafter issued or sold; or
(vi) 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.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 9, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Warrants
and the Company if made in good faith by the Board of Directors of the Company.
(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,
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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.
SECTION 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 the
exercise of any Warrant, 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:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or is traded on
the Nasdaq National Market, the current market value shall be the last
reported sale price of the Common Stock on such exchange or market 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 market; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange or is not traded on the Nasdaq
National Market, the current market value shall be the mean of the last
reported bid and asked prices reported by the Nasdaq SmallCap Market or, if
not traded thereon, by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(3) 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 market value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
SECTION 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
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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.
SECTION 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.
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole discretion,
together with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected
by any notice or knowledge to the contrary, except as otherwise expressly
provided in Section 7 hereof.
SECTION 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 cancelled by it and retired. The Warrant Agent shall also cancel the
Warrant Certificate or Warrant Certificates following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer or exchange.
SECTION 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
17
<PAGE>
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or responsibility
to any holder of Warrant Certificates to make or cause to be made any adjustment
of the Purchase Price or the Redemption Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustments, or
with respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of facts contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
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 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after
18
<PAGE>
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 that is a registered transfer agent under the Securities
Exchange Act of 1934, as amended. 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.
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.
SECTION 16. Modification of Agreement. Subject to the provisions of Section
4(b), the parties hereto 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; (ii) to reflect an increase in the
number of Class A or Class B Warrants which are to be governed by this Agreement
resulting from a subsequent public offering of Company securities which includes
Class A or Class B Warrants having the same terms and conditions as the Class A
or Class B Warrants, respectively, originally covered by or subsequently added
to this Agreement under this Section 16; or (iii) 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
19
<PAGE>
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.
SECTION 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, at Laminating Technologies, Inc., 170 North Industrial
Way, Canton, Georgia 30115, Attention: Mr. Michael E. Noonan, Chairman,
President and Chief Executive Officer, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at its Corporate Office; and if to Blair, at D.H. Blair Investment
Banking Corp., 44 Wall Street, New York, New York 10005, Attention: Mr. Martin
A. Bell, Vice Chairman.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 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.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the earlier of the Warrant Expiration Date or the date upon which
all Warrants (including the warrants issuable upon exercise of the Unit Purchase
Options) 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.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
LAMINATING TECHNOLOGIES, INC.
By:_______________________________
Michael E. Noonan
Chairman, President and
Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST CO.
By:_______________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By:_______________________________
Authorized Officer
21
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
No. AW _______ Class A Warrants
VOID AFTER _______ , 2001
CLASS A WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK AND REDEEMABLE CLASS B WARRANTS
LAMINATING TECHNOLOGIES, INC.
This certifies that FOR VALUE RECEIVED, __________________ or registered
assigns (the "Registered Holder") is the owner of the number of Class A Warrants
("Class A Warrants") specified above. Each Class A Warrant represented hereby
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
par value $.01 per share ("Common Stock"), of LAMINATING TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), and one Class B Warrant of the Company at
any time between ____________, 1996, 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 Co., as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $6.50 (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the Company.
This Warrant Certificate and each Class A 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
______________, 1996, by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock and Class
B Warrants subject to purchase upon the exercise of each Class A Warrant
represented hereby are subject to modification or adjustment.
Each Class A 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 Class A Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant
A-1
<PAGE>
Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Class A Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York City time) on
_________________, 2001, or such earlier date as the Class A Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
p.m. (New York City 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 the Class A Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will file
a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Class A Warrants are outstanding. The Class A Warrants represented hereby
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 Class A Warrants, each of such new Warrant Certificates to
represent such number of Class A Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with a
$ ________ transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Class A Warrant Certificate at such office, a new Warrant
Certificate or Warrant Certificates representing an equal aggregate number of
Class A 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 Class A 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.
The Class A Warrants represented hereby may be redeemed at the option of
the Company, at a redemption price of $.05 per Class A Warrant at any time after
________ , 1997, provided the Market Price (as defined in the Warrant Agreement)
for the Common Stock shall exceed $9.10 per share. Notice of redemption shall be
given not later than the thirtieth day before the date fixed for redemption, all
as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the Class
A Warrants represented hereby except to receive the $.05 per Class A Warrant
upon surrender of this Warrant Certificate.
A-2
<PAGE>
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 Class A 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.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Class A Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
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.
LAMINATING TECHNOLOGIES, INC.
Dated:_________________, 1996 By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
[corporate seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST CO.,
as Warrant Agent
By:___________________________
Authorized Officer
A-3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICAT]
TRANSFER FEE: $_______ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_______ Class A Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class A Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
and be delivered to
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
and if such number of Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Class A Warrant Certificate
for the balance of such Class A Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class A Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise
A-4
<PAGE>
indicated by listing the name of another NASD member firm, it will be assumed
that the exercise was solicited by D.H. Blair Investment Banking Corp. or D.H.
Blair & Co., Inc.
------------------------------------------
(Name of NASD Member)
Dated:_________________ X ______________________________________
____________________________________________
____________________________________________
Address
____________________________________________
Taxpayer Identification Number
____________________________________________
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 A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-5
<PAGE>
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
OF TRANSFEREE
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
______________________ of the Class A 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.
Dated:________________ X_________________________________________
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 A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
<PAGE>
EXHIBIT B
[FORM OF FACE OF CLASS B WARRANT CERTIFICATE]
No. BW ____ Class B Warrants
VOID AFTER _____________, 2001
CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
LAMINATING TECHNOLOGIES, INC.
This certifies that FOR VALUE RECEIVED, ___________or registered assigns
(the "Registered Holder") is the owner of the number of Class B Warrants
specified above. Each Class B Warrant represented hereby initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, par value $.01 per share
("Common Stock"), of LAMINATING TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), at any time between ___________, 1996 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 Co., as Warrant Agent,
or its successor (the "Warrant Agent"), accompanied by payment of $8.75 (the
"Purchase Price") in lawful money of the United States of America in cash or by
official bank or certified check made payable to the Company.
This Warrant Certificate and each Class B 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 ___________,
1996, by and among the Company, the Warrant Agent and D.H. Blair Investment
Banking Corp.
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 Class B Warrant represented hereby are
subject to modification or adjustment.
Each Class B 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 Class B 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 Class B Warrants.
B-1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York City time) on
_______________, 2001 or such earlier date as the Class B Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
p.m. (New York City 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 the Class B Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will file
a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Class B Warrants are outstanding. The Class B Warrants represented hereby
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 Class B Warrants, each of such new Warrant Certificates to
represent such number of Class B Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with any
applicable 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 Class B 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 Class B 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.
The Class B Warrants represented hereby may be redeemed at the option of
the Company, at a redemption price of $.05 per Class B Warrant at any time after
_____________, 1997, provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed $12.25 per share. Notice of
redemption shall be given not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Class B Warrants represented hereby except to receive the $.05 per Class B
Warrant upon surrender of this Warrant 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 Class B Warrant represented hereby (notwithstanding any
notations of ownership or writing
B-2
<PAGE>
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.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Class B Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
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.
LAMINATING TECHNOLOGIES, INC.
Dated:_______________, 1996
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
[corporate seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST CO.,
as Warrant Agent
By:___________________________
Authorized Officer
B-3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________Class B Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class B Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
and be delivered to
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
and if such number of Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
B-4
<PAGE>
The undersigned represents that the exercise of the Class B Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise indicated by listing the name
of another NASD member firm, it will be assumed that the exercise was solicited
by D.H. Blair Investment Banking Corp.
------------------------------------------
(Name of NASD Member)
Dated:_________________ X ______________________________________
____________________________________________
____________________________________________
Address
____________________________________________
Taxpayer Identification Number
____________________________________________
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 A MEMBER OF THE MEDALLION STAMP PROGRAM.
B-5
<PAGE>
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
OF TRANSFEREE
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
_______________of the Class B 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.
Dated:____________________ X___________________________________
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 A MEMBER OF THE MEDALLION STAMP PROGRAM.
B-6
Option to Purchase
150,000 Units
LAMINATING TECHNOLOGIES, INC.
Unit Purchase Option
Dated: ___________, 1996
THIS CERTIFIES THAT D.H. BLAIR INVESTMENT BANKING CORP. (herein sometimes called
the "Holder") is entitled to purchase from LAMINATING TECHNOLOGIES, INC., a
Delaware corporation (hereinafter called the "Company"), at the prices and
during the periods as hereinafter specified, up to One Hundred Fifty Thousand
(150,000) Units ("Units"), each Unit consisting of one share of the Company's
Common Stock, par value $.01 per share, as now constituted ("Common Stock"), one
Class A warrant ("Class A Warrants") and one Class B warrant ("Class B
Warrants"). Each Class A Warrant is exercisable to purchase one share of Common
Stock and one Class B Warrant at an exercise price of $6.50 at any time until
the fifth anniversary of the date of the Underwriting Agreement referred to
below, and each Class B Warrant is exercisable to purchase one share of Common
Stock at an exercise price of $8.75 at any time until the fifth anniversary of
the date of the Underwriting Agreement. The Class A Warrants and Class B
Warrants are herein together referred to as the "Warrants."
The Units have been registered under a Registration Statement on Form SB-2 (File
No. 333-_______ ) declared effective by the Securities and Exchange Commission
on _______, 1996 (the "Registration Statement"). This Option, together with
options of like tenor, constituting in the aggregate options (the "Options") to
purchase _______ Units, subject to adjustment in accordance with Section 8 of
this Option (the "Option Units"), was originally issued pursuant to an
Underwriting Agreement between the Company and D.H. Blair Investment Banking
Corp., as underwriter (the "Underwriter"), in connection with an initial public
offering (the "Offering") of 1,500,000 Units (the "Public Units") through the
Underwriter, in consideration of $150 received for the Options.
Except as specifically otherwise provided herein, the Common Stock and the
Warrants issued pursuant to the option herein granted (the "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 _______, 1996, executed in
connection with such public offering (the "Warrant Agreement"), and except that
(i) the holder shall have registration rights under the Securities Act of 1933,
as amended (the "Act"), for the Option, the Common Stock and the Warrants
included in the Option Units, and the shares of Common Stock underlying the
Warrants, as more fully described in Section 6 of this Option and (ii) the
Warrants issuable upon exercise of the Option will be subject to redemption by
the Company pursuant to the Warrant Agreement at any time
<PAGE>
after the Option has been exercised and the Warrants underlying the Option Units
are outstanding. Any such redemption shall be on the same terms and conditions
as the Warrants included in the Public Units (the "Public Warrants"). The
Company will list the Common Stock underlying this Option and, at the Holder's
request, the Warrants on the Nasdaq National Market, the Nasdaq SmallCap Market
or such other exchange or market as the Common Stock or Public Warrants may then
be listed or quoted. In the event of any extension of the expiration date or
reduction of the exercise price of the Public Warrants, the same changes to the
Warrants included in the Option Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the prices,
subject to adjustment in accordance with Section 8 of this Option ("the
"Exercise Price"), and during the periods as follows:
(a) During the period from _______, 1996 to _______, 1997, inclusive,
the Holder shall have no right to purchase any Option Units hereunder,
except that in the event of any merger, consolidation or sale of all or
substantially all the capital stock or assets of the Company or in the case
of any statutory exchange of securities with another corporation (including
any exchange effected in connection with a merger of another corporation
into the Company) subsequent to _______, 1997, the Holder shall have the
right to exercise this Option and the Warrants included herein at such time
and receive the kind and amount of shares of stock and other securities and
property (including cash) which a holder of the number of shares of Common
Stock underlying this Option and the Warrants included in this Option would
have owned or been entitled to receive had this Option been exercised
immediately prior thereto.
(b) Between _______, 1997 and _______,2001, inclusive, the Holder
shall have the option to purchase Option Units hereunder at a price of
$_______ per Unit. For purposes of the adjustments under Section 8 hereof,
the Per Share Exercise Price shall be deemed to be $_______, subject to
further adjustment as provided in such Section 8.
(c) After _________, 2001, the Holder shall have no right to purchase
any Units hereunder.
2. (a) 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); and (ii) payment to the
Company of the exercise price then in effect for the number of Option Units
specified in the above-mentioned purchase form together with applicable stock
transfer taxes,
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<PAGE>
if any. 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 Section 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 certificates for the Common Stock and
Warrants so purchased shall be delivered to the Holder as soon as practicable
but not later than ten (10) days after the rights represented by this Option
shall have been so exercised.
(b) At any time during the period above specified, during which this Option
may be exercised, the Holder may, at its option, exchange this Option, in whole
or in part (an "Option Exchange"), into the number of Option Units determined in
accordance with this Section (b), by surrendering this Option at the principal
office of the Company or at the office of its stock transfer agent, accompanied
by a notice stating such Holder's intent to effect such exchange, the number of
Option Units into which this Option is to be exchanged and the date on which the
Holder requests that such Option Exchange occur (the "Notice of Exchange"). The
Option Exchange shall take place on the date specified in the Notice of Exchange
or, if later, the date the Notice of Exchange is received by the Company (the
"Exchange Date"). Certificates for the shares of Common Stock and Warrants
issuable upon such Option Exchange and, if applicable, a new Option of like
tenor evidencing the balance of the Option Units remaining subject to this
Option, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any Option
Exchange, this Option shall represent the right to subscribe for and acquire the
number of Option Units (rounded to the next highest integer) equal to (x) the
number of Option Units specified by the Holder in its Notice of Exchange up to
the maximum number of Option Units subject to this option (the "Total Number")
less (y) the number of Option Units equal to the quotient obtained by dividing
(A) the product of the Total Number and the existing Exercise Price by (B) the
Fair Market Value. "Fair Market Value" shall mean first, if there is a trading
market as indicated in subsection (i) below for the Units, such Fair Market
Value of the Units and if there is no such trading market in the Units, then
Fair Market Value shall have the meaning indicated in subsections (ii) through
(v) below for the aggregate value of all shares of Common Stock and Warrants
which comprise a Unit:
(i) If the Units are listed on a national securities exchange or
listed or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value shall be the average of the last reported
sale prices or the average of the means of the last reported bid and asked
prices, respectively, of the Units on such exchange or market for the
twenty (20) business days ending on the last business day prior to the
Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a national
securities exchange or admitted to unlisted trading privileges on such
exchange or listed for
-3-
<PAGE>
trading on the Nasdaq National Market or the Nasdaq SmallCap Market, the
Fair Market Value shall be the average of the last reported sale prices or
the average of the means of the last reported bid and asked prices,
respectively, of Common Stock or Warrants, respectively, on such exchange
or market for the twenty (20) business days ending on the last business day
prior to the Exchange Date; or
(iii) If the Common Stock or Warrants are not so listed or admitted to
unlisted trading privileges, the Fair Market Value shall be the average of
the means of the last reported bid and asked prices of the Common Stock or
Warrants, respectively, for the twenty (20) business days ending on the
last business day prior to the Exchange Date; or
(iv) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the Fair
Market Value shall be an amount, not less than book value thereof as at the
end of the most recent fiscal year of the Company ending prior to the
Exchange Date, determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company; or
(v) If the Warrants are not so listed or admitted to unlisted trading
privileges, and bid and asked prices are not so reported for Warrants, then
Fair Market Value for the Warrants shall be an amount equal to the
difference between (i) the Fair Market Value of the shares of Common Stock
and Warrants which may be received upon the exercise of the Warrants, as
determined herein, and (ii) the Warrant Exercise Price.
3. Neither this Option nor the underlying securities shall be transferred,
sold, assigned, or hypothecated for a period of one year commencing except that
they 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, any member
participating in the selling group relating to the Offering or any officer of
such selling group member. 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 Section 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 Section 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 Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Option Units purchased hereunder and the Common
Stock which may be issued upon exercise of the Warrants will, upon issuance, be
duly and validly issued, fully paid and nonassessable and no personal liability
will attach to the holder thereof.
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<PAGE>
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 Units.
5. This Option shall not entitle the Holder to any voting rights or any
other rights, or subject to the Holder to any liabilities, as a stockholder of
the Company.
6. (a) The Company shall advise the Holder or its transferee, whether the
Holder holds the Option or has exercised the Option and holds Option Units or
any of the securities underlying the Option Units, by written notice at least
four weeks 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, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as may be required to permit a public offering of the Option,
all or any of the Option Units, the Common Stock or Warrants included in the
Option Units or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities").
(b) If D.H. Blair Investment Banking Corp., D.H. Blair & Co., Inc. or J.
Morton Davis (the "Requestors"), shall give notice to the Company at any time to
the effect that such holder desires to register under the Act this Option, the
Option Units or any of the underlying securities contained in the Option Units
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 two weeks after receipt of such notice, file a post-effective
amendment to the current Registration Statement or a new registration statement
on Form SB-2 or S-1 or such other form as the holder requests pursuant to the
Act, to the end that the Option, the Option Units and/or any of the securities
underlying the Option Units may be publicly sold under the Act as promptly as
practicable thereafter and the Company will use its best efforts to cause such
registration to become and remain effective (including the taking of such steps
as are 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 Requestors may,
at their option, request the filing of a post-effective amendment to the current
Registration Statement or a new registration statement under the Act on one
occasion during the four year period beginning one year from the effective date
of the Registration Statement. The Requestors may, at their 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 Option Units issuable upon exercise of the Option and even
though the Holder has not given notice of exercise of the Option. The Requestors
may, at their option, request such post-effective amendment or new registration
-5-
<PAGE>
statement during the described period with respect to the Option, the Option
Units as a unit, or separately as to the Common Stock and/or Warrants included
in the Option Units and/or the Common Stock issuable upon the exercise of the
Warrants, and such registration rights may be exercised by the Requestors prior
to or subsequent to the exercise of the Option.
Within ten days after receiving any such notice pursuant to this Section
6(b), 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, provided that they 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. In
the event the registration statement is not filed within the period specified
herein and in the event the registration statement is not declared effective
under the Act prior to ______________, then, at the holders' requests, the
Company shall purchase the Options from the holders for a per option price equal
to the difference between (i) the Fair Market Value of the Common Stock on the
date of notice multiplied by the number of shares of Common Stock issuable upon
exercise of the Option and the underlying Warrants and (ii) the average per
share purchase price of the Option and each share of Common Stock underlying the
Option. All costs and expenses of the first such post-effective amendment or new
registration statement under this paragraph 6(b) 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. If the Company determines to include securities to be sold by it in any
registration statement originally requested pursuant to this Section 6(b), such
registration shall instead be deemed to have been a registration under Section
6(a) and not under this Section 6(b).
The Company will 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.
(c) Whenever, pursuant to Section 6, a registration statement relating to
any Registrable Securities is filed under the Act, amended or supplemented, the
Company shall (i) 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, (ii) use its best efforts to register and qualify any of
the Registrable Securities for sale in such states as such Holder designates,
(iii) furnish indemnification in the manner provided in Section 7 hereof, (iv)
notify each Holder of Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and, at the request of
any such Holder, prepare and furnish to such Holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not included an untrue statement of a material
fact
-6-
<PAGE>
or omit to state material fact required to be stated therein or necessary to
make the statements therein not misleading and (v) do any and all other acts and
things which may be necessary or desirable to enable such Holders to consummate
the public sale or other disposition of the Registrable Securities. The Holder
shall furnish appropriate information in connection therewith and
indemnification as set forth in Section 7.
(d) The Company shall not permit the inclusion of any securities other than
the Registrable Securities to be included in any registration statement filed
pursuant to Section 6(b) hereof without the prior written consent of the
Requestors.
(e) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (or, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) if such registration includes an underwritten
public offering, a "cold comfort" letter dated the effective date of such
registration statement and dated the date of the closing under the underwriting
agreement signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(f) The Company shall deliver promptly to each Holder participating in the
Offering requesting the correspondence and memoranda described below and to the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonable necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to
non-confidential books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as any such Holder shall
reasonably request.
7. (a) Whenever, pursuant to Section 6, a registration statement relating
to the Registrable Securities is filed under the Act, amended or supplemented,
the Company will indemnify and hold harmless each holder of the Registrable
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)
-7-
<PAGE>
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 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 specifically for use in the
preparation thereof.
(b) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each Distributing Holder will
agree, severally but not jointly, to indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company 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 specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this Section 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this Section 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 Section 7.
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<PAGE>
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
8. In addition to the provisions of Section 1(a) of this Option, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Options 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. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Option
is adjusted pursuant to Subsection (a) above, (i) the number of shares of
Common Stock included in an Option Unit shall simultaneously be adjusted by
multiplying the number of shares of Common Stock included in Option Unit
immediately prior to such adjustment by the Exercise Price in effect
immediately prior to such adjustment and dividing the product so obtained
by the Exercise Price, as adjusted and (ii) the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants included
in the Option Units and the exercise price of such Warrants shall be
adjusted in accordance with the applicable terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which by
reason of this
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<PAGE>
Subsection (c) 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).
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such
an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Option Units issuable upon exercise
of each Option and, if requested, information describing the transactions
giving rise to such adjustments, to be mailed to the Holders, 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.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of this Option 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 (c),
inclusive, above.
(f) In case any event shall occur as to which the other provisions of
this Section 8 or Section 1(a) hereof are not strictly applicable but as to
which the failure to make any adjustment would not fairly protect the
purchase rights represented by this Option in accordance with the essential
intent and principles hereof then, in each such case, the Holders of
Options representing the right to purchase a majority of the Option Units
may appoint a firm of independent public accountants reasonably acceptable
to the Company, which shall give their opinion as to the adjustment, if
any, on a basis consistent with the essential intent and principles
established herein, necessary to preserve the purchase rights
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<PAGE>
represented by the Options. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Option and shall make
the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York, without giving effect to the principles of conflicts of
law thereof.
IN WITNESS WHEREOF, Laminating Technologies, Inc. has caused this Option to
be signed by its duly authorized officers under its corporate seal, and this
Option to be dated ____________, 1996.
LAMINATING TECHNOLOGIES, INC.
By:
--------------------------------
Michael E. Noonan
Chairman, President and
Chief Executive Officer
(corporate seal)
Attest:
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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 of Laminating Technologies, Inc., each Unit
consisting of one share of Common Stock, one Class A Warrant to purchase one
share of Common Stock and one Class B Warrant, and one Class B Warrant, and
herewith makes payment of $_________ thereof.
Dated: _______________ Instructions for Registration of Stock and Warrants
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
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<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing Option, hereby
elects to exchange its Option for _________ Units of Laminating Technologies,
Inc., each Unit consisting of one share of Common Stock, one Class A Warrant to
purchase one share of Common Stock and one Class B Warrant, and one Class B
Warrant, pursuant to the Option Exchange provisions of the Option.
Dated: _______________
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
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<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns and transfers
unto ____________ the right to purchase Units represented by the foregoing
Option to the extent of ________ Units, and appoints _____________ attorney to
transfer such rights on the books of Laminating Technologies, Inc., with full
power of substitution in the premises.
Dated: _____________
D.H. BLAIR INVESTMENT BANKING CORP.
By:
------------------------------------
------------------------------------
Address
------------------------------------
In the presence of:
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-14-
ESCROW AGREEMENT
----------------
AGREEMENT, dated as of the 11th day of April, 1996, by and among American
Stock Transfer & Trust Company, a New York corporation (hereinafter referred to
as the "Escrow Agent"), Laminating Technologies, Inc., a Delaware corporation
(the "Company"), and the stockholders of the Company who have executed this
agreement (hereinafter collectively called the "Stockholders").
WHEREAS, the Company contemplates a public offering ("Public Offering") of
Units ("Units"), each Unit consisting of one share of its Common Stock, par
value $.01 per share (the "Common Stock") one redeemable Class A Warrant (the
"Class A Warrant") and one redeemable Class B Warrant ("Class B Warrant")
through D.H. Blair Investment Banking Corp. as underwriter ("Blair") pursuant to
the Registration Statement on Form SB-2 to be filed with the Securities and
Exchange Commission (the "Registration Statement"); and
WHEREAS, in connection with the Public Offering, the Stockholders have
agreed to deposit in escrow an aggregate of 410,000 shares of Common Stock, $.01
par value, upon the terms and conditions set forth herein.
In consideration of the mutual covenants and promises herein contained, the
parties hereto agree as follows:
1. The Stockholders and the Company hereby appoint American Stock Transfer
& Trust Company as Escrow Agent and agree that the Stockholders will, prior to
the Effective Date (as hereinafter defined) of the Public Offering deliver to
the Escrow Agent to hold in accordance with the provisions hereof, certificates
representing an aggregate of 410,000 shares of Common Stock owned of record by
the Stockholders in the respective amounts set forth on
<PAGE>
Exhibit A hereto (the "Escrow Shares"), together with stock powers executed in
blank. The Escrow Agent, by its execution and delivery of this Agreement hereby
accepts its appointment as Escrow Agent to hold the Escrow Shares in escrow,
upon the terms, provisions and conditions hereof.
2. This Agreement shall become effective upon the date on which the
Securities and Exchange Commission declares effective the Registration Statement
("Effective Date") and shall continue in effect until the earlier of (i) the
date specified in paragraph 4(e) hereof or (ii) the distribution by the Escrow
Agent of all of the Escrow Shares in accordance with the terms hereof (the
"Termination Date"). The period of time from the Effective Date until the
Termination Date is referred to herein as the "Escrow Period."
3. During the Escrow Period, the Escrow Agent shall receive all of the
money, securities, rights or property distributed in respect of the Escrow
Shares then held in escrow, including any such property distributed as dividends
or pursuant to any stock split, merger, recapitalization, dissolution, or total
or partial liquidation of the Company, such property to be held and distributed
as herein provided and hereinafter referred to collectively as the "Escrow
Property."
4. (a) The Escrow Shares are subject to release to the Stockholders only in
the event the conditions set forth herein are met. The Escrow Agent, upon notice
to such effect from the Company as provided in paragraph 5 hereof, shall deliver
the Escrow Shares, together with stock powers executed in blank, and the Escrow
Property deposited in escrow with respect to such Escrow Shares, to the
respective Stockholders, if, and only if, one of the following conditions is
met:
-2-
<PAGE>
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings or charges which would result
from the release of Escrow Shares (all as audited by the Company's
independent public accountants) (the "Minimum Pretax Income") equals
or exceeds $3.1 million for the fiscal year ending December 31, 1997;
or
(ii) the Minimum Pretax Income equals or exceeds $4.4 million for the
fiscal year ending December 31, 1998; or
(iii) the Minimum Pretax Income equals or exceeds $5.7 million for the
fiscal year ending December 31, 1999; or
(iv) The Closing Price (as defined herein) of the Company's Common Stock
shall average in excess of $12.50 per share for any 30 consecutive
business days during the period commencing on the Effective Date and
ending 18 months from the Effective Date; or
(v) The Closing Price (as defined herein) of the Company's Common Stock
shall average in excess of $16.75 per share for any 30 consecutive
business days during the period commencing on the 18th month after the
Effective Date and ending 36 months from the Effective Date.
(b) As used in this Section 4, the term "Closing Price" shall be
subject to adjustments in the event of any stock dividend, stock distribution,
stock split or other similar event and shall mean:
(1) If the principal market for the Common Stock is a national securities
exchange or the Nasdaq National Market, the closing sales price of the
Common Stock as reported by such exchange or market, or on a
consolidated tape reflecting transactions on such exchange or market;
or
(2) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the Common Stock
is quoted on the Nasdaq SmallCap Market, the closing bid price of the
Common Stock as quoted on the Nasdaq SmallCap Market; or
(3) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the Common Stock
is not quoted on the Nasdaq Smallcap Market, the closing bid for the
Common Stock as reported by the National Quotation Bureau, Inc.
("NQB") or at least two market makers in the Common Stock if
quotations are not available from NQB but are available from market
makers.
-3-
<PAGE>
(c) The determination of Minimum Pretax Income shall be calculated
exclusive of (i) any charges to income incurred by the Company in connection
with the release from escrow of the Escrow Shares and any Escrow Property in
respect thereof pursuant to the provisions of this paragraph 4 and (ii) any
shares of Common Stock issued upon securities outstanding immediately prior to
the Effective Date which are convertible into Common Stock without the payment
of additional consideration.
(d) The Minimum Pretax Income amounts set forth in subparagraph (a)
above shall be increased during each fiscal year during the Escrow Period to
reflect the issuance of any additional securities after the Effective Date,
including any shares of Common Stock that may be issued upon the exercise of the
Class A Warrants, the Class B Warrants or any other options or warrants
presently outstanding or hereafter granted by the Company (excluding options
granted under the Company's 1996 Stock Option Plan (the "Plan") which, in the
aggregate, do not exceed 12.2% of the then outstanding shares of Common Stock,
including Escrow Shares) in accordance with the following formula: The Minimum
Pretax Income shall be increased during each fiscal year to an Adjusted Minimum
Pretax Income calculated by multiplying the applicable Minimum Pretax Income
amount by a fraction, the numerator of which shall be the weighted average
number of shares of Common Stock outstanding during the fiscal year for which
the determination is being made (including the Escrow Shares and any shares of
Common Stock issuable upon conversion of any outstanding securities but
excluding shares of Common Stock issuable upon exercise of (i) outstanding Class
A and Class B Warrants sold pursuant to the Prospectus included in the
Registration Statement; (ii) outstanding Unit Purchase Options and the Class A
and Class B Warrants included therein issued to Blair and (iii)
-4-
<PAGE>
options outstanding under the Plan, and the denominator of which shall be the
sum of (x) the number of shares of Common Stock outstanding on the Effective
Date (including the Escrow Shares and any shares of Common Stock issuable upon
conversion of securities outstanding immediately prior to the Effective Date
which are convertible into Common Stock without the payment of additional
consideration), plus (y) the number of shares of Common Stock sold pursuant to
the Prospectus included in the Registration Statement.
(e) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares and related Escrow
Property in accordance with the provisions of this Paragraph 4 on or prior to
March 31, 2000, the Escrow Agent shall deliver the certificates representing all
or the remaining Escrow Shares, together with stock powers executed in blank,
and any related Escrow Property to the Company to be placed in the Company's
treasury for cancellation thereof as a contribution to capital. After such date,
the Stockholders shall have no further rights as a stockholder of the Company
with respect to any of the cancelled Escrow Shares.
5. Upon the occurrence or satisfaction of any of the events or conditions
specified in Paragraph 4 hereof, the Company shall promptly give appropriate
notice to the Escrow Agent, Blair (and if the transfer agent of the Company's
Common Stock is different from the Escrow Agent, such transfer agent) and
present such documentation as is reasonably required by the Escrow Agent to
evidence the satisfaction of such conditions.
-5-
<PAGE>
6. It is understood and agreed by the parties to this Agreement as follows:
(a) The Escrow Agent is not and shall not be deemed to be a trustee
for any party for any purpose and is merely acting as a depository and in a
ministerial capacity hereunder with the limited duties herein prescribed.
(b) The Escrow Agent does not have and shall not be deemed to have any
responsibility in respect of any instruction, certificate or notice delivered to
it or of the Escrow Shares or any related Escrow Property other than faithfully
to carry out the obligations undertaken in this Agreement and to follow the
directions in such instruction or notice provided in accordance with the terms
hereof.
(c) The Escrow Agent is not and shall not be deemed to be liable for
any action taken or omitted by it in good faith and may rely upon, and act in
accordance with, the advice of its counsel without liability on its part for any
action taken or omitted in accordance with such advice. In any event, its
liability hereunder shall be limited to liability for gross negligence, willful
misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act in accordance
with any certificate, instruction, notice, letter, telegram, cablegram or other
written instrument believed by it to be genuine and to have been signed by the
proper party or parties.
(e) The Company agrees (i) to pay the Escrow Agent's reasonable fees
and to reimburse it for its reasonable expenses including attorney's fees
incurred in connection with duties hereunder and (ii) to save harmless,
indemnify and defend the Escrow Agent for, from and against any loss, damage,
liability, judgment, cost and expense whatsoever, including counsel fees,
suffered or incurred by it by reason of, or on account of, any misrepresentation
-6-
<PAGE>
made to it or its status or activities as Escrow Agent under this Agreement
except for any loss, damage, liability, judgment, cost or expense resulting from
gross negligence, willful misconduct or bad faith on the part of the Escrow
Agent. The obligation of the Escrow Agent to deliver the Escrow Shares to either
the Stockholders or the Company shall be subject to the prior satisfaction upon
demand from the Escrow Agent, of the Company's obligations to so save harmless,
indemnify and defend the Escrow Agent and to reimburse the Escrow Agent or
otherwise pay its fees and expenses hereunder.
(f) The Escrow Agent shall not be required to defend any legal
proceeding which may be instituted against it in respect of the subject matter
of this Agreement unless requested to do so by the Stockholders and indemnified
to the Escrow Agent's satisfaction against the cost and expense of such defense
by the party requesting such defense. If any such legal proceeding is instituted
against it, the Escrow Agent agrees promptly to given notice of such proceeding
to the Stockholders and the Company. The Escrow Agent shall not be required to
institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission or otherwise,
be deemed to have waived any right or remedy it may have either under this
Agreement or generally, unless such waiver be in writing, and no waiver shall be
valid unless it is in writing, signed by the Escrow Agent, and only to the
extent expressly therein set forth. A waiver by the Escrow Agent under the term
of this Agreement shall not be construed as a bar to, or waiver of, the same or
any other such right or remedy which it would otherwise have on any other
occasion.
(h) The Escrow Agent may resign as such hereunder by giving 30 days
written notice thereof to the Stockholders and the Company. Within 20 days after
receipt of such
-7-
<PAGE>
notice, the Stockholders and the Company shall furnish to the Escrow Agent
written instructions for the release of the Escrow Shares and any related Escrow
Property (if such shares and property, if any, have not yet been released
pursuant to Paragraph 4 hereof) to a substitute Escrow Agent which (whether
designated by written instructions from the Stockholders and the Company jointly
or in the absence thereof by instructions from a court of competent jurisdiction
to the Escrow Agent) shall be a bank or trust company organized and doing
business under the laws of the United States or any state thereof. Such
substitute Escrow Agent shall thereafter hold any Escrow Shares and any related
Escrow Property received by it pursuant to the terms of this Agreement and
otherwise act hereunder as if it were the Escrow Agent originally named herein.
The Escrow Agent's duties and responsibilities hereunder shall terminate upon
the release of all shares then held in escrow according to such written
instruction or upon such delivery as herein provided. This Agreement shall not
otherwise be assignable by the Escrow Agent without the prior written consent of
the Company.
7. The Stockholders shall have the sole power to vote the Escrow Shares and
any securities deposited in escrow under this Agreement while they are being
held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during the term of this
Agreement he will not sell, transfer, hypothecate, negotiate, pledge, assign,
encumber or otherwise dispose of any or all of the Escrow Shares set forth
opposite his name on Exhibit A hereto, unless and until the Company shall have
given the notice as provided in Paragraph 5. This restriction shall not be
applicable to transfers upon death, by operation of law, to family
-8-
<PAGE>
members of the Stockholders or to any trust for the benefit of the Stockholders,
provided that such transferees agree to be bound by the provisions of this
Agreement.
(b) The Stockholders will take any action necessary or appropriate,
including the execution of any further documents or agreements, in order to
effectuate the transfer of the Escrow Shares to the Company if required pursuant
to the provisions of this Agreement.
9. Each of the certificates representing the Escrow Shares will bear
legends to the following effect, as well as any other legends required by
applicable law:
(a) "The sale, transfer, hypothecation, negotiation, pledge, assignment,
encumbrance or other disposition of the shares evidenced by this
certificate are restricted by and are subject to all of the terms,
conditions and provisions of a certain Escrow Agreement entered into
among D.H. Blair Investment Banking Corp., Laminating Technologies,
Inc. and its Stockholders, dated as of April 11, 1996, a copy of which
may be obtained from the Secretary of Laminating Technologies, Inc. No
transfer, sale or other disposition of these shares may be made unless
specific conditions of such agreement are satisfied."
(b) "The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended. No transfer, sale or
other disposition of these shares may be made unless a registration
statement with respect to these shares has become effective under said
act, or the Company is furnished with an opinion of counsel
satisfactory in form and substance to it that such registration is not
required."
Upon execution of this Agreement, the Company shall direct the transfer
agent for the Company to place stop transfer orders with respect to the Escrow
Shares and to maintain such orders in effect until the transfer agent and Blair
shall have received written notice from the Company as provided in Paragraph 5.
-9-
<PAGE>
10. Each notice, instruction or other certificate required or permitted by
the terms hereof shall be in writing and shall be communicated by personal
delivery, fax or registered or certified mail, return receipt requested, to the
parties hereto at the addresses set forth below, or at such other address as any
of them may designate by notice to each of the others:
(i) If to the Company, to:
Laminating Technologies, Inc.
291 North Industrial Way
Canton Georgia 30115
Tel. #: (404) 355-7681
Fax. #: (404) 352-9301
(ii) If to the Stockholders to their respective addresses as set forth
on Exhibit A hereto.
(iii) If to the Escrow Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attn: Anne Karfunkel
(iv) If to Blair, to:
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Attn: Martin A. Bell, Esq.
Fax #: (212) 514-7837
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given hereunder
by the Escrow Agent shall be effective and deemed received upon personal
delivery or transmission by fax or, if mailed, five (5) calendar days after
mailing by the Escrow Agent.
-10-
<PAGE>
A copy of all communications sent to the Company, the Stockholders or the
Escrow Agent shall be sent by ordinary mail to American Stock Transfer & Trust
Company, Attention: Anne Karfunkel. A copy of all communications sent to Blair
shall be sent by ordinary mail to Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, NY 10017, Attention: Marc S. Goldfarb, Esq.
11. This Agreement may not be modified, altered or amended in any material
respect or cancelled or terminated except with the prior consent of the holders
of all of the outstanding shares of Common Stock of the Company.
12. In the event that the Public Offering is not consummated within
twenty-five (25) days of the Effective Date of the Registration Statement, this
Agreement shall terminate and be of no further force and effect and the Escrow
Agent, upon written notice from both the Company and Blair in accordance with
paragraph 10 hereof of such termination, will return the Escrow Shares and any
Escrow Property in respect thereof to the Stockholders.
13. This Agreement shall be governed by and construed in accordance with
the laws of New York and shall be binding upon and inure to the benefit of all
parties hereto and their respective successors in interest and assigns.
14. This Agreement may be executed in several counterparts, which taken
together shall constitute a single instrument.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers on the day and year first above
written.
LAMINATING TECHNOLOGIES, INC.
By: ______________________
Michael E. Noonan
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: ______________________
Herbert J. Lemmer
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers on the day and year first above
written.
LAMINATING TECHNOLOGIES, INC.
By: /s/ MICHAEL E. NOONAN
--------------------------
Michael E. Noonan
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ HERBERT J. LEMMER
--------------------------
Herbert J. Lemmer
<PAGE>
STOCKHOLDER SIGNATURE PAGE
---------------------------------
Robert Carden
---------------------------------
Craig Duncan
---------------------------------
William Durfee
---------------------------------
Steve Gorlin
---------------------------------
Lateef Kahn
---------------------------------
Jeffrey Kilgore
---------------------------------
Bradley Olvey
---------------------------------
Michael Olvey, Sr.
---------------------------------
Michael Olvey, Jr.
---------------------------------
Donald Sallee
---------------------------------
James Scherer
---------------------------------
Melvin Stein
---------------------------------
James E. Thomas
---------------------------------
Red Olvey
---------------------------------
Edythe Nathan
---------------------------------
Michael E. Noonan
STEIRO COMPANY
By: _____________________________
TRANSMILLENNIAL RESOURCE CORP.
By: _____________________________
<PAGE>
VENTURETEK, L.P.
By: _____________________________
MALCOLM N. LEVENSON TRUST
U/A/D 4/17/91
By: _____________________________
IRA S. NATHAN REV. TR. DTD 3/23/79 IRA
S. NATHAN TRUSTEE
By: _____________________________
ANDREW B. NATHAN CUST./FOR KEVIN B.
NATHAN UGMA IL.
By: _____________________________
ANDREW B. NATHAN LIVING TRUST DTD
11/30/94
By: _____________________________
ANDREW B. NATHAN C/F DANA F. NATHAN
UGMA IL.
By: _____________________________
ANDREW B. NATHAN C/F ALLYSA R.
NATHAN UGMA IL.
By: _____________________________
LEANNE N. NATHAN LIVING TRUST DTD
11/30/94
By: _____________________________
<PAGE>
STOCKHOLDER SIGNATURE PAGE
/s/ ROBERT CARDEN
---------------------------------
Robert Carden
/s/ CRAIG DUNCAN
---------------------------------
Craig Duncan
/s/ WILIAM DURFEE
---------------------------------
William Durfee
/s/STEVE GORLIN
---------------------------------
Steve Gorlin
/s/ LATEFF KAHN
---------------------------------
Lateef Kahn
/s/ JEFFREY KILGORE
---------------------------------
Jeffrey Kilgore
/s/ BRADLEY OLVEY
---------------------------------
Bradley Olvey
/s/ MICHAEL OLVEY, SR.
---------------------------------
Michael Olvey, Sr.
/s/ MICHAEL OLVEY, JR.
---------------------------------
Michael Olvey, Jr.
/s/ DONALD SALLEE
---------------------------------
Donald Sallee
/s/ JAMES SCHERER
---------------------------------
James Scherer
/s/ MELVIN STEIN
---------------------------------
Melvin Stein
/s/ JAMES E. THOMAS
---------------------------------
James E. Thomas
/s/ RED OLVEY
---------------------------------
Red Olvey
/s/ EDYTHE NATHAN
---------------------------------
<PAGE>
Edythe Nathan
/s/ MICHAEL E. NOONAN
---------------------------------
Michael E. Noonan
STEIRO COMPANY
By: /s/ MELVIN STEIN
-----------------------------
TRANSMILLENNIAL RESOURCE CORP.
By: /s/ CHARLES BROES
-----------------------------
VENTURETEK, L.P.
By: /s/ DAVID SELINGUT
-----------------------------
MALCOLM N. LEVENSON TRUST
U/A/D 4/17/91
By: /s/ MALCOLM N. LEVENSON
-----------------------------
IRA S. NATHAN REV. TR. DTD 3/23/79 IRA
S. NATHAN TRUSTEE
By: /s/ IRA S. NATHAN
-----------------------------
ANDREW B. NATHAN CUST./FOR KEVIN B.
NATHAN UGMA IL.
By: /s/ ANDREW B. NATHAN
-----------------------------
ANDREW B. NATHAN LIVING TRUST DTD
11/30/94
By: /s/ ANDREW B. NATHAN
-----------------------------
<PAGE>
ANDREW B. NATHAN C/F DANA F. NATHAN
UGMA IL.
By: /s/ ANDREW B. NATHAN
-----------------------------
ANDREW B. NATHAN C/F ALLYSA R.
NATHAN UGMA IL.
By: /s/ ANDREW B. NATHAN
-----------------------------
LEANNE N. NATHAN LIVING TRUST DTD
11/30/94
By: /s/ LEANNE N. NATHAN
-----------------------------
<PAGE>
EXHIBIT A
STOCKHOLDERS' LIST
Name of
Stockholder (1) Number of Escrow Shares
- --------------- -----------------------
Robert Carden.......................................................... 3,459
Craig Duncan........................................................... 3,412
William Durfee......................................................... 3,597
Steve Gorlin........................................................... 67,338
Lateef Kahn........................................................... 13,837
Jeffrey Kilgore........................................................ 15,374
Bradley Olvey.......................................................... 14,122
Michael Olvey, Sr...................................................... 10,156
Michael Olvey, Jr...................................................... 5,904
Donald Sallee.......................................................... 42,038
James Scherer.......................................................... 1,230
Melvin Stein........................................................... 18,016
James E. Thomas........................................................ 667
Red Olvey.............................................................. 333
Edythe Nathan.......................................................... 3,435
Michael E. Noonan...................................................... 38,782
STEIRO COMPANY......................................................... 14,025
TRANSMILLENNIAL RESOURCE CORP.......................................... 52,683
VENTURETEK, L.P........................................................ 107,617
MALCOLM N. LEVENSON TRUST
U/A/D 4/17/91.......................................................... 14,095
IRA S. NATHAN REV. TR. DTD 3/23/79..................................... 10,566
ANDREW B. NATHAN CUST./FOR
KEVIN B. NATHAN UGMA IL................................................ 1,145
ANDREW B. NATHAN LIVING TRUST DTD 11/30/94............................. 1,718
ANDREW B. NATHAN C/F DANA F. NATHAN UGMA IL............................ 1,145
ANDREW B. NATHAN C/F ALLYSA R. NATHAN UGMA IL.......................... 1,145
LEANNE N. NATHAN LIVING TRUST DTD 11/30/94............................. 1,718
Laminating Technologies, Inc.
291 North Industrial Way
Canton Georgia 30115
Tel: (404) 355-7681; Fax: (404) 352-9301
March 21, 1996
[Investor]
Dear [Investor]:
Thank you for agreeing to convert the following principal and accrued
interest of your indebtedness of Laminating Technologies, Inc. (the "Company")
totaling $[_______] into shares of Common Stock of the Company at a conversion
rate of one share of Common Stock for every $1.00 of debt, subject to an
approximate 1 for 2.71 reverse stock split, for a total of [_____] post-split
shares, as adjusted. You also agree that the $50,000 principal of the Company's
remaining debt to you shall be converted into one Bridge Unit (the "Bridge
Unit") consisting of a $50,000 principal amount 10% promissory note (the "Bridge
Note") and 25,000 Common Stock purchase warrants (the "Bridge Warrants") as
described in the enclosed Subscription Agreement (the "Subscription Agreement")
with the interest on this debt (the "Remaining Interest") to be paid out of the
proceeds of the Bridge Financing, and, together with the debt being converted to
shares as set forth above, shall constitute all of the Company's debt to you.
You also hereby warrant that the Company has issued no other debt to you and
that you have not sold, pledged, hypothecated or in any other manner transferred
the notes (the "Notes") being converted herein or any other debt of the Company.
The Notes being converted are as follows:
<TABLE>
<CAPTION>
Debt to Equity
<S> <C> <C> <C> <C> <C> <C>
Shares
Received,
Amt of Note Note Date Mature Date Intrust Thru 2/29/96 Comment Total Post-Split
[-----] [-----] [-----] [-----] [-----] [-----]
Debt to Bridge Units Bridge Units
[-----] [-----] [-----] [-----] [-----] [-----]
1
</TABLE>
Your willingness to convert is vital to the Company. Your signature below
and the return and cancellation of your original Notes will confirm your
agreement to convert all outstanding principal and interest currently owed to
you by the Company into shares of Common Stock, one Bridge Unit and Remaining
Interest of the Company on the terms and subject to the conditions set forth
herein.
A. The Terms of Your Conversions. The date as of which the interest on
your Notes shall cease to accrue for the purposes of conversion shall
be February 29, 1996. The conversion shall be effective on the date of
the closing of the Company's
<PAGE>
currently contemplated private placement, at which date the
aforementioned amounts owed to you on February 29, 1996 shall be
converted into Common Stock, one Bridge Unit and Remaining Interest of
the Company. Please note that the underwriter of the proposed public
offering, D.H. Blair Investment Banking Corp. (the "Underwriter"),
will require that prior to such proposed offering, all outstanding
stock of the Company, which will include the stock issued to you
hereby, shall be subject to a reverse stock split such that the total
outstanding stock of the Company shall be 1,230,000 shares. The
Company expects this reverse split to be at a rate of approximately
one share for every 2.71 shares outstanding after the debt
conversions. However, the Company makes no representations or
warranties as to the exact number of shares that you will receive upon
completion of this reverse stock split and the Company retains the
right to adjust this number in immaterial amounts based on the
occurrence of currently unforeseen circumstances. Additionally, the
Company makes no representations or warranties as to the occurrence,
success or terms, including price, of either the proposed private
placement or the proposed public offering.
B. "Lock-up" Agreement. The Underwriter's Letter of Intent requires all
pre-offering shareholders to agree not to sell, transfer or assign
their Common Stock for 13 months from the effective date of the
Registration Statement. THIS MUST BE SIGNED AND RETURNED ALONG WITH
THIS AGREEMENT.
C. Investor Questionnaire. Complete and sign the enclosed Confidential
Purchaser Questionnaire attached hereto which is applicable to you
(i.e. Individual, Trust, Partnership or Corporation). It is important
that all questions be answered so that a determination may be made as
to whether you are an Accredited Investor as that term is defined in
Rule 501 under the Securities Act of 1933, as amended. No sale of
shares can be made by the Company until a completed Confidential
Purchaser Questionnaire has been reviewed and a determination made
that you are an Accredited Investor. The Company and its attorneys
will rely upon the information furnished by you in the Confidential
Purchaser Questionnaire. It should be noted that if the investor is a
corporation partnership or trust and does not have total assets in
excess of $5 million, a separate questionnaire must be completed and
executed by each equity owner of such entity in order to determine if
each equity owner is "accredited." THIS MUST BE SIGNED AND RETURNED
ALONG WITH THIS AGREEMENT. Failure to provide questionnaires for all
equity owners will result in the return of your conversion documents.
D. Subscription Agreement. Complete and sign the enclosed Subscription
Agreement signature page for the purchase of one Bridge Unit in
exchange for your cancellation of the Company's remaining debt to you.
-2-
<PAGE>
E. Your Cancelled Original Note. Please cancel and return the originals
of all of the Company's Notes to you. YOU HEREBY AGREE, AND YOUR
SIGNATURE BELOW SHALL EVIDENCE AGREEMENT THAT FAILURE TO CANCEL AND
RETURN ANY ORIGINAL NOTE WITH THIS AGREEMENT BY THE INITIAL CLOSING
DATE (AS DEFINED IN THE AGENCY AGREEMENT) OF THE BRIDGE FINANCING
SHALL CONSTITUTE A CANCELLATION OF ALL OF THE COMPANY'S OBLIGATIONS
AND INDEBTEDNESS TO YOU THEREUNDER WITHOUT OBLIGATION BY THE COMPANY
TO ISSUE TO YOU SHARES UNDER THIS AGREEMENT OR ANY OTHER CONSIDERATION
THEREFORE.
Please execute and return B, C, D and E above, along with the enclosed copy
of this letter, signed by you to Marc Goldfarb, Esq., at Bachner, Tally, Polevoy
& Misher LLP, Counsel for the Company, 380 Madison Avenue, New York, New York
10017-2590. Tel: (212) 503-2034, Fax: (212) 682-5729. We will hold these until
the closing of the private placement. If the closing does not occur within six
months of the date hereof, we will return this Agreement and the Lock-up
Agreement to you, in which event they shall be null and void, and the Company's
obligations to you shall be reinstated in full. In the event that the closing of
the private placement is consummated, the Company's indebtedness to you shall be
converted into equity, one Bridge Unit and Remaining Interest and certificates
representing the number of shares of Common Stock, as well as the Bridge Notes
and Bridge Warrants, issuable upon such conversion will be sent to you as soon
as they are available.
Sincerely,
Michael E. Noonan, Chairman and
Chief Executive Officer
Accepted and Agreed By: ____________________
Print Name: ____________________
Enclosures
TransMillennial Resource Corporation
17383 Sunset Boulevard, Suite A100
Pacific Palisades, California 90272
Phone: (310) 573-7301
Fax: (310) 573-7307
MEMORANDUM OF UNDERSTANDING
1. This Agreement is between New Cooler Corp., a Georgia corporation ("Cooler"),
Steve Gorlin ("Gorlin"), Jeff A. Kilgore ("Kilgore"), Michael W. Olvey, Sr.
("Olvey"), D.H. Blair Investment Banking Corp. ("Blair"), a Delaware
corporation, and TransMillennial Resource Corp., a Florida corporation ("TMR").
2. The parties recognize that Cooler lacks the capital and management to
continue as an operating concern and that it must be restructured immediately to
survive. The purpose of this Agreement is to provide a framework and time
schedule for the immediate and long term funding of Cooler and to provide
management services to Cooler. The objective of such funding and management
services is to operate Cooler through to profitability and to provide a
structure that will make it possible to raise any additional capital that may be
needed to fund continued growth.
3. TMR agrees to provide Cooler the following:
a) TMR will assign its personnel to provide management services to Cooler in the
areas of overall management, financing and marketing. Initially, TMR's services
will concentrate on negotiating with Cooler's creditors, vendors, customers,
investors and potential investors, so as to keep Cooler in business while
permanent financing is being secured.
b) TMR, together with its associates, including the investment banking firm of
Porter, White and Company, will devote its best efforts to raise approximately
$2.5 million to accomplish the purposes set out in this Agreement.
4. Prior to the effective date of this Agreement, Cooler will notify all persons
who have employment, compensation or royalty agreements with Cooler that those
agreements are terminated. In addition, all stock options that are not vested as
of June 30, 1994 will be cancelled. Olvey and Kilgore agree to provide Cooler
with a complete release without prejudice waiving any and all claims against
Cooler under their respective agreements which are cancelled in accordance with
this paragraph.
Upon the effective date of this Agreement, Cooler will take the following
actions:
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a) Elect Messrs. Charles Broes, Richard Neustadt and David Hood to the Board of
Directors, concurrent with the receipt of the resignations of Messrs. Steve
Gorlin, Larry Benner and Bradley Olvey.
b) Elect Mr. Broes to the position of President and Chief Executive Officer of
Cooler.
5. TMR intends to arrange financing, subject to completion of due diligence, as
follows:
a) Bridge financing of approximately $250,000, in the form of a senior note that
is convertible to equity, to be arranged within ten (10) business days following
the effective date of this Agreement. The purpose of this financing is to
support Cooler operations, including purchase of inventory and payment of
salaries.
b) Permanent financing of approximately $1,250,000 in the form of equity to
provide sufficient working capital for Cooler to operate to positive cash flow.
c) Additional permanent financing of up to $1, 250, 000 in the form of equity to
pay debts and to repurchase stock from investors. At a minimum, these funds will
be used to pay off the $200,000 line of credit that is guaranteed by Gorlin and
Olvey, and the collateral that secures this line will be released to Blair.
TMR and its associates will raise this financing on the best terms available,
given that time is of the essence. Subject to completion of due diligence and to
discussion with investors, TMR estimates that the pre-money valuation of Cooler
will be between $2.5 million and $5.0 million.
6. Upon the effective date of the financing referred to in paragraphs 5 (b) and
5 (c) above, the following investments shall be converted automatically to the
same kind of securities as purchased by the new investors at the average price
per share paid by the new investors during the six months following the
effective date of the Agreement:
<TABLE>
<CAPTION>
Description or security Current Holder Amount to be Paid
----------------------- -------------- -----------------
<S> <C> <C>
375,000 shares of Cooler Gorlin $187,500
common stock
375,000 shares of Cooler Blair $187,500
common stock
172,500 shares of Cooler Gorlin $250,000
common stock
$100,000 note payable to Blair $100,000
D.H. Blair (with warrants)
250,000 shares of Cooler Blair $500,000
preferred stock
</TABLE>
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7. The parties agree to execute agreements and to vote their shares at one or
more shareholder meetings as may be required to accomplish the transactions
described in this memorandum if so requested by the new management of Cooler
after the effective date of this Agreement.
8. Cooler will create an employee stock option plan representing approximately
5% of the company's equity on a fully diluted, post- money basis.
9. Cooler will reimburse TMR and its associates for its costs in conjunction
with this Agreement, including costs incurred prior to the effective date of
this Agreement. For purposes of this section, costs are defined as reasonable
out-of-pocket expenses incurred by TMR and its associates.
10. TMR agrees to provide Cooler with the hourly rates of each of the "Project
Team" members that will work on the Cooler new management group in conjunction
with this Agreement. Further, TMR agrees to provide Cooler with a proposed
budget detailing the number of hours and approximate consulting fees expected to
be charged by TMR to Cooler in conjunction with this Agreement.
11. Cooler will issue 10 year warrants to TMR and entities that TMR may
designate to purchase 600,000 shares of Cooler common stock for $.50 per share.
12. The parties intend to convert this Agreement into a definitive agreement and
agree to bargain in good faith to do so. Until such definitive agreement is
executed, this Agreement shall be binding on the parties.
13. The parties recognize that Cooler needs funds urgently and will continue to
need funds until the permanent financing described in paragraph 5 is secured.
The parties recognize that it is not clear how much interim financing is needed,
but they estimate this amount is about $250,000 during the sixty (60) days
following the effective date.
If TMR is unable to secure sufficient bridge financing to maintain operations or
is unable to secure the permanent financing referred to in paragraphs 5 (b) and
5 (c) above within six months, then (i) TMR will withdraw from this Agreement
and Messrs. Broes, Hood and Neustadt will resign as directors and officers, and
before doing so, they shall call a shareholders meeting to elect a new board;
and (ii) TMR shall relinquish all warrants and all claims to compensation,
except that payments due to TMR under paragraphs 9 and 10 shall be made when
Cooler obtains permanent financing.
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14. This Agreement will become effective upon the execution of all of the below
listed parties.
AGREED:
- ------------------------------ ------------------------------
Steve J. Gorlin Date
- ------------------------------ ------------------------------
Jeff A. Kilgore Date
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Michael W. Olvey, Sr. Date
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D.H. Blair Investment Date
Banking Corp.
- ------------------------------ ------------------------------
Charles Broes Date
- ------------------------------ ------------------------------
Richard Neustadt Date
- ------------------------------ ------------------------------
David Hood Date
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TransMillennial Resource Date
Corporation Inc.
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14. This Agreement will become effective upon the execution of all of the below
listed parties.
AGREED:
/s/ STEVE J. GORLIN
- ------------------------------ ------------------------------
Steve J. Gorlin Date
/s/ JEFF A. KILGORE
- ------------------------------ ------------------------------
Jeff A. Kilgore Date
/s/ MICHAEL W. OLVEY, SR.
- ------------------------------ ------------------------------
Michael W. Olvey, Sr. Date
/s/ D.H. BLAIR INVESTMENT
BANKING CORP.
- ------------------------------ ------------------------------
D.H. Blair Investment Date
Banking Corp.
/s/ CHARLES BROES
- ------------------------------ ------------------------------
Charles Broes Date
/s/ RICHARD NEUSTADT
- ------------------------------ ------------------------------
Richard Neustadt Date
/s/ DAVID HOOD
- ------------------------------ ------------------------------
David Hood Date
/s/ TRANSMILLENNIAL RESOURCE
CORPORATION INC.
- ------------------------------ ------------------------------
TransMillennial Resource Date
Corporation Inc.
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AMENDMENT
February 2, 1995
1. This is an amendment to the Memorandum of Understanding between New Cooler
Corp., various of its shareholders, and TransMillenial Resource Corp. dated
September 1, 1994.
2. The undersigned hereby agree to amend the first sentence of the second
paragraph of Section 13 to delete "six months" and substitute "ten months."
3. LTI and TMR agree that the terms of the paragraph 10 regarding compensation
to TMR for time spent, shall be satisfied by the payment to TMR of $22,000 per
month beginning September 1, 1994 and continuing as long as TMR provides
management services to LTI under this agreement. The total amount due shall be
paid under the same terms and conditions as the bridge loan convertible
debenture calls for under this agreement unless TMR and LTI mutually agree to
convert this agreement to equity.
4. The Agreement between LTI and RPD dated September 1, 1994 is hereby canceled.
LTI has no obligation to RPD.
AGREED by:
Name _________________________________________
Date __________________________
Name _________________________________________
Date __________________________
Name _________________________________________
Date __________________________
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AMENDMENT
February 2, 1995
1. This is an amendment to the Memorandum of Understanding between New Cooler
Corp., various of its shareholders, and TransMillenial Resource Corp. dated
September 1, 1994.
2. The undersigned hereby agree to amend the first sentence of the second
paragraph of Section 13 to delete "six months" and substitute "ten months."
3. LTI and TMR agree that the terms of the paragraph 10 regarding compensation
to TMR for time spent, shall be satisfied by the payment to TMR of $22,000 per
month beginning September 1, 1994 and continuing as long as TMR provides
management services to LTI under this agreement. The total amount due shall be
paid under the same terms and conditions as the bridge loan convertible
debenture calls for under this agreement unless TMR and LTI mutually agree to
convert this agreement to equity.
4. The Agreement between LTI and RPD dated September 1, 1994 is hereby canceled.
LTI has no obligation to RPD.
AGREED by:
Name /s/ David M. Hood
------------------
Date February 2, 1995
Name /s/ Charles Broes
------------------
Date February 14, 1995
Name /s/ Steve Gorlin
------------------
Date February 2, 1995
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OUTSOURCING AGREEMENT
This Agreement is between TRANSMILLENNIAL RESOURCE CORPORATION INC. a
Florida corporation with principal offices at 17383 Sunset Blvd., Suite A100,
Pacific Palisades, CA 90272 (TMR) and LAMINATING TECHNOLOGIES, INC. a Georgia
corporation with principal offices at 463 So. Highway 74, Peachtree City, GA
30269 (LTI).
BACKGROUND
TMR provides a wide range of business development and structuring, as well
as strategic and tactical management services for its clients to include
providing interim management services.
LTI possesses a proprietary process for the lamination of mylar plastic
coatings to paper and cardboard stock resulting in a raw material which is
utilized by box manufacturers to supply boxes of high strength and high
insulation capacities, as well as low weight and cost.
The relationship established by this Agreement shall be referred to as
outsourcing.
AUTHORITIES
LTI hereby appoints TMR to provide its full range of management services on
an interim basis commencing September 1, 1994.
TMR accepts the appointment on the terms and conditions outlined in this
Agreement.
Neither LTI nor TMR shall have any right or authority to commit or obligate
the other in any manner whatsoever except as may be outlined in this Agreement
and/or as may, from time-to-time, be specifically agreed to in writing by the
parties.
The parties agree to allow each other to use their names for describing the
relationship of the parties to others including marketing and promotional
materials.
TMR DUTIES
TMR shall:
- provide a wide range of senior management services to include those
duties normally associated with the following positions: Chief
Executive Officer, Chief Operating Officer, and Chief Financial
Officer
<PAGE>
- provide necessary, appropriate, and sufficient personnel to accomplish
its responsibilities under this Agreement to include the specific
assignment of a full-time, on-site Operating Officer
- perform all necessary research, planning, and writing of a
comprehensive business plan suitable for providing operational
direction to LTI and for attracting investors and business alliance
partners
- assess LTI needs and locate and contract with appropriate vendors for
products and services required for the successful operation of LTI
- make other appropriate decisions on behalf of LTI consistent with
those normally made by corporate senior management
- provide regular reports to the board of directors regarding the
operation of LTI
- provide the board with a range of options for each business decision
which must be made by the board along with its recommendation for
action
TMR COMPENSATION
In exchange for the performance of services and duties by TMR on behalf of
LTI, LTI shall pay TMR on a monthly basis, the fixed sum of $20,000 plus the
actual costs associated with the following personnel and activities:
1. For all TMR personnel assigned for the direct or indirect benefit of
LTI other than those providing services normally associated with the
positions of CEO, COO, and CFO to include direct payroll, payroll
contracting expense, payroll taxes, insurances, incentives, retirement
contributions, profit and stock option costs, expense reimbursement;
and
2. For all fixed overhead of TMR directly or indirectly benefiting LTI:
rent, phones, postage, printing, supplies, clerical services, etc.;
and
3. For all direct or indirect expenses of TMR which directly or
indirectly benefit LTI including airline, hotel, auto, meals, and
other T & E costs and expenses, and
TMR shall invoice LTI not later than the 5th day of each month specifying
the exact costs of the personnel and other activities noted.
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LTI DUTIES
LTI shall:
o provide TMR and all of its personnel assigned to LTI with full and
complete access to all past and present market, product, patent,
distributor, and customer information
o approve an operating and cash flow budget based on the recommendations
of TMR within 30 days of the submission of same by TMR
o assure the ready availability of all senior management and production
personnel for appropriate meetings and presentations which may be
established by TMR
o pay TMR not later than the 10th day of each month the amount invoiced
by TMR for the preceding month's activities and services
LIABILITIES AND INDEMNIFICATION
Both TMR and LTI shall use reasonable business judgement and practices.
They both acknowledge that referring, securing, and managing businesses is
highly competitive and that neither can give assurance to the other with respect
to the results of its efforts.
Nothing in this Agreement shall be construed as creating a partnership or
any other relationship between the parties except as specifically outlined in
this Agreement, or requiring TMR to bear any portion of any losses arising out
of this Agreement or connected with the operation of LTI.
Each party agrees to hold the other harmless from any claims which may be
asserted against it for actions taken under this Agreement except those claims
which may result from the gross negligence, willful and wanton misconduct or
fraud of the named party.
CONFIDENTIALITY
The parties agree that any information provided by one to the other shall
be considered confidential, unless indicated to the contrary by the providing
party, and shall be treated by the receiving party with extreme care.
Information obtained shall not be disclosed by either party except as necessary
in performing its duties under this Agreement.
TERM
This Agreement shall continue for an initial term of six months from the
date signed and then continue on a month-to-month basis until terminated by
either party giving ninety (90) days written notice to the other. This Agreement
may be canceled or modified by
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mutual consent of the parties upon the successful recruitment and hiring of one
or more senior managers by LTI.
Should LTI terminate this Agreement, it shall continue to be liable to TMR
for payment of any fees which are due to TMR for services rendered during the
term of this Agreement.
MISCELLANEOUS
The parties agree that this Agreement represents the entire agreement and
understanding of the parties and that any changes must be in writing and signed
by both parties. The parties further agree that any disputes arising out of this
Agreement shall be resolved utilizing the rules of the American Arbitration
Association as the sole and absolute remedy for the parties.
The parties agree that one or more additional written agreements may be
established to specify certain specific additional duties to be performed by TMR
on behalf of LTI. Such agreements shall take the form of an addendum to this
Agreement.
Any communications hereunder shall be in writing and shall be deemed duly
given if given personally or transmitted by FAX or upon receipt by registered or
certified mail (return receipt requested and postage paid) to the parties at the
address shown in the first paragraph of this Agreement.
This Agreement shall be construed under the laws of the State of Georgia
and solely for the benefit of the parties hereto and their successors, legal
representatives and assigns and does not confer on any other person any rights
or remedies hereunder.
This Agreement is signed this 1st day of September, 1994 and represents the
entire agreement and understanding of the parties.
TransMillennial Resource Corporation, Inc.
TMR
By: /s/ John H. Gardner Title: President
-------------------------- -------------
Laminating Technologies, Inc.
LTI
By: /s/ Charles Broes Title: CEO
-------------------------- -------------
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LAMINATING TECHNOLOGIES, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for LAMINATING
TECHNOLOGIES, INC. (the "Company") and its shareholders the benefits arising
from capital stock ownership by employees, officers and directors of, and
consultants or advisors to, the Company and its subsidiary corporations who are
expected to contribute to the Company's future growth and success. Those
provisions of the Plan which make express reference to Section 422 shall apply
only to Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended or replaced from time to time (the
"Code") or non-statutory options ("Nonqualified Stock Options") which are not
intended to meet the requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company, whose
construction and interpretation of the terms and provisions of the Plan shall be
final and conclusive. The delegation of powers to the Committee shall be
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")). The
Committee may in its sole discretion grant options to purchase shares of the
Company's Common Stock, $.01 par value per share ("Common Stock") and issue
shares upon exercise of such options as provided in the Plan. The Committee
shall have authority, subject to the express provisions of the Plan, to construe
the respective option agreements and the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements, which need not be identical, and
to make all other determinations in the judgment of the Committee necessary or
desirable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's
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Common Stock is registered under the Exchange Act, subject to the last sentence
of Section 3(b), and then only to such persons as are required to file reports
under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company or any subsidiaries of the Company as defined in Sections 424(e) and
424(f) of the Code ("Participants") provided, that Incentive Stock Options may
only be granted to individuals who are employees of the Company (within the
meaning of Section 3401(c) of the Code). A person who has been granted an option
may, if he or she is otherwise eligible, be granted additional options if the
Committee shall so determine.
(b) Grant of Options to Reporting Persons. The selection of a director or
an officer who is a Reporting Person (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either (i) by the Board of Directors,
of which all members shall be "disinterested persons" (as hereinafter defined),
(ii) by a committee consisting of two or more directors having full authority to
act in the matter, each of whom shall be a "disinterested person" or (iii)
pursuant to provisions for automatic grants set forth in Section 3(c) below. For
the purposes of the Plan, a director shall be deemed to be a "disinterested
person" only if such person qualifies as a "disinterested person" within the
meaning of Rule 16b-3, as such term is interpreted from time to time. If at
least two of the members of the Board of Directors do not qualify as a
"disinterested person" within the meaning of Rule 16b-3, as such term is
interpreted from time to time, then the granting of options to officers and
directors who are Reporting Persons under the Plan shall not be determined in
accordance with this Section 3(b) but shall be determined in accordance with the
other provisions of the Plan.
(c) Directors' Options. Commencing on the date this plan is adopted by the
Board of Directors, directors of the Company who are not employees or principal
stockholders of the Company ("Eligible Directors") will receive an option
("Director Option") to purchase 10,000 shares of Common Stock. Future Eligible
Directors of the Company will be granted a Director Option to purchase 10,000
shares of Common Stock on the date that such person is first elected or
appointed a director ("Initial Director Option"). Commencing on the day
immediately following the date of the annual meeting of stockholders for the
Company's fiscal year ending March 31, 1997, each Eligible Director will receive
an automatic grant ("Automatic Grant") of a Director Option to purchase 1,000
shares of Common Stock, other than Eligible Directors who received an Initial
Director Option since the most recent Automatic Grant, on the day immediately
following the date of each annual meeting of stockholders, as long as such
director is a member of the Board of Directors. The exercise price for each
share subject to a Director Option shall be equal to the fair market value of
the Common Stock on the date of grant. Director Options shall become exercisable
in four equal annual installments commencing one
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year from the date the option is granted and will expire the earlier of 10 years
after the date of grant or 90 days after the termination of the director's
service on the Board unless such Director Option is an Incentive Stock Option in
which case such Director Option shall be subject to the additional terms and
conditions set forth in Section 11.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 250,000 shares. If an
option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors at the time
of grant of such option; provided, however, that in the case of an Incentive
Stock Option, the exercise price shall not be less than 100% of the Fair Market
Value (as hereinafter defined) of such stock, at the time of grant of such
option, or less than 110% of such Fair Market Value in the case of options
described in Section 11(b). "Fair Market Value" of a share of Common Stock of
the Company as of a specified date for the purposes of the Plan shall mean the
closing price of a share of the Common Stock on the principal securities
exchange (including the Nasdaq National Market) on which such shares are traded
on the day immediately preceding the date as of which Fair Market Value is being
determined, or on the next preceding date on which such shares are traded if no
shares were traded on such immediately preceding day, or if the shares are not
traded on a securities exchange, Fair Market Value shall be deemed to be the
average of the high bid and low asked prices of the shares in the
over-the-counter market on the day immediately preceding the date as of which
Fair Market Value is being determined or on the next preceding date on which
such high bid and low asked prices were recorded. If the shares are not publicly
traded, Fair Market Value of a share of Common Stock (including, in the case of
any repurchase of shares, any distributions with respect thereto which would be
repurchased with the shares) shall be determined in good faith by the Board of
Directors. In no case shall Fair Market Value be determined with regard to
restrictions other than restrictions which, by their terms, will never lapse.
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(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or by any other means which the Board of Directors determines are consistent
with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board).
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and all
rights thereunder shall expire on such date as determined by the Board of
Directors and set forth in the applicable option agreement, provided, that such
date shall not be later than (10) ten years after the date on which the option
is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. No option granted to a Reporting Person for purposes of the
Exchange Act, however, shall be exercisable during the first six months after
the date of grant. Subject to the requirements in the immediately preceding
sentence, if an option is not at the time of grant immediately exercisable, the
Board of Directors may (i) in the agreement evidencing such option, provide for
the acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events, and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.
9. Nontransferability of Options.
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. An option may be exercised during the lifetime of the optionee only
by the optionee. In the event an optionee dies during his employment by the
Company or any of its subsidiaries, or during the three-month period following
the date of termination of such employment, his option shall thereafter be
exercisable, during the period specified in the option agreement, by his
executors or administrators to the full extent to which such option was
exercisable by the optionee at the time of his death during the periods set
forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock Options
and except as otherwise determined by the Committee at the date of grant of an
Option, and subject
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to the provisions of the Plan, an optionee may exercise an option at any time
within three months following the termination of the optionee's employment or
other relationship with the Company or within one (1) year if such termination
was due to the death or disability of the optionee but, except in the case of
the optionee's death, in no event later than the expiration date of the Option.
If the termination of the optionee's employment is for cause or is otherwise
attributable to a breach by the optionee of an employment or confidentiality or
non-disclosure agreement, the option shall expire immediately upon such
termination. The Board of Directors shall have the power to determine what
constitutes a termination for cause or a breach of an employment or
confidentiality or non-disclosure agreement, whether an optionee has been
terminated for cause or has breached such an agreement, and the date upon which
such termination for cause or breach occurs. Any such determinations shall be
final and conclusive and binding upon the optionee.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (after taking into
account the attribution of stock ownership rules of Section 424(d) of the
Code), then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years from
the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive
stock option plans of the Company) which are intended to constitute
Incentive Stock Options shall not constitute Incentive Stock Options to the
extent that such options, in the aggregate, become exercisable for the
first time in any one calendar year for shares of Common Stock with an
aggregate Fair Market Value, as of the respective date or dates of grant,
of more than $100,000.
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(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period
of three months after the date the optionee ceases to be an employee
of the Company (or within such lesser period as may be specified in
the applicable option agreement), provided, that the agreement with
respect to such option may designate a longer exercise period and that
the exercise after such three-month period shall be treated as the
exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it
is transferred by will or the laws of descent and distribution within
the period of one year after the date of death (or within such lesser
period as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto)
while in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in option agreements covering options
granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, rights of first refusal, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to optionees
upon exercise of options, or such other provisions as shall be determined by the
Board of Directors; provided, that such additional provisions shall not be
inconsistent with any other term or condition of the Plan and such additional
provisions shall not cause any Incentive Stock Option granted under the Plan to
fail to qualify as an Incentive Stock Option within the meaning of Section 422
of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted
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<PAGE>
under the Plan may be exercised or (ii) extend the dates during which all, or
any particular, option or options granted under the Plan may be exercised;
provided, however, that no such extension shall be permitted if it would cause
the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3 (if
applicable).
13. General Restrictions.
(a) Investment Representations. The Company may require any person to whom
an Option is granted, as a condition of exercising such option or award, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option or
award, for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock, including any "lock-up" or other restriction on
transferability.
(b) Compliance With Securities Law. Each Option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
or award upon any securities exchange or automated quotation system or under any
state or federal law, or the consent or approval of any governmental or
regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with the issuance or purchase of shares thereunder, such option or
award may not be exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval, or satisfaction of such
condition shall have been effected or obtained on conditions acceptable to the
Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and Related
Transactions.
(a) Recapitalizations and Related Transactions. If, through or as a result
of any recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other similar transaction, (i) the outstanding shares of Common
Stock are increased, decreased or exchanged for a different number or kind of
shares or other securities of the Company, or
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<PAGE>
(ii) additional shares or new or different shares or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment shall be made in (x) the maximum number
and kind of shares reserved for issuance under or otherwise referred to in the
Plan, (y) the number and kind of shares or other securities subject to any then
outstanding options under the Plan, and (z) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment (i) would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 or (ii) would be considered as the adoption of a new
plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. All outstanding
Options under the Plan shall become fully exercisable for a period of sixty (60)
days following the occurrence of any Trigger Event, whether or not such Options
are then exercisable under the provisions of the applicable agreements relating
thereto. For purposes of the Plan, a "Trigger Event" is any one of the following
events:
(i) the date on which shares of Common Stock are first purchased
pursuant to a tender offer or exchange offer (other than such an offer by
the Company, any Subsidiary, any employee benefit plan of the Company or of
any Subsidiary or any entity holding shares or other securities of the
Company for or pursuant to the terms of such plan), whether or not such
offer is approved or opposed by the Company and regardless of the number of
shares purchased pursuant to such offer;
(ii) the date the Company acquires knowledge that any person or group
deemed a person under Section 13(d)-3 of the Exchange Act (other than the
Company, any Subsidiary, any employee benefit plan of the Company or of any
Subsidiary or any entity holding shares of Common Stock or other securities
of the Company for or pursuant to the terms of any such plan or any
individual or entity or group or affiliate thereof which acquired its
beneficial ownership interest prior to the date the Plan was adopted by the
Board), in a transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial ownership
determined as provided in Rule 13d-3, or any successor rule, under the
Exchange Act), of securities of the Company entitling the person or group
to 30% or more of all votes (without consideration of the rights of any
class or stock to elect directors by a separate class vote) to which all
shareholders of the Company would be entitled in the election of the Board
of Directors were an election held on such date;
(iii) the date, during any period of two consecutive years, when
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by
the shareholders of the
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<PAGE>
Company, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning
of such period; and
(iv) the date of approval by the shareholders of the Company of an
agreement (a "reorganization agreement") providing for:
(A) The merger of consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior
to the merger or consolidation, do not beneficially own, immediately
after the merger or consolidation, shares of the corporation issuing
cash or securities in the merger or consolidation entitling such
shareholders to 80% or more of all votes (without consideration of the
rights of any class of stock to elect directors by a separate class
vote) to which all shareholders of such corporation would be entitled
in the election of directors or where the members of the Board of
Directors of the Company, immediately prior to the merger or
consolidation, do not, immediately after the merger or consolidation,
constitute a majority of the Board of Directors of the corporation
issuing cash or securities in the merger or consolidation; or
(B) The sale or other disposition of all or substantially all the
assets of the Company.
(c) Board Authority to Make Adjustments. Any adjustments under this Section
15 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account of
any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of any sale, merger, transfer or acquisition of
the Company or substantially all of the assets of the Company in which the
Company is not the surviving corporation, and provided that after the Company
shall have requested the acquiring or succeeding corporation (or an affiliate
thereof), that equivalent options shall be substituted and such successor
corporation shall have refused or failed to assume all options outstanding under
the Plan or issue substantially equivalent options, then any or all outstanding
options under the Plan shall accelerate and become exercisable in full
immediately prior to such event. The Committee will notify holders of options
under the Plan that any such options shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the options will terminate
upon expiration of such notice.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the
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<PAGE>
acquisition by the Company, or one of its subsidiaries, of property or stock of
the employing corporation. The Company may direct that substitute options be
granted on such terms and conditions as the Board of Directors considers
appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect; provided, however, that if at any time the
approval of the shareholders of the Company is required under Section 422 of the
Code or any successor provision with respect to Incentive Stock Options, or
under Rule 16b-3, the Board of Directors may not effect such modification or
amendment without such approval; and provided, further, that the provisions of
Section 3(c) hereof shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employer Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive Stock
Options granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code and (ii) the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
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<PAGE>
20. Withholding.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a Fair
Market Value equal to such withholding obligation as of the date that the amount
of tax to be withheld is to be determined. An optionee who has made an election
pursuant to this Section 20(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an Incentive
Stock Option shall constitute an agreement by the optionee (i) to notify the
Company if any or all of such shares are disposed of by the optionee within two
years from the date the option was granted or within one year from the date the
shares were issued to the optionee pursuant to the exercise of the option, and
(ii) if required by law, to remit to the Company, at the time of and in the case
of any such disposition, an amount sufficient to satisfy the Company's federal,
state and local withholding tax obligations with respect to such disposition,
whether or not, as to both (i) and (ii), the optionee is in the employ of the
Company at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting Person whose
options have been granted in accordance with the provisions of Section 3(b)
herein, no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become
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<PAGE>
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
requiring shareholder approval shall become effective when adopted by the Board
of Directors; amendments requiring shareholder approval (as provided in Section
21) shall become effective when adopted by the Board of Directors, but no
Incentive Stock Option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate upon the earlier of (i) the close of business on the
day next preceding the tenth anniversary of the date of its adoption by the
Board of Directors, or (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise or cancellation
of options granted under the Plan. If the date of termination is determined
under (i) above, then options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the instruments evidencing
such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws.
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INDEMNIFICATION AGREEMENT
-------------------------
This INDEMNIFICATION AGREEMENT, made and entered into as of the _______ day
of ___________, 1996 ("Agreement"), by and between Laminating Technologies,
Inc., a Delaware corporation (the "Corporation"), and ("Indemnitee").
WHEREAS, recently, highly competent persons have become more reluctant to
serve both privately and publicly-held corporations as directors, officers, or
in other capacities, unless they are provided with better protection from the
risk of claims and actions against them arising out of their service to and
activities on behalf of such corporations; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties related to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the ability to attract and retain such persons is in the best
interests of the Corporation's shareholders and that such persons should be
assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation to
obligate itself contractually to indemnify such persons to the fullest extent
permitted by applicable law, so that such persons will serve or continue to
serve the Corporation free from undue concern that they will not be adequately
indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of Article V
of the Amended and Restated Certificate of Incorporation of the Corporation (the
"Certificate") and Article V of the By-Laws of the Corporation ("By-Laws"); any
rights granted under the Certificate or By-Laws and any resolutions adopted
pursuant thereto shall not be deemed to be a substitute therefor nor to diminish
or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Corporation on the condition that he
be indemnified according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
Section 1. Definitions. For purposes of this Agreement:
<PAGE>
(a) "Change in Control" means a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) of
Schedule l4A of Regulation l4A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Corporation is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule l3d-3 under the Act), directly or indirectly, of
securities of the Corporation representing 20% or more of the combined voting
power of the Corporation's then outstanding securities without the prior
approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii) the
Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new director whose election or
nomination for election by the Corporation's shareholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board.
(b) "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Corporation.
(c) "Disinterested Director" means a director of the Corporation who is not
and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the past five years has been, retained to represent: (i) the Corporation or
Indemnitee in any other matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
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<PAGE>
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
(f) "Proceeding" means any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement.
Section 2. Services by Indemnitee. Indemnitee agrees to serve as a director
of the Corporation, and, at its request, as a director, officer, employee, agent
or fiduciary of certain other corporations and entities. Indemnitee may at any
time and for any reason resign from any such position (subject to any other
contractual obligation or any obligation imposed by operation of law).
Section 3. Indemnification - General. The Corporation shall indemnify, and
advance Expenses to, Indemnitee as provided in this Agreement to the fullest
extent permitted by applicable law in effect on the date hereof and to such
greater extent as applicable law may thereafter from time to time permit. The
rights of Indemnitee provided under the preceding sentence shall include, but
shall not be limited to, the rights set forth in the other Sections of this
Agreement.
Section 4. Proceedings Other Than Proceedings by or in the Right of the
Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending, or completed
Proceeding, other than a Proceeding by or in the right of the Corporation.
Pursuant to this Section, Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 5. Proceedings by or in the Right of the Corporation. Indemnitee
shall be entitled to the rights of indemnification provided in this Section if,
by reason of his Corporate Status, he is, or is threatened to be made, a party
to any threatened, pending, or completed Proceeding brought by or in the right
of the Corporation to procure a judgment in its favor. Pursuant to this Section,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any such Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in any such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Corporation if applicable law prohibits such indemnification
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<PAGE>
unless the Chancery Court of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that
indemnification against Expenses may nevertheless be made by the Corporation.
Section 6. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For the purposes of this Section and without limiting the
foregoing, the termination of any claim, issue or matter in any such Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 7. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 8. Advancement of Expenses. The Corporation shall advance all
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 9. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement in connection with any
Proceeding, and for the duration thereof, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of any such request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 9(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's
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<PAGE>
entitlement thereto shall be made in such case: (i) if a Change in Control shall
have occurred, by Independent Counsel (unless Indemnitee shall request that such
determination be made by the Board or the shareholders, in which case in the
manner provided for in clauses (ii) or (iii) of this Section 9(b)) in a written
opinion to the Board, a copy of which shall be delivered to Indemnitee; (ii) if
a Change of Control shall not have occurred, (A) by the Board by a majority vote
of a quorum consisting of Disinterested Directors, or (B) if a quorum of the
Board consisting of Disinterested Directors is not obtainable, or even if such
quorum is obtainable, if such quorum of Disinterested Directors so directs,
either (x) by Independent Counsel in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee, or (y) by the shareholders of the
Corporation, as determined by such quorum of Disinterested Directors, or a
quorum of the Board, as the case may be; or (iii) as provided in Section 10(b)
of this Agreement. If it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Corporation (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected as follows: (i) if a
Change of Control shall not have occurred, Independent Counsel shall be selected
by the Board, and the Corporation shall give written notice to Indemnitee
advising him of the identity of Independent Counsel so selected; or (ii) if a
Change of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event (i) shall apply), and Indemnitee shall give written notice
to the Corporation advising it of the identity of Independent Counsel so
selected. In either event, Indemnitee or the Corporation, as the case may be,
may within 7 days after such written notice of selection shall have been given,
deliver to the Corporation or to Indemnitee, as the case may be, a written
objection to such selection. Such objection may be asserted only on the grounds
that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 9(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Corporation or Indemnitee may petition the Chancery Court of the
State of Delaware, or other court of competent jurisdiction, for resolution of
any objection which shall have been made by the Corporation or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected
-5-
<PAGE>
by such court or by such other person as such court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 9(b) hereof. The
Corporation shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with its actions
pursuant to this Agreement, and the Corporation shall pay all reasonable fees
and expenses incident to the procedures of this Section 9(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement date of any judicial proceeding or arbitration pursuant to Section
11(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 10. Presumption and Effects of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a determination
with respect to entitlement to indemnification hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 9(a) of this Agreement, and the
Corporation shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
(b) If the person, persons or entity empowered or selected under Section 9
of this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within 60 days after receipt by the
Corporation of the request therefor, the requisite determination of entitlement
to indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) prohibition of such indemnification under applicable
law; provided, however, that such 60-day period may be extended for a reasonable
time, not to exceed an additional 30 days, if the person, persons or entity
making the determination with respect to entitlement to indemnification in good
faith require(s) such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 10(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
shareholders pursuant to Section 9(b) of this Agreement and if (A) within 15
days after receipt by the Corporation of the request for such determination the
Board has resolved to submit such determination to the shareholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
shareholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) of this Agreement.
-6-
<PAGE>
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 9 of
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 8 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 9(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Corporation of the request
for indemnification, (iv) payment of indemnification is not made pursuant to
Section 7 of this Agreement within ten (10) days after receipt by the
Corporation of a written request therefor, or (v) payment of indemnification is
not made within ten (10) days after a determination has been made that
Indemnitee is entitled to indemnification or such determination is deemed to
have been made pursuant to Section 9 or 10 of this Agreement, Indemnitee shall
be entitled to an adjudication in the Chancery Court of the State of Delaware,
or in any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
in Delaware. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 11(a). The Corporation shall not oppose Indemnitee's right to seek any
such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 9 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section shall
be conducted in all respects as a de novo trial or arbitration on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change of Control shall have occurred in any judicial proceeding or arbitration
commenced pursuant to this Section, the Corporation shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's
-7-
<PAGE>
statement not materially misleading, in connection with the request for
indemnification, or (ii) prohibition of such indemnification under applicable
law.
(d) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section that the procedures
and presumptions of this Agreement are not valid, binding and enforceable and
shall stipulate in any such court or before any such arbitrator that the
Corporation is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section, seeks a
judicial adjudication of, or an award in arbitration to enforce, his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the kinds described in the
definition of Expenses) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in such judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
Section 12. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the
certificate of incorporation or by-laws of the Corporation, any agreement, a
vote of shareholders for a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
(b) To the extent that the Corporation maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee, agent or fiduciary under such policy or policies.
(c) In the event of any payment under this Agreement, the Corporation shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Corporation to bring suit to enforce such rights.
-8-
<PAGE>
(d) The Corporation shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 13. Duration of Agreement. This Agreement shall continue until and
terminate upon the later of: (a) 10 years after the date that Indemnitee shall
have ceased to serve as a director, officer, employee, agent or fiduciary of the
Corporation or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which Indemnitee served at the request
of the Corporation; or (b) the final termination of all pending Proceedings in
respect of which Indemnitee is granted rights of indemnification or advancement
of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 11 of this Agreement. This Agreement shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of
Indemnitee and his heirs, executors and administrators.
Section 14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 15. Exception to Right of Indemnification or Advancement of
Expenses. Except as provided in Section 11(e), Indemnitee shall not be entitled
to indemnification or advancement of Expenses under this Agreement with respect
to any Proceeding, or any claim therein, brought or made by him against the
Corporation.
Section 16. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 17. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties
-9-
<PAGE>
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom such
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Corporation, to:
Laminating Technologies, Inc.
291 North Industrial Way
Canton, Georgia 30115
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LAMINATING TECHNOLOGIES, INC.
By: _______________________________
Name:
Title:
INDEMNITEE
___________________________________
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as at and for the year ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-1-1995
<PERIOD-END> Mar-31-1996
<CASH> 1,347
<SECURITIES> 0
<RECEIVABLES> 32,321
<ALLOWANCES> (20,000)
<INVENTORY> 0
<CURRENT-ASSETS> 13,668
<PP&E> 10,699
<DEPRECIATION> (4,530)
<TOTAL-ASSETS> 20,529
<CURRENT-LIABILITIES> 2,103,393
<BONDS> 433,346
0
2,500
<COMMON> 6,797
<OTHER-SE> (2,525,507)
<TOTAL-LIABILITY-AND-EQUITY> 20,529
<SALES> 119,412
<TOTAL-REVENUES> 119,412
<CGS> 277,454
<TOTAL-COSTS> 1,319,744
<OTHER-EXPENSES> 49,277
<LOSS-PROVISION> 7,000
<INTEREST-EXPENSE> 100,874
<INCOME-PRETAX> (1,228,745)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,228,745)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,228,745)
<EPS-PRIMARY> (2.02)
<EPS-DILUTED> (2.02)
</TABLE>
