As filed with the Securities and Exchange Commission on July 31, 1996
Registration No. 333-6711
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
LAMINATING TECHNOLOGIES, INC.
(Exact name of Small Business Issuer as specified in its charter)
------------
Delaware 2671 58-2044990
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation) classification code number) identification
number)
7730 Roswell Road
Atlanta, Georgia 30350-4862
(770) 396-3090
(Address and telephone number of principal executive offices and principal
place of business)
------------
Michael E. Noonan
Chief Executive Officer
7730 Roswell Road
Atlanta, Georgia 30350-4862
(770) 396-3090
(Name, address and telephone number of agent for service)
------------
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.
------------
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.
================================================================================
(Continued on following page)
<PAGE>
(Continued from previous page)
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price (1) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<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
- ----------------------------------------------------------------------------------------------------------------------------------
Units, each consisting of one share of Common Stock,
$.01 par value, and one Class B Warrant (3) .................................. 11,212,500 3,866
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
Units, each consisting of one share of Common Stock,
$.01 par value, and one Class B Warrant (6) .................................. 975,000 336
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (6) ............................................... 2,625,000 905
- ----------------------------------------------------------------------------------------------------------------------------------
Class A Warrants (7) ........................................................... -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Units, each consisting of one share of Common Stock,
$.01 par value, and one Class B Warrant (8) .................................. 6,483,750 2,236
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (9) ............................................... 8,728,125 3,010
- ----------------------------------------------------------------------------------------------------------------------------------
Total .................................................................. $69,737,025 $24,046(10)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</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.
(10) Previously paid.
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.
------------
<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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION -- DATED JULY 31, 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 has applied 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.
------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting Discounts and Proceeds to
Price to Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Unit........ $ $ $
- --------------------------------------------------------------------------------
Total (3) ...... $ $ $
================================================================================
(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); and (ii) an option, exercisable over a period of three years
commencing two years from the date of this Prospectus, to purchase up to
150,000 Units at $______ per Unit (the "Unit Purchase Option"). 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."
------------
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>
[This page sets forth an illustration of
a packaging product that can be produced
by the Company utilizing the LTI
Processed method and a schematic diagram
of the LTI Processed manaufacturing
system.]
The Company intends to furnish its stockholders with annual reports containing
financial statements audited by its independent auditors.
------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS ON THE NASDAQ SMALLCAP MARKET 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.
<PAGE>
- --------------------------------------------------------------------------------
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(TM) 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 leakproof, 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>
- --------------------------------------------------------------------------------
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 7730 Roswell Road, Atlanta, Georgia
30350-4862 and its telephone number is (770) 396-3090.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
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>
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)
---------- ---------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) ............................ (2,089,725) 450,501 4,043,651
Total assets ............................................ 20,529 948,571 4,541,721
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) 4,050,512
</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."
- --------------------------------------------------------------------------------
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 claims of 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 ended 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 $0.68 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 ended 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 $2,507,500, or 42%, 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 has obtained a $2,000,000 "key-man" life insurance policy on the life of
Mr. Noonan and has also entered into a one year employment agreement with Mr.
Noonan. 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 $ 3.25, or 65%, in the pro forma net
tangible book value per share of their Common Stock ($3.02, or 60.4%, 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 are also the principal stockholders of D.H. Blair & Co., Inc. ("Blair
& Co."), a selling group member which will
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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 without the prior written consent of the
Underwriter. Sales of Common Stock, or the possibility of such sales, in the
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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 & Co. may be unable to provide a market for the Company's
securities during certain periods while the Warrants are
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<PAGE>
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 $5,962,500
($6,946,875 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:
Approximate Amount Percentage of
Application of Net Proceeds Net Proceeds
----------- --------------- ------------
Repayment of Bridge Notes (1) ........... $ 2,055,000 34.47%
Product Design and Development (2) ..... 700,000 11.74
Sales and Marketing (3) ................. 700,000 11.74
Working Capital (4) ..................... 2,507,500 42.05
----------- ------
Total ............................... $ 5,962,500 100.00%
===========
- --------
(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 9,451,242
Deficit accumulated during
development stage ......................... (4,375,973) (4,388,680) (5,428,030)
----------- ----------- -----------
Total stockholders equity (deficiency) .. (2,516,210) (872,638) 4,050,512
----------- ----------- -----------
Total capitalization ................ $ (685,022) $ 528,924 $ 4,122,104
=========== =========== ===========
</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 $4,049,820 or $1.75 per share. This represents an
immediate increase in net tangible book value of $2.82 per share to existing
stockholders and an immediate dilution of $3.25 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:
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.......... $ 2.82
-----
Net tangible book value per share after Offering.......... $1.75
-----
Dilution to New Investors ................................ $3.25
=====
- --------
(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 $1.98 per share (excluding the
Escrow Shares), resulting in dilution to New Investors in the Offering of $3.02
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
=========== =========== ===========
</TABLE>
<TABLE>
<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, approximately $980,000 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 ended 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. See
"Principal Stockholders."
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 $0.68 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 ended 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 leakproof, 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 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 sandwiched between layers of linerboard, creating a bulkier
material which is difficult to bend. To the extent that packaging is required
23
<PAGE>
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 or combinations of film,
linerboard and polymer bonding agents and by laminating using proprietary
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 leakproof 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. Notwithstanding the above, the
Company currently has no independent laboratory studies or test results to
verify its claims as to the physical properties of LTI Processed materials.
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/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. 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 different
packaging from a new company. The Company intends to compete with such
manufacturers by offering a
26
<PAGE>
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 claims of 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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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. Although the Company's
requirements for linerboard have to date been limited, the Company has relied,
and will likely continue to rely, upon Ludlow Corporation as a principal
supplier of linerboard.
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 currently leases approximately 1,000 square feet of office
space for its executive offices pursuant to an oral agreement that provides for
an indefinite term and monthly rent of $1,575. The Company anticipates that such
executive office space will be sufficient for approximately six months, at which
time the Company intends to secure additional executive office space. The
Company is also engaged in discussions with several converters that may sublet
certain warehouse space to the Company in exchange for rental payments and/or
the opportunity to provide converting services to the Company, although the
Company has not entered into any definitive agreements. 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 Senior Vice President -- Marketing/Operations, Secretary and
Director
J. Scott Stewart......................... 43 Senior Vice President -- Marketing/Sales
Ronald L. Christensen.................... 59 Director
Jerome I. Gellman........................ 67 Director
Leonard Toboroff......................... 63 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.
JERRY A. ROSS has been the part-time Chief Financial Officer of the Company
since June 15, 1996. Mr. Ross has also served as the Chief Financial Officer of
Warranty Corporation of America, an administrator of extended service contracts,
since June 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 Senior Vice President -- Marketing/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 -- Marketing/Sales 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.
29
<PAGE>
JEROME I. GELLMAN has been a director of the Company since July 1996. From
1988 to the present, Mr. Gellman has been counsel to the law firm of Cowan,
Liebowitz & Latman. Mr. Gellman has also served as a director of Tyco Toys,
Inc., a publicly-traded toy company, since 1987.
LEONARD TOBOROFF has been a director of the Company since July 1996. Mr.
Toboroff has also served as Vice President of Riddell Sports Inc., a
manufacturer and distributor of sporting goods, since April 1988 and Vice
President and Vice-Chairman of the Board of Allis-Chalmers Corp. since May 1989.
Mr. Toboroff has been a practicing attorney since 1961 and has served as (i) a
director of American Bakeries Company since August 1987, (ii) a director of
Banner Aerospace, Inc., a supplier of aircraft parts, since September 1992,
(iii) a director of ANMR Corp., a manufacturer of medical diagnostic equipment,
since September 1992 and (iv) Chairman of the Board of Saratoga Springs Beverage
Co. since December 1995.
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.
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 $60,000 payable pursuant to a consulting arrangement prior to
March 31, 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
In July 1996, the Company entered into a one year employment agreement with
Michael E. Noonan, Chairman and Chief Executive Officer of the Company. The
agreement provides for an annual base salary of $144,000 per year and is
automatically renewable for successive one year terms unless either party gives
six months' notice to the other. The Company may terminate the agreement without
cause and, upon such termination, Mr. Noonan will be entitled to receive his
base salary for a period of one year (subject to a 50% offset during the second
six months for salary received from subsequent employment). In addition, if the
Company exercises its right not to renew the agreement, Mr. Noonan will be
entitled to six months of severance pay. The agreement contains confidentiality
and non-competition provisions.
30
<PAGE>
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 stockholder 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."
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 30, 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
31
<PAGE>
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 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.
32
<PAGE>
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 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 $0.68 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. ......................................... 322,851(5) 26.25 11.83
Steve Gorlin ............................................. 202,012(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., 7730 Roswell
Road, Atlanta, Georgia 30350-4862.
(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 Selengut. Mr. Selengut 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 approximately 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 shares of Common Stock underlying
the options granted to Michael E. Noonan by Steve Gorlin and TMR will not be
Escrow Shares.
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<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 March 31, 1998;
(b) the Minimum Pretax Income amounts to at least $4,400,000 million for the
fiscal year ending March 31, 1999;
(c) the Minimum Pretax Income amounts to at least $5,700,000 million for the
fiscal year ending March 31, 2000;
(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 June 30, 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 Donald 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)
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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. 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 two years, except to
any officer of the Underwriter or members of the selling group or their
officers. The Unit Purchase Options are exercisable during the three-year period
commencing two years 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%
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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. 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 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 three-year period commencing two years 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 two years 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.
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 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.
[11] Fair value of financial instruments:
The carrying value of cash, accounts receivable and accounts payable
approximates 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 ....................................................... 255,952
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 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
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 three years commencing two years 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.
[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.
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
F-11
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE I) -- Income Taxes: (continued)
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 for 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 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.
F-12
<PAGE>
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(NOTE K) -- Stock Option Plan: (continued)
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
[LOGO]
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 33 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 $5,962,500 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.
Number of
Class A Warrants
Beneficially
owned and maximum
Selling Securityholders number to be sold (1)
----------------------- ---------------------
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
=======
- ----------
(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
NASD Filing Fees ................................... 7,473
Nasdaq Filing Fees ................................. 15,000
Printing and Engraving Expense ..................... 90,000
Accounting Fees and Expenses ....................... 100,000
Legal Fees and Expenses ............................ 275,000
Blue Sky Fees and Expenses ......................... 25,000
Transfer Agent's Fees and Expenses ................. 10,000
Miscellaneous Expenses ............................. 53,481
----------
Total....................................... $ 600,000
==========
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
10.3A --Amendment to 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>
- ----------
* Previously filed.
** To be filed by amendment.
Item 28. Undertakings
(1) The undersigned Registrant hereby undertakes that it will:
II-2
<PAGE>
(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) 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 is contained in its
opinion 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
July 29, 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
July 29, 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 29th
day of July, 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 July 29, 1996
------------------------- and Chief Executive Officer
Michael E. Noonan (principal executive officer)
/s/ JERRY A. ROSS Chief Financial Officer July 29, 1996
------------------------- (principal financial
Jerry A. Ross and accounting officer)
/s/ ROBERT L. DOVER Secretary and Director July 29, 1996
-------------------------
Robert L. Dover
/s/ RONALD L. CHRISTENSEN Director July 29, 1996
-------------------------
Ronald L. Christensen
/s/ JEROME I. GELLMAN Director July 29, 1996
-------------------------
Jerome I. Gellman
/s/ LEONARD TOBOROFF Director July 29, 1996
-------------------------
Leonard Toboroff
/s/ WILLIAM WARREN Director July 29, 1996
-------------------------
William Warren
</TABLE>
II-7
July 30, 1996
Laminating Technologies, Inc.
7730 Roswell Road
Atlanta, Georgia 30350-4862
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel for Laminating Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a registration statement (the "Registration Statement") on Form
SB-2, File No. 333-6711, under the Securities Act of 1933, as amended (the
"Act"), relating to the public offering of up to 1,725,000 units (the "Units"),
each Unit consisting of one share of the Company's Common Stock, $.01 par value
(the "Common Stock"), one redeemable Class A Warrant (the "Class A Warrants")
and one redeemable Class B Warrant (the "Class B Warrants"), which includes
225,000 Units subject to an option granted to the underwriter to cover
over-allotments in connection with the offering. Each Class A Warrant is
exercisable to purchase one share of Common Stock and one Class B Warrant and
each Class B Warrant is exercisable to purchase one share of Common Stock.
We have examined the Certificate of Incorporation, as amended, and By-Laws
of the Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to the
offering of the Units, draft forms of certificates representing the Common Stock
and the Class A and Class B Warrants, originals or copies of all such records of
the Company, agreements, certificates of public officials, certificates of
officers and representatives of the Company and others, and such other documents
and records as we have deemed necessary to form the basis of the opinion
expressed below. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as copies thereof.
As to various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Company and
others.
<PAGE>
Laminating Technologies, Inc.
July 30, 1996
Page Two
Based upon the foregoing, we are of the opinion that:
1. The maximum of 1,725,000 shares included in the Units have been duly
authorized and, when issued and sold in accordance with the terms described in
the Prospectus forming a part of the Registration Statement (the "Prospectus")
will be validly issued, fully paid and nonassessable.
2. The Class A and Class B Warrants included in the Units have been duly
authorized and, when issued and sold in accordance with the terms described in
the Prospectus, will be validly issued.
3. The maximum of 5,175,000 shares of Common Stock of the Company issuable
upon exercise of the Class A and Class B Warrants have been duly authorized and
reserved for issuance and, when issued in accordance with the terms of the Class
A and Class B Warrants, will be validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement, and to the use of our name under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
BACHNER, TALLY, POLEVOY
& MISHER LLP
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT, dated July 29, 1996 as of July 1, 1996, between Laminating
Technologies, Inc., a Delaware corporation (the "Company"), and Michael E.
Noonan (the "Employee").
WHEREAS, the Company desires to obtain the services of the Employee, and
the Employee desires to provide such services to the Company, on the terms set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment and Duties.
(a) The Company hereby employs the Employee, and the Employee
accepts employment, to serve as Chairman of the Board, President and Chief
Executive Officer of the Company and to perform such duties consistent with his
position as may reasonably be assigned to him from time to time by the Company's
Board of Directors.
(b) The Employee hereby agrees to perform such duties, to fulfill
such responsibilities and to serve the Company faithfully, industriously and to
the best of his ability, subject to the direction and control of the Company's
Board of Directors, and to devote his best efforts and his full working time and
attention to performing his duties under this Agreement.
2. Term; Termination.
Except in the case of earlier termination as hereinafter
specifically provided in Paragraph 4, this Agreement shall be effective as of
July 1, 1996 and the term hereof and the Employee's employment hereunder shall
continue until June 30, 1997 (the "Initial Term"). This Agreement shall be
renewed automatically for successive one year terms thereafter (each, a "Renewal
Term") unless either party gives not less than six months prior written notice
to the other party that such party elects to have this Agreement terminate at
the end of the Initial Term or the then current Renewal Term.
3. Compensation; Expenses; Benefits.
(a) As compensation for his services hereunder in whatever
capacity rendered, the Company shall pay the Employee a salary, payable monthly
in advance or in more frequent installments and at such times during the month
as is customary with respect to senior officers of the Company and/or its
affiliated corporations, at a rate of $144,000 per year. Such salary shall be
adjusted annually on January 1 of 1998 and each subsequent year by multiplying
1
<PAGE>
the annual salary theretofore in effect by a fraction of which (i) the numerator
is the Consumer Price Index for All Urban Consumers - Atlanta (the "Index"),
prepared by the Bureau of Labor Statistics of the United States Department of
Labor (or if the Index is not then being published, the most nearly comparable
successor index) for the month immediately preceding such date and (ii) the
denominator is the Index for the month immediately preceding the last date on
which such salary has been adjusted pursuant to this sentence or, if not
previously adjusted, the month immediately preceding the date of this employment
agreement. Notwithstanding the foregoing, the salary for any year shall not be
less than the salary for the preceding year. Such salary and the Employee's
employee benefits provided pursuant to Paragraph 3(c) hereof shall continue to
be paid and provided, regardless of any illness or incapacity of the Employee,
until this Agreement is terminated.
(b) The Employee shall also be entitled to receive such bonuses
as the Company's Board of Directors or Compensation Committee, if any, may deem
appropriate.
(c) The Employee and the Employee's spouse and children, if any,
shall be entitled to participate in all employee benefit plans generally
available from time to time to the senior officers of the Company, so long as
such benefits comply with applicable law (including without limitation the
Internal Revenue Code and ERISA). In addition, Employee shall be entitled to
annual vacation in accordance with Company policy at such times as are mutually
convenient to Employee and the Company.
(d) The Employee shall be entitled to advances or reimbursement
for his ordinary and necessary business expenses incurred in the performance of
his duties hereunder provided that his claims therefor shall be supported by the
documentation required by the Company in accordance with its usual practice.
(e) The Company will pay to Employee a monthly automobile
allowance of $500, as such amount may be increased from time to time by the
Board of Directors of the Company.
(f) Notwithstanding anything herein to the contrary, the
Employee's base salary and automobile allowance shall not be increased above the
levels set forth herein for a period of thirteen months following the closing of
the Company's initial public offering.
4. Termination of Employment. If any of the following events occur
before the expiration of the Term, Employee's employment with the Company shall
terminate upon the occurrence of such event:
(a) Employee's death, or any illness, disability or other
incapacity that renders Employee physically unable regularly to perform his
duties hereunder for a period in excess of ninety (90) consecutive days or more
than one hundred eighty (180) days in any consecutive twelve (12) month period.
2
<PAGE>
(b) Thirty (30) days after the Company gives written notice to
Employee of his termination if said termination is without cause.
(c) At any time, by written notice from the Company to Employee,
if said termination is for cause. For purposes of this Paragraph 4(c) and
Paragraph 4(b), "cause" is defined as (i) the material breach by Employee of any
provision of this Agreement (which is not cured within 30 days after written
notice to the Employee thereof), (ii) Employee's conviction of a crime
constituting a felony or involving moral turpitude, (iii) an act by Employee of
material dishonesty or fraud in connection with Employee's performance of his
duties to the Company, or (iv) the good faith determination by the Company's
Board of Directors (after having given the Employee written notice of, and an
opportunity to cure, the deficiency within 30 days) that Employee has willfully
failed to perform his duties to the Company under this Agreement (other than a
failure resulting from the Employee's incapacity due to physical or mental
illness) or willfully engaged in conduct which is materially detrimental to the
Company, monetarily or otherwise, or has been grossly negligent in the
performance of his duties.
5. Severance.
(a) In the event the Company elects, pursuant to Paragraph 2
above, to have this Agreement terminate at the end of the Initial Term or any
Renewal Term, Employee shall, after the expiration of such Initial Term or
Renewal Term, be entitled to six months of salary at the rate in effect
immediately prior to the date of termination, paid as and when otherwise due.
(b) In the event Employee's employment is terminated pursuant to
Paragraphs 4(a) or (c) above, Employee shall not be entitled to any severance
benefits from the Company other than those rights accorded him by law.
(c) In the event Employee's employment is terminated pursuant to
Paragraph 4(b) above, (i) Employee shall be entitled to immediately vest any
outstanding stock options which are not then currently exercisable and (ii)
Employee shall be entitled to one year of salary at the rate in effect
immediately prior to the date of termination, paid as and when otherwise due;
provided, however, that during the six-month period commencing six months after
a termination pursuant to Paragraph 4(b), the monthly amounts payable by the
Company hereunder shall be offset by an amount equal to 50% of the monthly
income received by Employee during such period (which amount shall be evidenced
by reasonably detailed statements furnished by Employee to the Company).
6. Noncompetition.
(a) At any time during the term hereof or thereafter, the
Employee will not reveal, divulge or make known to any individual, partnership,
joint venture, corporation or other business entity (other than the Company or
its affiliates) or use for the Employee's own account any customer lists, trade
secrets, formulae or any secret or any confidential information of any kind
("Protected Information") used by the Company or any of its commonly controlled
affiliates
3
<PAGE>
in the conduct of the Company's business and made known to the Employee by
reason of the Employee's employment with the Company or any of its affiliates
(whether or not with the knowledge and permission of the Company and whether or
not developed, devised or otherwise created in whole or in part by the efforts
of the Employee); provided, that Protected Information shall not include
information that shall become known to the public or the trade without violation
of this Section 6(a); and provided, further, that the Employee shall not violate
this Section 6(a) if Protected Information is disclosed by the Employee at the
direction of the Company in connection with the performance of the Employee's
duties or if the Employee is required to provide Protected Information in any
legal proceeding or by order of any court.
(b) During the Term hereof and for an additional period equal to
the period during which the Employee is entitled to receive any severance
pursuant to Paragraph 5 above, the Employee will not, directly or indirectly,
engage in the business of, or own or control an interest in (except as a passive
investor owning less than two percent (2%) of the equity securities of a
publicly owned company), or act as director, officer or employee of, or
consultant to, any individual, partnership, joint venture, corporation or other
business entity known to the Employee to be directly or indirectly engaged
anywhere in the actual or intended geographic location in which the Company
conducts business, in the United States or elsewhere, in any business competing
with any business then being carried on by the Company.
(c) The Employee agrees that during the term hereof and for an
additional period of two (2) years thereafter, the Employee shall not knowingly
employ or solicit, encourage or induce any person (except Employee's spouse) who
at any time within one year prior to the Employee's termination of employment
shall have been an employee of the Company or any of its commonly controlled
affiliates, to become employed by or associated with any individual,
partnership, joint venture, corporation or other business entity other than the
Company, and the Employee shall not knowingly approach any such employee for
such purpose or authorize or knowingly approve the taking of such actions by any
other individual, partnership, joint venture, corporation or other business
entity or knowingly assist any such individual, partnership, joint venture,
corporation or other business entity in taking such action.
7. Acknowledgments.
(a) The Employee acknowledges that the provisions of Paragraph 6
above are reasonable and necessary for the protection of the Company and that
each provision, and the period or periods of time, geographic areas and types
and scope of restrictions on the activities specified herein are, and are
intended to be divisible. In the event that any provision of this Agreement,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect and any invalid and
unenforceable provisions shall be deemed, without further action on the part of
the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable.
4
<PAGE>
(b) The Employee acknowledges that the Company will be
irrevocably damaged if the covenants contained herein are not specifically
enforced. Accordingly, the Employee agrees that, in addition to any other relief
to which the Company may be entitled, the Company shall be entitled to seek and
obtain injunctive relief from a court of competent jurisdiction for the purposes
of restraining the Employee from any actual or threatened breach of such
covenants.
8. Representations, Warranties and Covenants of Employee.
The Employee represents, warrants and covenants to and with the Company that (a)
he is not and will not become a party to any agreement, contract or
understanding, whether employment or otherwise, and that he is not subject to
any order, judgment or decree of any court or governmental agency, which would,
in any way, restrict or prohibit him from undertaking or performing his
employment in accordance with the terms and conditions of this Agreement, (b) he
is of sufficient physical and mental health to fulfill his duties, obligations
and responsibilities under the terms of this Agreement and (c) he will comply
with the terms and conditions of the Noncompetition Agreement.
9. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia applicable to
agreements made and to be performed in that state.
(b) Notices. All notices, consents and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
when (a) delivered by hand (with receipt confirmed), (b) sent by telex or
telecopier (with receipt confirmed), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by Express Mail, Federal Express or other express delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate as to itself by notice to the other parties):
If to the Employee:
Michael E. Noonan
1920 West Paces Ferry Road, N.W.
Atlanta, Georgia 30327
Telecopier No.: (404) 352-9301
5
<PAGE>
If to the Company:
Laminating Technologies, Inc.
7730 Roswell Road
Atlanta, Georgia 30350-4862
Telecopier No.: (770) 396-0107
with a copy to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
Telecopier No.: (212) 682-5729
Attention: Marc S. Goldfarb, Esq.
(c) Entire Agreement; Amendment. This Agreement shall supersede
all existing agreements between the Employee and the Company relating to the
terms of his employment. This Agreement may not be amended except by a written
agreement signed by both parties.
(d) Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(e) Assignment. Subject to the limitations below, this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, representatives, successors and assigns. This Agreement shall
not be assignable by the Employee, and shall be assignable by the Company only
to any corporation resulting from the reorganization, merger or consolidation of
the Company with any other corporation or any corporation to which the Company
may sell all or substantially all of its assets.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed this
Executive Employment Agreement as of the day and year first above written.
LAMINATING TECHNOLOGIES, INC.
By: /s/ Jerry A. Ross
Title: Chief Financial Officer
/s/ Michael E. Noonan
Michael E. Noonan
7
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of June 20,
1996, by and between LAMINATING TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and MICHAEL E. NOONAN (the "Holder").
RECITALS
WHEREAS, the Holder has been granted options to purchase an aggregate of
116,346 shares of Common Stock of the Company, $.01 par value (the "Registrable
Securities") from TransMillenial Resource Corporation and Steve Gorlin, each
principal stockholders of the Company.
WHEREAS, this Agreement sets forth the terms and conditions on which the
Company has agreed to grant certain registration rights to the Holder.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
and covenants herein contained and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Company and the
Holder hereby agree as follows:
1. Registration Rights.
1.1 Request for Registration.
(a) If, at any time after the period ending thirteen months from the
closing date of the Company's initial public offering, the Company shall receive
a written request from the Holder that the Company file a registration statement
under the Securities Act of 1933, as amended (the "Act"), covering the
registration of at least fifty percent (50%) of the Registrable Securities then
held by the Holder and provided that such shares have a reasonably anticipated
aggregate offering price of at least $250,000, the Company shall file as soon as
practicable, and in any event within ninety (90) days of the receipt of such
request, and use its best efforts to cause to become effective as soon as
practicable, the registration under the Act of all Registrable Securities which
the Holder requests to be registered, subject to the limitations of Subsection
1.1(b).
(b) If the Holder intends to distribute the Registrable Securities covered
by his request by means of an underwriting, he shall so advise the Company as a
part of his request made pursuant to Subsection 1.1(a) and the underwriter will
be selected by the Company and shall be reasonably acceptable to the Holder. In
such event, the right of the Holder to include his Registrable Securities in
such registration shall be conditioned upon his participation in such
underwriting and the inclusion of his Registrable Securities in the underwriting
to the extent provided herein. The Holder shall (together with the Company as
provided in Subsection 1.3(e))
<PAGE>
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other provision
of this Section 1.1, if the underwriter advises the Holder that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company may exclude from such offering all or any portion of the Registrable
Securities requested to be registered.
(c) Notwithstanding the foregoing, if the Company shall furnish to the
Holder a certificate signed by the Chief Executive Officer, President or other
appropriate officer of the Company stating that, in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than one hundred twenty (120) days after receipt of the
request of the Holder; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
(d) In addition, the Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 1.1:
(i) After the Company has effected two (2) registrations pursuant to
this Section 1.1 and such registrations have been declared or ordered
effective;
(ii) During the period starting with the date sixty (60) days prior to
the Company's good faith estimate of the date of filing of, and ending on a
date ninety (90) days after the effective date of, any subsequent
registration statement for a public offering subject to Section 1.2 hereof;
provided, that the Company is actively employing its best efforts to cause
such registration statement to become effective;
(iii) If the Company delivers to the Holder an opinion of counsel to
the Company that the Registrable Securities requested to be registered by
the Holder may be sold or transferred pursuant to Rule 144(k) of the Act.
1.2 Company Registration. If (but without any obligation to do so), at any
time after the period ending thirteen months from the closing date of the
Company's initial public offering, the Company proposes to register (including
for this purpose a registration effected by the Company for stockholders other
than the Holder) any of its stock or other securities under the Act in
connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, a registration relating solely to a Rule 145 transaction, a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall, at such
time, promptly give the Holder written notice of such registration. Upon the
written request of the Holder given within twenty (20) days after giving
-2-
<PAGE>
of such notice by the Company in accordance with Section 2, the Company shall,
subject to the provisions of Section 1.7, cause to be registered under the Act
all of the Registrable Securities that the Holder has requested to be
registered.
1.3 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and keep such registration
statement effective for a period of up to one hundred twenty (120) days or
until the distribution contemplated in the Registration Statement has been
completed, whichever first occurs; provided, however, that such one hundred
twenty (120) day period shall be extended for a period of time equal to the
period the Holder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other
securities) of the Company.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as, in the opinion of counsel to the Company, may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Holder such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as the Holder may reasonably request in
order to facilitate the disposition of Registrable Securities owned by him.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holder; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. The Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify the Holder at any time when a prospectus relating thereto
is required to be delivered under the Act of the happening of any event as
a result of which the prospectus included in such registration statement,
as then in effect, includes 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 in the light of the circumstances
then existing.
-3-
<PAGE>
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of
such registration.
1.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities that the Holder shall furnish to the
Company such information regarding himself, the Registrable Securities held by
him, and the intended method of disposition of such securities as shall be
required to effect the registration of the Holder's Registrable Securities.
1.5 Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.1, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the Holder shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of the second long-form registration requested pursuant to Section 1.1,
or of any registration proceeding begun pursuant to Section 1.1 if the
registration request is subsequently withdrawn at the request of the Holder.
1.6 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.2 for the Holder, including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees relating or apportionable
thereto and, for one such registration only, the reasonable fees and
disbursements of one counsel for the Holder, but excluding underwriting
discounts and commissions relating to Registrable Securities.
1.7 Underwriting Requirements. In connection with any offering involving an
underwriting of shares of the Company's capital stock pursuant to Section 1.2,
the Company shall not be required under Section 1.2 to include any of the
Holder's securities in such underwriting unless the Holder accepts the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it (or by other persons entitled to select the underwriters), and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company may
exclude from such offering all or any portion of the Registrable Securities
requested to be registered.
-4-
<PAGE>
1.8 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) In the event of any registration under the Act of any Registrable
Securities pursuant to this Agreement, the Company shall indemnify and hold
harmless the Holder and each other person (including underwriters) who
participates in the offering of such Registrable Securities, against any
losses, claims, damages or liabilities, joint or several, to which the
Holder or participating person may become subject under the Securities Act
or otherwise, to the extent that such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement
under which such Registrable Securities were registered under the Act, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, provided, 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 such registration
statement in reliance upon and in conformity with information furnished to
the Company by the Holder or such participating person, as the case may be,
for use in the preparation thereof. The Holder shall indemnify and hold
harmless the Company and each person which controls (within the meaning of
the Act) the Company and each other person (including underwriters) who
participates in the offering of such Registrable Securities against all
losses, claims, damages and liabilities to which the Company or such
controlling person or participating person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement of any material fact
contained, on the effective date thereof, in any registration statement
under which such Registrable Securities were registered under the Act, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such statement or omission
made in such registration statement in reliance upon and in conformity with
information furnished to the Company by the Holder and stated to be for use
in the preparation thereof. Each indemnified party shall cooperate with
each indemnifying party in defending any loss, claim, damage, liability or
proceeding.
(b) Notwithstanding any of the foregoing, if, in connection with an
underwritten public offering of Registrable Securities, the Company, the
selling stockholders, including the Holder, and the underwriter(s) enter
into an underwriting or purchase agreement relating to such offering which
contains provisions covering indemnification and contribution among the
parties, the indemnification and contribution provisions of this Section
1.8 shall be deemed inoperative for purposes of such offering.
(c) Promptly after receipt by an indemnified party under this Section
1.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party
-5-
<PAGE>
under this Section 1.8, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve
such indemnifying party of its liability under this Section 1.8, but (i)
only to the extent of the liability actually resulting from the failure to
deliver written notice and (ii) the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 1.8.
1.9 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may not be assigned.
1.10 "Market Stand-Off" Agreement. The Holder hereby agrees that, during
the period of duration specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration.
2. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given without the written consent of the
Company and the Holder.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, next-day courier service,
registered or certified first-class mail, return receipt requested, telex,
telegram or telecopier:
If to the Company:
Laminating Technologies, Inc.
7730 Roswell Road
Atlanta, Georgia 30350-4862
with a copy to:
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<PAGE>
Bachner, Tally Polevoy & Misher LLP
380 Madison Avenue
New York, NY 10017-5729
Telecopier No. (212) 682-5729
Attn: Sheldon E. Misher, Esq.
If to the Holder:
Michael E. Noonan
1920 West Paces Ferry Road, N.W.
Atlanta, Georgia 30327
Any party may change its address for purposes of this Section by giving the
other parties written notice of the new address in the manner set forth above.
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; one business day after sent if
sent by courier service.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
LAMINATING TECHNOLOGIES, INC.
By: /s/ JERRY A. ROSS
----------------------------------
HOLDER:
/s/ MICHAEL E. NOONAN
----------------------------------
Michael E. Noonan
-7-
FORM OF
AMENDMENT
TO
ESCROW AGREEMENT
This Amendment to Escrow Agreement, dated as of April 11, 1996 (the
"Amendment"), is made by and between 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 parties hereto are parties to that certain Escrow Agreement
dated as of April 11, 1996 (the "Escrow Agreement"), pursuant to which the
Stockholders agreed to place certain of their shares of Common Stock of the
Company (the "Escrow Shares") into escrow to be released only under conditions
set forth in the Escrow Agreement;
WHEREAS, the parties hereto have agreed to amend the Escrow Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Capitalized terms defined in the Escrow Agreement and the foregoing
recitals of this Amendment shall have the meanings ascribed thereto.
SECTION 2. AGREEMENT CHANGES
2.1 Sections 4(a)(i), 4(a)(ii) and 4(a)(iii) of the Escrow Agreement are
hereby amended so that the references to December 31, 1997, December 31, 1998
and December 31, 1999, respectively, shall be references to March 31, 1998,
March 31, 1999 and March 31, 2000, respectively.
2.2 Section 4(e) of the Escrow Agreement is hereby amended so that the
reference to March 31, 2000 shall be a reference to June 30, 2000.
2.3 Exhibit A of the Escrow Agreement is hereby deleted in its entirety and
Exhibit A attached hereto is inserted in lieu thereof.
SECTION 3. EFFECTIVENESS OF AMENDMENT
3.1 Effectiveness. This Amendment shall become effective following its
execution and delivery by the parties hereto.
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<PAGE>
SECTION 4. MISCELLANEOUS
4.1 Agreement Amended. Subject to the provisions of Section 3 hereof, this
Amendment shall be deemed to be an amendment to the Escrow Agreement. All
references to the Escrow Agreement in any other document, instrument agreement
or writing hereafter shall be deemed to refer to the Escrow Agreement as amended
hereby.
4.2 Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of the Escrow Agent, the Company, the Stockholders and their
respective successors and assigns.
4.3 Governing Law. This Amendment and the rights and obligation of the
parties hereunder shall be construed in accordance with and governed by the law
of the State of New York, without regard to conflict of laws principles.
4.4 Counterparts. This Amendment may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Investors have each caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
LAMINATING TECHNOLOGIES, INC.
By:_______________________________
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:_______________________________
Herbert J. Lemmer
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<PAGE>
EXHIBIT A
---------
STOCKHOLDERS' LIST
Name of
Stockholder Number of Escrow Shares
- ----------- -----------------------
Robert Carden..............................................................3,459
William Durfee.............................................................3,597
Craig Duncan...............................................................3,412
Steve Gorlin..............................................................67,643
Lateef Kahn..............................................................13,837
Jeffrey Kilgore...........................................................15,374
Bradley Olvey.............................................................14,122
Michael Olvey, Sr.........................................................10,157
Michael Olvey, Jr..........................................................5,904
Donald Sallee.............................................................42,229
James Scherer..............................................................1,230
Melvin Stein..............................................................18,016
James E. Thomas..............................................................667
E.R. Olvey...................................................................334
Edythe Nathan..............................................................3,435
STEIRO COMPANY............................................................14,026
TRANSMILLENNIAL RESOURCE CORP.............................................52,923
VENTURETEK, L.P..........................................................108,106
MALCOLM N. LEVENSON TRUST
U/A/D 4/17/91.............................................................14,095
IRA S. NATHAN REV. TR. DTD 3/23/79........................................10,565
ANDREW B. NATHAN CUST./FOR
KEVIN B. NATHAN UGMA IL....................................................1,145
ANDREW B. NATHAN LIVING TRUST DTD 11/30/94.................................1,717
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.................................1,717
-2-
<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 B. Sallee
---------------------------------
James Scherer
---------------------------------
Melvin Stein
---------------------------------
James E. Thomas
---------------------------------
E.R. Olvey
---------------------------------
Edythe Nathan
STEIRO COMPANY
By: ______________________________
TRANSMILLENNIAL RESOURCE CORP.
By: ______________________________
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<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: _________________________________
-4-
