<PAGE> 1
As filed with the Securities and Exchange Commission on August 27, 1997.
REGISTRATION NO. 333-6711
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LAMINATING TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 2671 58-2044990
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Organization) Code Number)
1160 HIGHTOWER TRAIL
ATLANTA, GEORGIA 30350-2910
(770) 518-6010
(Address and Telephone Number of Principal Executive Offices)
MICHAEL E. NOONAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1160 HIGHTOWER TRAIL
ATLANTA, GEORGIA 30350-2910
(770) 518-6010
(Name, Address and Telephone Number of Agent for Service)
---------------
COPIES TO:
DAVID S. COOPER, ESQ.
SCHNADER HARRISON SEGAL & LEWIS LLP
303 PEACHTREE STREET, N.E. / SUITE 2800
ATLANTA, GEORGIA 30308-3252
(404) 215-8100
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the 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, check the following box. [X]
Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to anti-dilution provisions of Class A
Warrants and Class B Warrants, as defined herein.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
LAMINATING TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NUMBER
FORM SB-2 ITEM CAPTION FORM SB-2 LOCATION IN PROSPECTUS
- --------- ---------------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front Outside Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus; Additional Information
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Concurrent Offering by Selling Security
Holders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business -- Legal Proceedings
10. Director, Executive Officers, Promoters and Management
Control Persons
11. Security Ownership of Certain Beneficial Owners Principal Stockholders
and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Management -- Limitation of Liability and
Indemnification for Securities Act Liabilities Indemnification Matters
15. Organization within Last Five Years Certain Transactions
16. Description of Business Business
17. Management's Discussion and Analysis of Plan or Management's Discussion and Analysis of
Operation Financial Condition and Results of Operations
18. Description of Property Business -- Property
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Stockholder Price Range of Common Stock; Dividend Policy
Matters
21. Executive Compensation Management
22. Financial Statements Selected Financial Data; Financial Statements
23. Changes in and Disagreements with Accountants on Not Applicable
Accounting and Financial Disclosure
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Post Effective Amendment No. 2 to Form SB-2 Registration
Statement covers the registration of (i) the offer and sale of Common Stock,
$.01 par value ("Common Stock") of LAMINATING TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and redeemable Class B Warrants of the Company
("Class B Warrants"), pursuant to outstanding redeemable Class A Warrants of
the Company ("Class A Warrants") and Common Stock pursuant to Class B Warrants
of the Company, both of which Class A Warrants and Class B Warrants were issued
in the Company's underwritten initial public offering in October 1996 ("1996
IPO" or "1996 Offering"); and (ii) the resale of Class A Warrants by certain
holders thereof who acquired such securities in a private transaction, which
occurred concurrently with the 1996 Offering, Class B Warrants underlying such
Class A Warrants, and Common Stock issuable upon the exercise of such Class A
and Class B Warrants.
The first of these transactions involves the registration of (1) up to
1,955,000 units (the "Units"), each Unit consisting of one share of Common
Stock and one Class B Warrant for sale by the Company upon the exercise of
Class A Warrants, and (2) an additional 3,910,000 shares of Common Stock
issuable upon the exercise of outstanding Class B Warrants or the exercise of
Class B Warrants that are issued upon the exercise of Class A Warrants that are
contained in the Units. The second of these transactions involves the
registration of an additional 997,500 Class A Warrants, for resale by the
holders thereof (the "Remaining Selling Securityholder Class A Warrants"), and
997,500 Class B Warrants (the "Remaining Selling Securityholder Class B
Warrants") underlying the Remaining Selling Securityholder Class A Warrants,
and 1,995,000 shares of Common Stock (the "Remaining Selling Securityholder
Stock") underlying the Remaining Selling Securityholder Class A Warrants and
the Remaining Selling Securityholder Class B Warrants. The Remaining Selling
Securityholder Class A Warrants were issued upon the closing of the 1996
Offering in exchange for warrants issued in a private placement by the Company
completed in April and May of 1996. The Remaining Selling Securityholder Class
A and Class B Warrants became freely tradeable 270 days from the date of the
final Prospectus included in the Registration Statement of the 1996 Offering.
The Remaining Selling Securityholder Class A Warrants, the Remaining Selling
Securityholder Class B Warrants and the Remaining Selling Securityholder Stock
are sometimes collectively referred to herein as the "Remaining Selling
Securityholder Securities."
Following the Prospectus for the offering made pursuant to outstanding
Class A Warrants and Class B Warrants are the pages of the Prospectus relating
solely to the resale of the Remaining Selling Securityholder Securities:
alternate front and back cover pages and sections entitled "Concurrent
Offering" and "Selling Securityholders and Plan of Distribution," to be used in
lieu of the sections entitled "Concurrent Offering by Selling Securityholders"
and "Plan of Distribution." All other sections of the Prospectus for the
offering made pursuant to the outstanding Warrants are to be used in the
Prospectus relating to the resale of the Remaining Selling Securityholder
Securities.
The Registration Statement on Form SB-2 which is amended by this
Post-Effective Amendment also registered the issuance of options issued to the
Company's underwriter in its 1996 Offering, as well as the issuance of
underlying securities upon the exercise of such options. This Post-Effective
Amendment is not intended to deregister any of the securities so registered,
and such Registration Statement, as amended hereby, is intended to continue the
registration of such transactions.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 4
PROSPECTUS
LAMINATING TECHNOLOGIES, INC.
1,955,000 UNITS, EACH CONSISTING OF ONE SHARE OF COMMON
STOCK AND ONE REDEEMABLE CLASS B WARRANT,
ISSUABLE UPON THE EXERCISE OF REDEEMABLE CLASS A WARRANTS
AND
3,910,000 SHARES OF COMMON STOCK,
ISSUABLE UPON THE EXERCISE OF REDEEMABLE CLASS B WARRANTS
Laminating Technologies, Inc., a Delaware corporation (the "Company"),
hereby offers: (i) 1,955,000 Units ("Units") issuable upon the exercise of
1,955,000 Class A Warrants (the "Class A Warrants"), each Unit consisting of
one share of Common Stock, $.01 par value, ("Common Stock") and one redeemable
Class B Warrant (the "Class B Warrants"); and (ii) 3,910,000 shares of Common
Stock issuable upon the exercise of Class B Warrants which are presently
outstanding and the Class B Warrants issuable upon the exercise of the Class A
Warrants. The shares of Common Stock and the Class B Warrants included in the
Units will be immediately separately transferable and the Units will not trade
as a separate security. In October 1996, 1,700,000 of the outstanding Class A
Warrants and Class B Warrants (collectively, the "Warrants") were issued in
connection with the Company's 1996 initial public offering of 1,700,000 Units
("IPO Units"), with each IPO Unit consisting of one share of Common Stock, one
Class A Warrant and one Class B Warrant. Additionally, D.H. Blair Investment
Banking Corp. ("Blair"), as the underwriter of the Company's 1996 initial
public offering, exercised its over-allotment to purchase an additional 255,000
IPO Units. The Company also registered in the 1996 initial public offering
997,500 Class A Warrants (the "Selling Securityholder Class A Warrants"),
997,500 Class B Warrants (the "Selling Securityholder Class B Warrants")
underlying the Selling Securityholder Class A Warrants, and 1,995,000 shares of
Common Stock underlying the Selling Securityholder Class A and Class B
Warrants, on behalf of certain selling securityholders (the "Selling
Securityholders"). There are 1,955,000 Class A Warrants outstanding and
1,955,000 Class B Warrants outstanding as of the date of this Prospectus
(excluding the 997,500 Selling Securityholder Class A and Class B Warrants that
were originally issued to the Selling Securityholders and an option to Blair to
purchase 170,000 IPO Units for an exercise price of $6.00 ("Unit Purchase
Option")). Assuming the exercise of all Class A Warrants, there will be
1,955,000 additional Class B Warrants issuable, for a total of 3,910,000 Class
B Warrants. Each Class A Warrant entitles the holder to purchase one Unit at an
exercise price of $6.50, subject to adjustment. 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 Class A Warrants and the Class B Warrants are
exercisable until October 8, 2001. 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 per 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 the Warrants are called for redemption.
--------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND SUBSTANTIAL IMMEDIATE DILUTION. SEE "RISK FACTORS".
--------------------
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 ____________, 1997.
(continued on following page)
<PAGE> 5
The Company has agreed to pay to Blair a solicitation fee (the
"Solicitation Fee") equal to 5% of the exercise prices in connection with the
exercise of Warrants under certain conditions. See "Plan of Distribution." The
exercise prices of the Warrants were determined by negotiation between the
Company and Blair, and are not necessarily related to the Company's asset
value, net worth or other criteria of value.
The Company's IPO Units, Common Stock, Class A Warrants and Class B
Warrants are traded on the Nasdaq SmallCap Market under the symbols LAMTU,
LAMT, LAMTW, and LAMTZ, respectively. On July 29, 1997 closing prices of the
IPO Units, Common Stock, Class A Warrants and Class B Warrants were $11.50,
$6.25, $2.625 and $2.125, respectively.
<TABLE>
<CAPTION>
======================================================================================================================
WARRANT EXERCISE PRICE WARRANT SOLICITATION FEE (1) PROCEEDS TO COMPANY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER CLASS A WARRANT $6.50 $0.325 $6.175
- ----------------------------------------------------------------------------------------------------------------------
TOTAL(2),(3),(4) $12,707,500.00 $635,375.00 $12,072,125.00
======================================================================================================================
PER CLASS B WARRANT $8.75 $0.4375 $8.3125
- ----------------------------------------------------------------------------------------------------------------------
TOTAL(2),(3),(4) $34,212,500.00 $1,710,625.00 $32,501,875.00
======================================================================================================================
</TABLE>
(1) Represents Solicitation Fee payable to Blair pursuant to the
Warrant Agreement between the Company and Blair in certain circumstances. See
"Plan of Distribution."
(2) Assumes the exercise of all Class A Warrants and Class B Warrants.
There can be no assurance that any of the Warrants will be exercised.
(3) Does not include the Unit Purchase Option sold to Blair during the
1996 IPO to purchase 170,000 IPO Units and does not include the Selling
Securityholder Securities.
(4) Excludes miscellaneous legal, accounting, printing and other
expenses in the approximate amount of $16,000.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-2-
<PAGE> 6
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is
qualified in its entirety by the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes no exercise of any other outstanding warrants or options. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in the "Risk
Factors."
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(TM)"). 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(TM) 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.
The LTI Processed(TM) 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 bakery dessert boxes, 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(TM) 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(TM) products may be leakproof, resistant to a variety of solvent and
petroleum-based chemicals, thermally insulating, stronger and may have a higher
bursting strength than conventional corrugated products. The Company also
believes that the LTI Processed(TM) 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 to the LTI Processed(TM) products, on April 17, 1997, the
Company announced "BAKE'N SHIP(TM)", a new product line, which is available for
sale to the baking industry. BAKE'N SHIP(TM) utilizes the Company's proprietary
(patent pending) process, resulting in a new material which is ovenable and
freezable with the strength and structure of corrugated material. This is the
Company's first commercial product. The new product line can streamline the
process by which bakery products are produced by allowing the baker to bake,
freeze, ship and display in one package. In addition, certain versions of the
product line provide an appealing presentation media for baked goods.
In addition, the Company believes that while LTI Processed(TM)
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(TM)
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(TM) 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(TM) 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
-3-
<PAGE> 7
Processed(TM) 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(TM) technology to manufacturers. With the exception
of design activities and certain printing operations, the Company currently
intends to out-source production to laminators or converters with whom the
Company expects to establish informal relationships.
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(TM) products. Moreover, further
development of the LTI Processed(TM) 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 1160 Hightower Trail, Atlanta,
Georgia 30350-2910 and its telephone number is (770) 518-6010.
---------------
THE OFFERING
Securities Offered by the Company: 1,955,000 Units, issuable upon the exercise
of 1,955,000 Class A Warrants, each Unit
consisting of one share of Common Stock and
one Class B Warrant; 3,910,000 shares of
Common Stock issuable upon the exercise of
outstanding Class B Warrants and Class B
Warrants issuable upon the exercise of the
Class A Warrants. Each Class A Warrant is
exercisable at any time on or before
October 8, 2001 to purchase one share of
Common Stock and one Class B Warrant at an
exercise price of $6.50, subject to
adjustment. Each Class B Warrant is
exercisable any time on or before October
8, 2001 to purchase one share of Common
Stock for $8.75, subject to adjustment. The
Warrants are subject to redemption in
certain circumstances. The Common Stock and
Class A and Class B Warrants will be
separately tradable immediately upon
issuance. Blair may exercise its Unit
Purchase Option for 170,000 IPO Units for
$6.00 per unit during the three year period
beginning October 9, 1998. Each IPO Unit
consists of one share of Common Stock, one
Class A Warrant and one Class B Warrant of
the Company. 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
June 30, 1997: 3,185,100 shares(1),(2),(3)
Use of Proceeds: The Company intends to use the net proceeds
received upon the exercise of the Warrants,
if any, for general corporate purposes and
working capital to support anticipated
growth including research and development
programs and continuing product
development. See "Use of Proceeds."
-4-
<PAGE> 8
Nasdaq Symbols(4)
Units. . . . . . . . . LAMTU
Common Stock . . . . . LAMT
Class A Warrants . . . LAMTW
Class B Warrants . . . LAMTZ
Risk Factors: The securities offered hereby involve
a high degree of risk and immediate
substantial dilution to public investors.
An investment in the Units offered hereby
should be made only after a careful
consideration of the various risks which
may affect the Company and its operations.
See "Risk Factors."
- -----------------
(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
June 30, 1997, options to purchase 170,000 shares of Common Stock were
outstanding at exercise prices of $4.00 or $5.00 per share; and (iii) 36,897
shares of Common Stock issuable upon exercise of warrants exercisable at $2.71
per share issued to Blair in March 1994. For a description of the voting and
other rights of the Common Stock, see "Description of Securities -- Common
Stock."
(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) 5,865,000 shares of Common Stock issuable upon
exercise of the Warrants which are components of the Units offered hereby; and
(ii) an aggregate of 680,000 shares of Common Stock issuable upon exercise of
the Unit Purchase Option and the Warrants included therein. See "Plan of
Distribution."
(4) Notwithstanding 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> 9
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
----------- -----------
YEAR ENDED MARCH 31, 3 MONTHS ENDED JUNE 30, APRIL 19, 1993(1)
-------------------- ----------------------- THROUGH
JUNE 30, 1997
-----------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales...................... $ 119,412 $ 23,918 $ -- $ 32,814 $ 398,517
Gross (loss) profit............ (158,042) 7,167 -- 2,105 (664,716)
Selling, general and
administrative expenses........ 1,042,290 1,779,339 666,220 393,913 5,476,297
----------- ----------- ----------- --------- -----------
Operating loss................. (1,200,332) (1,772,172) (666,220) (391,808) (6,141,013)
Net (loss)..................... (1,228,745) (2,408,710) (790,533) (314,211) (6,842,942)
Cumulative dividend on
preferred stock................ 50,000 25,000 12,500 -- 150,000
----------- ----------- ----------- --------- -----------
Net (loss) attributable to
common stockholders............ $(1,278,745) $(2,433,710) (803,033) (314,211) $(6,992,942)
=========== =========== =========== ========= ===========
Net (loss) per share of common
stock.......................... $ (2.02) $ (1.47) $ (.98) $ (.11)
=========== =========== =========== =========
Weighted average number of
common shares outstanding...... 632,719 1,667,821 820,000 2,775,078
=========== =========== =========== =========
</TABLE>
- --------------------------
(1) Commencement of Operations
<TABLE>
<CAPTION>
(UNAUDITED)
Balance Sheet Data: MARCH 31, 1997 JUNE 30, 1997
-------------- -------------
<S> <C> <C>
Working capital.................................... $ 4,746,548 $ 4,430,014
Total assets....................................... 5,303,006 4,964,925
Total liabilities.................................. 347,234 322,714
Deficit accumulated during development stage....... (6,784,683) (7,098,894)
----------- -----------
Total stockholders' equity......................... 4,955,772 4,642,211
</TABLE>
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-6-
<PAGE> 10
RISK FACTORS
The securities offered hereby are speculative in nature and an
investment in the securities 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 securities 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. At June 30, 1997, the Company had an accumulated deficit of
$7,098,894, is continuing to incur significant operating losses and expects to
incur substantial and increasing operating losses for the foreseeable future.
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. 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; Limited 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, included 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(TM) 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(TM) 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 and 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.
Need for Significant Additional Funds. 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(TM)
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 material costs possible.
Additionally, much of the corrugated packaging industry is characterized by
long-standing business relationships between manufacturer and end users. The
Company will likely encounter resistance from end users reluctant to incur
possible additional costs associated with LTI Processed(TM) products (compared
to non-laminated corrugated products and other materials). In addition, the use
of LTI Processed(TM)
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<PAGE> 11
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 LTI Processed(TM) 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(TM) products justify the additional costs
and/or burdens associated with such products.
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(TM) 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(TM) materials and has encountered difficulties in
penetrating certain segments of the packaging industry where, for example, the
strength and insulating properties of LTI Processed(TM) products would be
critical but where manufacturers and end-users demand objective confirmation of
these properties. 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(TM) packaging, a shortage-induced price increase
could raise the price of such LTI Processed(TM) 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(TM) linerboard or finished products. Instead the Company expects to
contract for manufacture with additional outside laminators, corrugators and
sheet plants with whom the Company may establish formal or 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 may rely on large integrated converters to
market LTI Processed(TM) 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(TM)
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.
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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 Processed(TM) 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(TM) 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(TM) 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 submitted a modification
of its original application on March 27, 1997. This resulted in withdrawal of
part of the rejections, and the Company expects to submit a further
modification or responsive arguments not later than November 1997, to attempt
to overcome the remaining rejections.
There can be no assurance that any patent applications filed by or on
behalf of the Company will result in patents being issued, that patents, if
any, 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. In particular, the Company is
aware of a patent issued to Adolph Coors Company that relates to certain
processes by which film, including polyester film, is reverse-printed and
laminated onto linerboard. Such patent may affect the ability of the Company to
obtain patent protection for some or all of the claims included in its patent
application. Moreover, there can be no assurance that any application of the
Company's technology will not infringe the Coors patent or any other patents or
proprietary rights of others. Such other persons could bring legal actions
against the Company claiming damages and seeking to enjoin manufacturing and
marketing of the Company's 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. Moreover, the non-approval of the Company's patent application or
the invalidation of any patent that may be issued to the Company would likely
have a material adverse effect on the Company.
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
unpatentable 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
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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 "Description of 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(TM) 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(TM) 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 manufacturer by offering a product that can be
more expensive but which the Company believes will be of higher quality, and in
many circumstances may be 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(TM), these products may offer a price
advantage over LTI Processed(TM) and 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 "Description of 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 management 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(TM)
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<PAGE> 14
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.
Uncertainty of Government Regulatory Requirements. To the extent that
LTI Processed(TM) 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 ("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(TM) products will be in compliance with approved food
additive regulations permitting the types of food contact use contemplated by
the Company. 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(TM) 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.
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.
In April 1996, two principal stockholders of the Company granted to
Michael E. Noonan, the Company's Chairman, President and Chief Executive
Officer, options to purchase an aggregate of 116,346 shares of Common Stock of
the Company held by such stockholders at an exercise price of $1.00 per share.
The options are fully vested and are exercisable two-thirds immediately and
one-third in April of 1998. The Company recorded a contribution to capital and
compensation expense on the date of the grant 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 proceeds received by the
Company as a result of the exercise of any Warrants are intended to be used for
working capital, including salaries and the payment of certain accounts
payable. Thus, purchasers of the securities offered hereby will be entrusting
their funds to the Company's management, upon whose judgment the investors must
depend, with only limited information concerning management's specific
intentions. See "Use of Proceeds."
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
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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. 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. Managing the integration of any new personnel could adversely
affect the Company's growth and progress until such integration occurred.
Availability of Active Trading Market. Since the 1996 Offering, the
securities of the Company have been thinly traded, and there can be no
assurance that the level of trading activity involving the Company's securities
can be sustained or will grow in the future, nor can there be any assurance
that the market price for said securities will not decline below the initial
public offering price. The market prices of the Company's securities 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 "Plan of Distribution."
Outstanding Options and Warrants. Upon completion of the 1996
Offering, the Company had outstanding: (i) 1,955,000 Class A Warrants to
purchase an aggregate of 1,955,000 shares of Common Stock and 1,955,000 Class B
Warrants; (ii) 1,955,000 Class B Warrants to purchase 1,955,000 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 Blair; (v) the Unit
Purchase Option to purchase an aggregate of 680,000 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 170,000 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.
As of July 22, 1997, the Company's directors, executive officers and principal
stockholders of the Company owned approximately 24.9% 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."
Immediate and Substantial Dilution. Purchasers of the securities
offered hereby will incur immediate substantial dilution in the per-share net
tangible book value of their Common Stock. Therefore, purchasers of the
securities offered hereby will bear a proportionately greater risk of loss than
the Company's current stockholders.
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. In addition to the 1,955,000 Units offered hereby,
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<PAGE> 16
approximately 137,631 shares of Common Stock are 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 are eligible for
sale in the public market (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 also became 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 the 1996 Offering. Rule 144 permits resales
of restricted securities after a one-year holding period rather than a two-year
holding period, and permits 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 the 1996 Offering without the
prior written consent of Blair. Sales of Common Stock, or the possibility of
such sales, in the public market may adversely affect the market price of the
securities offered hereby. In addition, the holders of the Unit Purchase Option
and the holders of options and warrants to purchase an aggregate of 153,243
shares of Common Stock have certain demand and "piggy-back" registration rights
with respect to their securities commencing twelve months from the closing of
the 1996 Offering. Exercise of such rights could involve substantial expense to
the Company. See "Description of Securities," "Shares Eligible for Future Sale,
and " Concurrent Offering."
Potential Adverse Impact of Release of Locked-up Securities. All of
the Company's current stockholders, officers and directors have agreed not to
sell, assign, transfer or otherwise dispose publicly any of their shares of
Common Stock for a period from October 9, 1996, until November 10, 1997,
without the prior written consent of Blair. Sales of such shares of Common
Stock, or the possibility of such sales, in the public market may have an
adverse effect on the market price of the securities offered hereby.
Potential Adverse Effect of Redemption of Warrants. Commencing October
9, 1997, 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.
Current Prospectus and State Registration to Exercise Warrants; Lack
of Certain Aftermarket Exemptions. 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. The failure of the Company to meet such
requirements may deprive the Warrants of any value, even if the Warrants are
exercisable pursuant to any exemptions from qualification under applicable
state securities laws, and cause the resale or other disposition of Common
Stock issued upon the exercise of the Warrants to become unlawful. 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.
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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 Blair and
Blair & Co., a selling group member in the 1996 Offering. The investigation
appears to be broad in scope, involving numerous aspects of Blair'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 Blair
or Blair & Co., or in which Blair or Blair & Co. made over-the-counter markets,
persons associated with Blair or Blair & Co., such issuers and other persons.
The Company has been advised by Blair that the investigation has been ongoing
since at least 1989 and that it is cooperating with the investigation. Blair
cannot predict whether this investigation will ever result in any type of
formal enforcement action against Blair or Blair & Co., or, if so, whether any
such action might have an adverse effect on Blair or the securities offered
hereby. Since the 1996 Offering, Blair & Co. has made a market in the
securities that were offered in the 1996 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 "Plan of Distribution."
Possible Restrictions on Market-Making Activities in Company's
Securities. Although neither Blair nor Blair & Co. has any legal obligation to
do so, Blair & Co. from time to time may act as market maker and otherwise
effect transactions in the Company's securities offered hereby or by the 1996
Offering. Regulation M under the Securities Exchange Act of 1934 (the "Exchange
Act"), may prohibit Blair & Co. from engaging in any market making activities
or solicited brokerage activities with respect to the Company's securities for
the period from five business days (or such other applicable period as
Regulation M may provide) prior to any solicitation by Blair & Co. of the
exercise of any Warrant offered hereby until the completion of such
solicitation activity or the termination (by waiver or otherwise) of any right
that Blair & Co. may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, Blair & Co. may be unable to continue
to provide a market for the Company's securities during certain periods while
the Warrants offered hereby are exercisable. The prices and liquidity of the
Company's securities may be adversely affected by the cessation of Blair &
Co.'s market making activities. 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 or solicited brokerage activities with respect to any
securities of the Company for the applicable "cooling off" period (which is
likely to be five business days) prior to the commencement of such
distribution. Accordingly, in the event Blair 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 or engage in any solicited
brokerage activities during the applicable restrictive period. Any temporary
cessation of such market-making activities or solicited brokerage activities
could have an adverse effect on the market price of the Company's securities.
See "Plan of Distribution."
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 maintenance requirements and are 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 analyst's 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 "-- Risk Factors -- Possible Delisting of Securities from the
Nasdaq Stock Market"), they could become subject to Rule 15g-9 under
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<PAGE> 18
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 the
Company's security holders to sell the Company's securities in the secondary
market.
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."
USE OF PROCEEDS
Holders of warrants are not obligated to exercise their warrants and
there can be no assurance that the holders of the warrants will choose to
exercise all of any of their warrants. In the event that all of the 1,955,000
outstanding Class A Warrants (excluding those of the Remaining Selling
Securityholders and Unit Purchase Option) are exercised, the net proceeds to
the Company would be approximately $12,072,125, after deducting the
Solicitation Fee. In the event that all of the 3,910,000 Class B Warrants
outstanding and issuable upon the exercise of the outstanding Class A Warrants
are exercised (excluding those of the Remaining Selling Securityholders and
Unit Purchase Option), the Company would receive additional net proceeds of
approximately $32,501,875, after deducting the Solicitation Fee.
The Company intends to use the net proceeds received upon the exercise
of the warrants, if any, for general corporate purposes and working capital to
support anticipated growth, including research and development programs and
continuing product development.
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
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<PAGE> 19
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.
PRICE RANGE OF SECURITIES
The Company's IPO Units, Common Stock, Class A Warrants and Class B
Warrants have been quoted on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system under the symbols LAMTU, LAMT, LAMTW, and
LAMTZ, respectively, since October 9, 1996.
The Company estimates there were approximately 30 holders of record
and approximately 490 beneficial holders of the Common Stock on July 22, 1997.
The Company has not paid dividends in the past and does not intend to pay cash
dividends in the foreseeable future. Declaration of dividends will be at the
discretion of the Board of Directors.
The following table sets for the range of high and low bid prices for
the Company's securities for the fiscal year ended March 31, 1997 and for the
quarter ended June 30, 1997, as reported by Nasdaq, the principal system or
exchange on which such securities are quoted or traded. On July 29, 1997
closing prices of the IPO Units, Common Stock, Class A Warrants and Class B
Warrants were $11.50, $6.25, $2.625 and $2.125, respectively.
<TABLE>
<CAPTION>
3rd Quarter 4th Quarter 1st Quarter
Commenced 10/9/97 ended 3/31/97 ended 6/30/97
- ------------------------------------------------------------------------------------------------------
ended 12/31/97
--------------
SECURITY HIGH LOW HIGH LOW HIGH LOW
- -------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Units ("LAMTU") $10.25 $6.25 $9.625 $7.75 $11.50 $7.75
Common Stock ("LAMT") 5.625 3.75 5.625 4.00 6.375 4.75
Class A Warrants ("LAMTW") 2.75 2.00 3.00 0.9375 3.00 .94
Class B Warrants ("LAMTZ") 2.00 1.50 1.375 1.125 2.375 1.125
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997 and as adjusted to reflect the conversion of Class A and Class B
Warrants. This table should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------------------------------
Actual Adjusted for A Adjusted for A and
Warrants(1) B Warrants(2)
---------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock, $.01 par value;
5,000,000 shares authorized; no shares issued -- -- --
and outstanding ..................................
Common Stock, $.01 par value;
20,000,000 shares authorized;
3,185,100 shares
issued and outstanding(3) ........................ $ 31,851 $ 51,400 $ 90,500
Additional paid in capital........................ $11,709,254 $23,761,180 $56,223,955
Deficit accumulated during development stage...... $(7,098,894) $(7,098,894) $(7,098,894)
----------- ----------- -----------
Total stockholders' equity........................ $ 4,642,211 $16,713,686 $49,215,561
----------- ----------- -----------
Total capitalization.............................. $ 4,642,211 $16,713,686 $49,215,561
=========== =========== ===========
</TABLE>
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<PAGE> 20
- -------------------------------
(1) Gives effect to the exercise of 1,955,000 Class A Warrants
(excluding the Remaining Selling Securityholders and the Unit Purchase Option)
at $6.50 per Class A Warrant, net of solicitation fee.
(2) Gives effect to the exercise of 3,910,000 Class B Warrants
outstanding and issuable upon the exercise of the outstanding Class A Warrants
(excluding the Remaining Selling Securityholders and the Unit Purchase Option)
at $8.75 per Class B Warrant, net of solicitation fee.
(3) Unless otherwise indicated, the number of outstanding shares of
Common Stock referenced does not include: (i) 5,865,000 shares of Common Stock
issuable upon exercise of Company's outstanding Class A and Class B Warrants;
(ii) 36,897 shares of Common Stock issuable upon the exercise of warrants
issued to Blair in March 1994; (iii) 680,000 shares of Common Stock issuable
upon exercise of the Unit Purchase Option and the Warrants included in or
underlying such option; and (iv) 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 190,000 shares of Common Stock are outstanding
(including 40,000 options to be granted on the date of this Prospectus). See
"Management -- Stock Options," "Certain Transactions," "Description of Capital
Stock" and "Concurrent Offering."
SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the
financial statements of the Company. The financial statements of the Company as
of March 31, 1997 and for the years ended March 31, 1997 and March 31, 1996,
together with the notes thereto which were reported on by Richard A. Eisner &
Company, LLP, independent auditors, are included elsewhere in this Prospectus.
The selected financial data as of and for the three-month period ended June 30,
1997 and June 30, 1996, and the period from April 19, 1993 (commencement of
operations) to June 30, 1997 are derived from the Company's unaudited financial
statements. The Company's unaudited financial statements include all
adjustments consisting of only normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the three months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1998 or any other period. 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>
(UNAUDITED)
APRIL 19, 1993(1)
(UNAUDITED) THROUGH
YEAR ENDED MARCH 31, 3 MONTHS ENDED JUNE 30, JUNE 30, 1997
-------------------- ----------------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales ..................... $ 119,412 $ 23,918 $ -- $ 32,814 $ 398,517
Gross (loss) profit............ (158,042) 7,167 -- 2,105 (664,716)
Selling, general and
administrative expenses........ 1,042,290 1,779,339 666,220 393,913 5,476,297
----------- ----------- --------- ---------- -----------
Operating loss................. (1,200,332) (1,772,172) (666,220) (391,808) (6,141,013)
Net (loss)..................... (1,228,745) (2,408,710) (790,533) (314,211) (6,842,942)
Cumulative dividend on
preferred stock................ 50,000 25,000 12,500 -- 150,000
----------- ----------- --------- ---------- -----------
Net (loss) attributable to
common stockholders............ $(1,278,745) $(2,433,710) (803,033) (314,211) $(6,992,942)
=========== =========== ========= ========== ===========
Net (loss) per share of common
stock.......................... $ (2.02) $ (1.47) $ (.98) $ (.11)
=========== =========== ========= ==========
Weighted average number of
common shares outstanding...... 632,719 1,667,821 820,000 2,775,078
=========== =========== ========= ==========
</TABLE>
- ------------------------
(1) Commencement of Operations
-17-
<PAGE> 21
<TABLE>
<CAPTION>
(UNAUDITED)
BALANCE SHEET DATA: MARCH 31, 1997 JUNE 30, 1997
-------------- -------------
<S> <C> <C>
Working capital..................................... $ 4,746,548 $ 4,430,014
Total assets ....................................... 5,303,006 4,964,925
Total liabilities................................... 347,234 322,714
Deficit accumulated during development stage........ (6,784,683) (7,098,894)
----------- -----------
Total stockholders' equity.......................... 4,955,772 4,642,211
</TABLE>
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
Financial Statements and notes thereto included elsewhere in this Prospectus.
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<PAGE> 22
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 and 1997. Net sales increased from
zero in the three months ended June 30, 1996 ("1996 Three Months") to $33,000
in the three months ended June 30, 1997 ("1997 Three Months"). Management
released its first commercial product, "BAKE `N SHIP(TM)" during the 1997 Three
Months generating some sales. Management invested its resources in developing
its technology for commercialization during 1996 Three Months and thus did not
pursue product sales. Gross profit was approximately $2,000 in 1997 Three
Months. The gross profit margin (as a percent of sales) in 1997 Three Months
includes pre-production costs and therefore is not indicative of future
margins.
Selling, general and administrative expenses decreased by 41% from
approximately $666,000 in 1996 Three Months to approximately $394,000 in 1997
Three Months. The decrease is attributable primarily to a non-recurring charge
in 1996 Three Months of approximately $386,000 relating to the fair market
value of stock options granted by two principal stockholders of the Company to
the Company's Chairman, President and Chief Executive Officer. After giving
effect to the charge, selling, general and administrative expenses actually
increased by $114,000 as a result of increased business activity prior and
subsequent to the 1996 Offering.
Interest expenses decreased from approximately $178,000 for 1996 Three
Months to zero in the 1997 Three Months. The decrease is due primarily to a
decrease in interest-bearing debt outstanding during 1996 Three Months, which
was retired in October 1996 with the use of part of the proceeds from the 1996
Offering.
Fiscal Years Ended March 31, 1996 and 1997. Net sales decreased from
approximately $119,000 in the twelve months ended March 31, 1996 ("Fiscal
1996") to $24,000 in the twelve months ended March 31, 1997 ("Fiscal 1997").
Management invested its resources in developing its technology for
commercialization during fiscal 1997 and thus did not pursue product sales.
Gross loss, which includes the costs of items manufactured as well as the cost
of samples, was approximately ($158,000) in fiscal 1996 as compared to a gross
profit of $7,000 in fiscal 1997. The gross profit margin in fiscal 1996 and
fiscal 1997 includes pre-production costs and therefore is not indicative of
future margins. The gross loss in fiscal 1996 was primarily attributable to the
amount of product given away as samples.
Selling, general and administrative expenses increased by 71% from
approximately $1,042,000 in fiscal 1996 to approximately $1,779,000 in fiscal
1997. The increase is primarily attributable to (1) a charge of approximately
$386,000 relating to the fair market value of stock options granted by two
principal stockholders of the Company to the Company's Chairman, President and
Chief Executive Officer, (2) a cost of approximately $279,000 for debt
placement fees regarding placement of $1,995,000 in bridge notes, and (3)
increased business activity prior and subsequent to the 1996 Offering.
In fiscal 1996 the Company charged to earnings approximately $944,000
relating to the repayment of the Bridge Notes.
Interest expense increased by approximately 681% from approximately
$101,000 for fiscal 1996 to approximately $789,000 for fiscal 1997. The
increase is primarily due to an increase in interest bearing debt outstanding
during fiscal 1997, which was retired in October, 1996 with the use of part of
the proceeds from the 1996 Offering.
Interest income increased from zero in fiscal 1995 to approximately
$110,000 in fiscal 1997 as cash proceeds from the Company's public stock
offering in October, 1996 have been invested in short term cash investments to
the extent not needed for current operations.
Net loss increased 96% from approximately $1,229,000, or $2.02 per
share, in fiscal 1996 to approximately $2,409,000, or $ 1.47 per share, in
fiscal 1997, as a result of the foregoing factors.
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<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
Certain statements contained herein are "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which provides a "safe harbor" for these types of statements. To the extent
statements herein involve, without limitation, product development and
introduction plans, the Company's expectations for growth, estimates of future
revenue, expenses, profit, cash flow, balance sheet items sell-through or
backlog, forecasts of demand or market trends for the Company's; various
product categories and for the industries in which the Company operates or any
other guidance on future periods, these statements are forward-looking
statements. These risks and uncertainties include those identified in the "Risk
Factors" section hereof, and other risks identified from time to time in the
Company's filings with the Commission, press releases and other communications.
The Company assumes no obligation to update forward-looking statements.
Prior to the 1996 Offering, the Company funded its activities through
loans from principal stockholders and private placements of equity and debt
securities. The 1996 Offering resulted in total net proceeds to the Company of
approximately $7,988,000.
At June 30, 1997, the Company had $4.5 million in cash and liquid
investments. 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
expansion of a marketing and sales organization will increase in the future.
Accordingly, the Company expects to continue to incur operating losses for the
foreseeable future.
At June 30, 1997 the Company had net operating loss carry-forwards for
Federal income tax purposes of approximately $5,250,000. The net operating loss
and credit carry-forwards expire from March, 2008 through March, 2012.
Additionally, the Company's ability to utilize its net operating loss
carry-forwards may be subject to annual limitations pursuant to Section 382 of
the Internal Revenue Code as a result of this Offering.
BUSINESS
DESCRIPTION OF BUSINESS
Laminating Technologies, Inc. ("Company", "LTI") 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
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<PAGE> 24
merged into Laminating Merger Corporation, a Delaware corporation, which
changed its name to Laminating Technologies, Inc.
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(TM)"). 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(TM) 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
plastic, metal and certain corrugated cardboard products, including those that
are laminated with paper and/or coated after corrugation.
The LTI Processed(TM) 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 bakery dessert boxes, coolers, frozen
food shippers, point of purchase displays, pizza delivery boxes, medical
product/specimen shippers and microwavable food discs used as pie plates and
pizza slice trays. The Company believes that these products, together with
other potential LTI Processed(TM) 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(TM) products may be leakproof, resistant to a variety of solvent and
petroleum-based chemicals, recyclable, stronger and have a higher bursting
strength than conventional corrugated products. The Company also believes that
the LTI Processed(TM) method may permit 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(TM)
material may be more costly to produce than traditional corrugated board, it is
generally less expensive than certain other non-corrugated packaging products,
including metal and plastic. Moreover, because LTI Processed(TM) containers
often can be reused and can be collapsed in the store 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(TM) packaging materials may be preferred to many packaging
products currently marketed by others.
Since its inception, the Company has focused on research and
development, had only a limited number of sales and only recently began to
focus on broader-based marketing. Most of the sales did not involve significant
orders and the Company believes that these customers were primarily evaluating
the commercial application of LTI Processed(TM) products. Moreover, further
development of the LTI Processed(TM) method may be necessary to satisfy the
requirements of specific end users or strategic partners.
PRODUCTS
On April 17, 1997, the Company announced "BAKE'N SHIP(TM)", a new
product line, which is available for sale to the baking industry. BAKE'N
SHIP(TM) utilizes the Company's proprietary (patent pending) process, resulting
in a new material which is ovenable and freezable with the strength and
structure of corrugated material. This is the Company's first commercial
product. The new product line can streamline the process by which bakery
products are produced by allowing the baker to bake, freeze, ship and display
in one package. In addition, certain versions of the product line provide an
appealing presentation media for baked goods.
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<PAGE> 25
STRATEGY
The Company's strategy is to focus principally on (i) designing,
developing and marketing value-added, niche LTI Processed(TM) products directly
to end users and (ii) leveraging its resources by establishing strategic
alliances with vertically integrated corrugators ("converters") for whom the
Company could potentially supply LTI Processed(TM) 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(TM) 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(TM)
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, the Company currently has out-sourced substantially all of its
manufacturing to existing laminating, corrugating, printing and sheet plant
companies with whom the Company has established formal, contractual
relationships. 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 offerings.
Seek Strategic Alliances for Production and Marketing. In the future,
the Company hopes to seek strategic alliances with vertically integrated
converters for whom the Company could supply LTI Processed(TM) board for
further manufacturing and sale by such converters. The Company believes that
such relationships could enable the Company to more effectively penetrate the
national market and persuade larger end users of the value of LTI Processed(TM)
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(TM) 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(TM) Technology. The Company may in the
future also seek to license its LTI Processed(TM) technology to manufacturers
who would produce LTI Processed(TM) 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, grow and harvest their own timber and
process it for 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, thus competing 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
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<PAGE> 26
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" or "triple wall" construction in which two or three layers of corrugating
"flutes" are sandwiched between layers of linerboard, creating bulkier material
which is difficult to bend. To the extent that packaging is required which
exceeds the capabilities of traditional corrugated boards, other materials such
as styrofoam, metal and plastic can be used. However, in addition to limited
physical advantages, many currently available value-added corrugated products
are often not purchased by national end users because they are typically
manufactured by non-integrated converters whose focus is more regional.
The most advanced printing method currently available for high volume
production of corrugated material is pre-printing on linerboard before
corrugating. Pre-printed linerboard is produced in roll form and then
corrugated into sheets. This type of printing has certain problems associated
with it such as chafing of the exposed printed surface and cracking along the
"score line" (a crease placed into a product to allow easy bending).
Additionally, because the process entails printing of 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
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(TM)
The Company believes that the application of the LTI Processed(TM)
method, which is a proprietary process involving the lamination of polyester
film onto linerboard before corrugation, results in a packaging and display
material that is physically superior, more attractive and potentially more
cost-effective than some traditional corrugated products and certain
non-corrugated packaging products, including metal and plastic. The Company
believes that the LTI Processed(TM) method is the only currently available
procedure that permits the lamination of linerboard prior to corrugation.
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<PAGE> 27
The corrugating process entails using steam, 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(TM) 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(TM) products with little or no modification of
existing equipment and with only minor interruption in production and thus with
minimal added processing 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(TM) corrugated
material.
The Company believes that the LTI Processed(TM) laminate provides a
protective barrier allowing corrugated board, in the right configuration, to be
leakproof and resistant to a variety of solvents, paints, petroleum-based
products and other chemicals for extended periods of time. The Company believes
that this laminate 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(TM)
materials may also be recyclable, a significant advantage over styrofoam, which
may pose certain environmental hazards and has been restricted in certain
areas, including the European Union.
The Company believes that the LTI Processed(TM) 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(TM) 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.
Reverse printing the polyester film ("reverse printing") before the
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 may 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 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.
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<PAGE> 28
PRODUCT DEVELOPMENT
The Company believes that the LTI Processed(TM) method can be utilized
to produce a wide variety of packaging products and specialty displays. For
example, the Company believes that LTI Processed(TM) 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 of specialty and mail-order fresh foods, replacing bulky styrofoam
and plastic containers which are expensive to produce and ship. The Company
believes LTI Processed(TM) 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(TM)
can produce improved alternatives to corrugated products currently used in
these industries. LTI Processed(TM) 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(TM) 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.
The Company has targeted the prepared desserts segment of the bakery
industry as an initial market and has developed a line of LTI Processed(TM)
bakery products that it believes are physically superior and more cost
effective than alternative products currently used in the industry. On April
17, 1997, the Company announced "BAKE'N SHIP(TM)", a new product line, which is
available for sale to the baking industry. BAKE'N SHIP(TM) utilizes the
Company's proprietary (patent pending) process, resulting in a new material
which is ovenable and freezable with the strength and structure of corrugated
material. This is the Company's first commercial product. The new product line
can streamline the process by which bakery products are produced by allowing
the baker to bake, freeze, ship and display in one package. In addition,
certain versions of the product line provide an appealing presentation media
for baked goods.
The Company continues to design, develop and test alternative
packaging designs and products targeted at other industries. Because the exact
specifications of the LTI Processed(TM) material can vary significantly
depending on the use to which the product is put, the Company must continually
test sample products designed for specific end use applications.
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. The Company may also determine to utilize the services of independent
sales representatives. See "--Employees". The sales force is under the
direction of J. Scott Stewart, Senior Vice President - Marketing/Sales.
The Company believes that direct sales to end users of LTI
Processed(TM) finished products could enable the Company to more effectively
penetrate the national market. The Company also believes that 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(TM) technology, and
the success of any such relationship 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. To date, the Company has not entered into any marketing
arrangements with any converter, and the Company anticipates that such
arrangements, if any, will become more likely only if the Company is able to
effectively penetrate the direct sales market.
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(TM) products. 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(TM) products. Moreover, the Company
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<PAGE> 29
anticipates that it will be required in certain cases to design and produce at
its 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(TM) roll-stock or finished products. Instead, the Company has
contracted with manufacturers and may enter into formal and informal
arrangements with additional manufacturers and outside laminators, corrugators
and sheet plants. 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 funds and will be required to hire and train significant additional
personnel.
LTI Processed(TM) 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 and coating machinery
can produce LTI Processed(TM) material 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. The Company has entered into a formal arrangement with Ludlow
Corporation, a laminator and coater, to provide its products to Company
designated corrugators and converters.
The Company intends to out-source the corrugation of LTI Processed(TM)
roll-stock with corrugators with whom the Company has established formal
relationships. See "--Strategy." The Company believes that the corrugation of
LTI Processed(TM) 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. The Company has entered into a formal arrangement with Jet Corr, Inc.,
a corrugator, to provide for the corrugation of LTI Processed(TM) roll-stock
and such production is currently commercialized.
After corrugation, sheets of LTI Processed(TM) board will typically be
stored on the converter'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(TM)." Through the use of a laminator, a
corrugator and a converter, the Company is now capable of manufacturing its
products for the baking industry ("BAKE'N SHIP(TM)") in commercially viable
quantities.
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.
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<PAGE> 30
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(TM) 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(TM) 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 a higher quality, and
in many circumstances, more efficient in the long term. Additionally, the
Company will face competition for 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(TM) and offer little price advantage over
LTI Processed(TM), 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 seeks to
compete with 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(TM)
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(TM) technology. On March 15,
1990, the U.S. Patent Office rejected claims of the Company's patent
application as being too broad in light of prior art. On April 19, 1993, Mr.
Olvey assigned the rights to this patent application to the Company. The
Company submitted a modification of its original application on March 27, 1997.
This resulted in withdrawal of part of the rejections, and the Company expects
to attempt to submit a further modification or responsive arguments not later
than November, 1997, to attempt to overcome the remaining rejections.
There can be no assurance that any patent applications filed by or on
behalf of the Company will result in patents being issued, that patents, if
any, 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. In particular, the Company is
aware of a patent to Adolph Coors Company that relates to certain processes by
which film, including polyester film, is reverse-printed and laminated onto
linerboard. Such patent may affect the ability of the Company to obtain patent
protection for some or all of the claims included in its patent application.
Moreover, there can be no assurance that any application of the Company's
technology will not infringe the Coors patent or any other patents or
proprietary rights of others. Such other persons could bring legal actions
against the Company claiming damages and seeking to enjoin manufacturing and
marketing of the Company's 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
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<PAGE> 31
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. Moreover, the non-approval of the Company's patent
application or the invalidation of any patent that may be issued to the Company
would likely have a material adverse effect on the Company.
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 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.
SUPPLIERS
The Company is dependent on the suppliers of the raw materials used to
produce LTI Processed(TM) 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 who 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 the Company intends to
utilize non-integrated converters for the production of LTI Processed(TM)
packaging, a shortage-induced price increase could raise the price of such LTI
Processed(TM) materials beyond the 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. Additionally, the Company has entered into
contracts with Jet Corr, Inc. and Packaging-Atlanta, Corporation to corrugate
and convert, respectively, the Company's integrated products.
In the absence of a shortage, the Company believes that there are
numerous sources of supply of its raw materials. However, should the Company be
unable to obtain an adequate supply of necessary raw material, 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(TM) is used in the food service and
packaging industries, the Company is required to ensure that its products meet
federal Food and Drug Administration (the "FDA") regulations regarding
materials used in contact with food. A primary supplier of polyester film has
informed the Company that the polyester film used by the Company has received
FDA approval for contact with food. The Company believes that both polyester
film and the bonding agents used in LTI Processed(TM) products are in
compliance with approved food additive regulations permitting the types of food
contact use contemplated by the Company. 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 the LTI Processed(TM) 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
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<PAGE> 32
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. To
date the Company has not incurred substantial expenses to comply with
environmental laws.
EMPLOYEES
The Company currently has seven full-time employees and one part-time
employee. The Company intends to hire two additional salespersons in the near
future and may hire up to three additional salespersons. The Company may also
determine to utilize the services of independent sales representatives. The
Company's future success depends in significant part upon the continued
services 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 to be satisfactory. On April 1, 1997,
the Company placed its employees with Paradyme, a Professional Employer
Organization. Under terms of the arrangement with Paradyme, the Company's
employees became employees of Paradyme, entitling the employees to obtain
superior benefits that the Company previously could not offer to its employees.
While the Company must pay for the payroll cost of the employees, and a fee for
this service, it avoids the overhead and additional administrative costs
typically associated with these benefits.
PROPERTIES
As of June 30, 1997, the Company leased approximately 5,000 square
feet of office space for its executive offices pursuant to a two year agreement
which provides for a monthly rent of $3,833. The office space, located in
Atlanta, Georgia, is in excellent condition.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as of July 22, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael E. Noonan..................... 56 Chairman of the Board of Directors, President, Chief
Executive Officer and Director
Richard B. Carlock.................... 46 Chief Financial Officer
Robert L. Dover....................... 63 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..................... 70 Director
Leonard Toboroff...................... 64 Director
William J. Warren .................... 58 Director
</TABLE>
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<PAGE> 33
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.
RICHARD B. CARLOCK has served as Chief Financial Officer to Laminating
Technologies, Inc. on a part-time basis since February 1997, devoting
approximately 25 percent of his time to LTI. He is a Partner in the firm Tatum
CFO Partners, L.P. which provides CFO expertise to emerging growth companies,
and to augment the financial needs of larger corporations for specific
projects. Accordingly, Mr. Carlock has other clients that he serves. He has
served as Chief Financial Officer, Treasurer and member of the Board of
Directors for 4Health, Inc., a nutritional supplement company from 1995 to
1996. Previously, he served as Chief Financial Officer, Treasurer, and
Vice-President of Electromedics, Inc., a medical device manufacturer, for the
period from 1989 to 1994. Mr. Carlock served as Chief Financial Officer and
Corporate Secretary of Evans BioControl, Inc., a biotechnology firm
specializing in entomology research development (1987 to 1989) and as
Vice-President of Finance and Vice President of Technical Services at
Information Solutions, Inc., a software sales and development company, from
1983 to 1987. Mr. Carlock is a Certified Public Accountant who practiced with
Price Waterhouse & Company and Main LaFrentz & Company prior to his financial
experience in industry. He received a Master of Science degree in Accounting
from New York University's Graduate School of Business, currently Sterns
Business School, in 1976 and holds a Bachelor of Arts degree from the
University of Colorado at Boulder.
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 printing and
converting firm. Since 1983 he has also served as president of Adrienne
Associates, a consulting services company to the printing and pressure
sensitive materials industry. Mr. Christensen graduated from Georgia Institute
of Technology in 1960 with a Bachelor's Degree in Chemical Engineering.
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, from 1987 to 1997; Tyco Toys, Inc
merged into Mattel, Inc. on March 31, 1997.
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<PAGE> 34
LEONARD TOBOROFF has been a director of the Company since July 1996.
Mr. Toboroff has also served as Vice President and a director 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 J. WARREN has been a director of the Company since March 1996.
Mr. Warren founded Mar-Lyn Container Corp., a sheet converter, 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.
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 and Consulting Agreements."
The Company has agreed, if requested by Blair, to nominate a designee
of Blair to the Company's Board of Directors for a period of five years after
the date of the 1996 Offering. Blair has not yet selected such designee. See
"Plan of Distribution."
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 table sets forth certain information covering the
compensation paid or accrued by the Company during the fiscal year indicated to
its President/Chief Executive Officer during the fiscal year ended March 31,
1997. No other executive officer had compensation, including salary and bonus,
in excess of $100,000 during the fiscal year ended March 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation Awards
NAME AND FISCAL YEAR NUMBER OF SECURITIES
PRINCIPAL POSITION ENDED MARCH 31 SALARY UNDERLYING OPTIONS
------------------ -------------- ------ ------------------
<S> <C> <C> <C>
Michael E. Noonan 1997 144,000.00 116,346(1)
Chairman of the Board, President, Chief 1996 72,000.00(2)
Executive Officer and Director
</TABLE>
(1) Consists of 25,027 shares issuable upon exercise of options
granted to Mr. Noonan by TransMillennial Resource Corporation and 91,319 shares
issuable upon exercise of options granted by Steve Gorlin.
(2) Represents amounts accrued in the fiscal year ended March 31,
1996 and includes $60,000 payable pursuant to a consulting arrangement prior to
March 31, 1996.
- ------------
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<PAGE> 35
The following table sets forth information regarding options granted
to the President/Chief Executive Officer during the fiscal year ended March 31,
1997.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE PRICE
NAME OPTIONS GRANTED IN FISCAL YEAR ($/SHARE) EXPIRATION DATE(1)
---- --------------- -------------- --------- ----------------
<S> <C> <C> <C> <C>
Michael E. Noonan 116,346 47.2% $0.68 04/06/02
</TABLE>
(1) Consists of 25,027 shares issuable upon exercise of options
granted to Mr. Noonan by TransMillennial Resource Corporation and 91,319 shares
issuable upon exercise of options granted by Steve Gorlin. The options became
exercisable commencing as of April 6, 1996 and expire on April 6, 2002.
- ------------
The following table sets forth the number of exercisable and
unexercisable options as of March 31, 1997, and the value of such options for
the President/Chief Executive Officer.
<TABLE>
<CAPTION>
NO. OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FY END OPTIONS AT FY END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME OR EXERCISED (#) REALIZED UNEXERCISABLE UNEXERCISABLE
---- ---------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Michael E. Noonan -- -- 77,564/38,782 $364,163/$182,081
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
In June 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.
The Company has agreed with Blair 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 1996 Offering.
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<PAGE> 36
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.
Director's Option. In addition, directors are entitled to receive
Director Options pursuant to the Company's 1996 Stock Option Plan (the "Plan").
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 were granted
a Director Option to purchase 10,000 shares of Common Stock on or about October
9, 1996 at a per share exercise price equal to $5.00. 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 ten percent of the voting power, in which case the exercise
price shall be not less than 110 percent 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 ten years after the date of grant or 90 days after the termination
of the director's service on the Board of Directors.
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 any delegation of powers to a committee
shall be consistent with Rule 16b-3 ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), which provides, among
other things, that a grant or award transaction will be an exempt transaction
for short-swing profit liability purposes if it is approved by a committee that
is composed solely of two or more non-employee directors. 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
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<PAGE> 37
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, 1997, the number of employees, officers and directors of the Company
eligible to receive grants under the Plan was 12 persons. The number of
consultants and advisors to the Company eligible to receive grants under the
Plan is not determinable. An optionee may be granted more than one option under
the Plan. The Board of Directors or the committee will, in its discretion,
determine (subject to the terms of the Plan) who will be granted options, the
time or times at which options shall be granted, and the number of shares
subject to each option, whether the options are incentive options or
non-qualified options, and the manner in which options may be exercised. In
making such determination, consideration may be given to the value of the
services rendered by the respective individuals, their present and potential
contributions to the success of the Company and its subsidiaries and such other
factors deemed relevant in accomplishing the purpose of the Plan.
Under the Plan, the optionee has none of the rights of a stockholder
with respect to the shares issuable upon the exercise of the option until such
shares shall be issued upon such exercise. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior
to the date of exercise, except as provided in the Plan. During the lifetime of
the optionee, an option shall be exercisable only by the optionee. No option
may be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of decent and distribution.
The Board of Directors may amend or terminate the Plan except that
stockholder approval is required to effect a change so as to increase the
aggregate number of shares that may be issued under the Plan (unless adjusted
to reflect such changes as a result of a stock dividend, stock split,
recapitalization, merger or consolidation of the 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.
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<PAGE> 38
If the holder of shares acquired through exercise of an incentive
option sells such shares within two years of the date of grant of such option
or within one year from the date of exercise of such option (a "Disqualifying
Disposition"), the optionee will realize income taxable at ordinary rates.
Ordinary income is reportable during the year of such sale equal to the
difference between the option price and the fair market value of the shares at
the date the option is exercised, but the amount includable as ordinary income
shall not exceed the excess, if any, of the proceeds of such sale over the
option price. In addition to ordinary income, a Disqualifying Disposition may
result in taxable income subject to capital gains treatment if the sales
proceeds exceed the optionee's basis in the shares (i.e., the option price plus
the amount includable as ordinary income). The amount of the optionee's taxable
ordinary income will be deductible by the Company in the year of the
Disqualifying Disposition.
At the time of sale of shares received upon exercise of an option
(other than a Disqualifying Disposition of shares received upon the exercise of
an incentive option), any gain or loss is long-term or short-term capital gain
or loss, depending upon the holding period. The holding period for long-term
capital gain or loss treatment is more than one year.
The foregoing is not intended to be an exhaustive analysis of the tax
consequences relating to stock options issued under the Plan. For instance, the
treatment of options under state and local tax laws, which is not described
above, may differ from the treatment for Federal income tax purposes.
As of June 30, 1997, options to purchase 170,000 shares of Common
Stock at exercise prices of $4.00 and $5.00 per share have been granted under
the Plan.
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 entered into indemnification agreements ("Indemnification
Agreement(s)") with each of its directors and officers after the 1996 Offering.
Each such Indemnification Agreement provided 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 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 permits 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
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<PAGE> 39
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.
CERTAIN TRANSACTIONS
Upon the conversion of the Series A Preferred Stock in connection with
the 1996 Offering, the Company paid to D.H. Blair Capital Corp. ("Blair & Co.")
approximately $150,000, representing the accumulated dividends on the Series A
Preferred Stock. The sole stockholder of D.H. Blair Capital Corp. is J. Morton
Davis, who is also the sole stockholder of Blair, the underwriter for the 1996
Offering. In September 1993, Blair loaned $30,000 to the Company and in March
1994, Blair loaned an additional $100,000 to the Company, each of which loans
bore interest at ten percent per annum. The principal amount of all of such
indebtedness was repaid in April 1996 and accrued interest of approximately
$30,000 was repaid in August 1996. In March 1994, the Company issued warrants
to purchase 36,897 shares of Common Stock of the Company to Blair in
consideration of the extension of the loan by Blair. Blair also 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.
All of the Company's stockholders, officers and directors as of the
1996 Offering have agreed not to sell, assign, transfer or otherwise dispose
publicly any of their shares of Common Stock for a period of 13 months after
the 1996 Offering without the prior written consent of Blair.
Blair 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 1996 Offering, although it has not yet selected any such designee. Such
designee may be a director, officer, partner, employee or affiliate of Blair.
The Company has agreed to indemnify Blair against certain liabilities,
including liabilities under the Securities Act.
During the five-year period after the date of 1996 Offering, in the
event Blair originates a financing or a merger, acquisition or transaction to
which the Company is a party, Blair 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 percent
of the first $1,000,000 to 2 1/2 percent of any consideration in excess of
$9,000,000.
The Company has agreed not to solicit Warrant exercises other than
through Blair, unless Blair declines to make such solicitation. Upon any
exercise of the Warrants after the one-year period after the 1996 Offering, the
Company will pay Blair a fee of 5 percent 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 1996 Offering and at the time of
exercise of the Warrants; and (vi) the solicitation of exercise of the Warrant
was not in violation of Regulation M.
Blair acted as the underwriter of the IPO Units in the 1996 Offering
for which it received underwriting discounts and commissions of $909,075 and a
non-accountable expense allowance of $293,250. In addition, in connection with
the 1996 Offering, the Company agreed to sell to Blair and its designees, for
nominal consideration, the Unit Purchase Options to purchase up to 170,000 IPO
Units, substantially identical to the IPO Units offered in the 1996 Offering,
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.
Blair acted as Placement Agent for the Bridge Financing in April and
May of 1996, for which it received a Placement Agent fee of $199,500 and a
non-accountable expense allowance of $59,850.
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<PAGE> 40
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. 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.
On August 26, 1994, the stockholders of the Company ratified a
preliminary agreement (the "Memorandum of Understanding") with TMR. Charles
Broes, the President and a principal 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
percent 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 percent
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 $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 B. Sallee, a 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. The principal
amount of the Bridge Notes and interest thereon at a rate of ten percent per
annum were paid to the holders of the Bridge Notes upon the closing of the 1996
Offering.
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<PAGE> 41
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. 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 canceled 7,379 of these shares.
In December 1995, the Company entered into a one year consulting
agreement with Mr. Olvey. The agreement provided 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.
TMR provided has been providing management services to the Company,
and the management fees incurred by the Company for such services during the
year ended March 31, 1997 were approximately $45,000. In addition, TMR advanced
funds to the Company and paid certain of its obligations, resulting in a
balance of $735,803 due to TMR at March 31, 1996. TMR agreed to contribute
$307,457 of such debt to the capital of the Company and to convert the
remaining balance of $428,346 into 158,048 shares of the Company's common
stock. This conversion was completed in April 1996. Two of the Company's former
officers are shareholders of TMR, and the Company was located in office space
which was leased by TMR. Rent on such space was included in the indebtedness
described above.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 22, 1997, certain
information regarding 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.
<TABLE>
<CAPTION>
Name and Address(1) No. of Shares(1) Percentage
------------------- ---------------- ----------
<S> <C> <C>
Michael E. Noonan ........................................... 77,564(2) 2.4%
Robert L. Dover ........................................... 26,667(3) *
Ronald L. Christiansen ...................................... 2,500(4) *
Jerome I. Gellman ........................................... 2,500(4) *
Leonard Toboroff ............................................ 2,500(4) *
William J. Warren ........................................... 2,500(4) *
J. Morton Davis ............................................. 359,748(5,6) 11.2%
D. H. Blair Capital Corp. ................................... 322,851(6) 10.1%
Steve Gorlin ................................................ 202,012(7) 6.3%
TransMillennial Resource Corporation......................... 158,048(8) 5.0%
All executive officers and directors as a group (8 persons).. 114,231(9) 3.5%
</TABLE>
- --------------
* Less than 1 percent
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<PAGE> 42
(1) Except as otherwise indicated, each of the parties listed above has
sole voting and investment power over the shares owned. Except as
otherwise indicated, the address of each stockholder is c/o Laminating
Technologies, Inc., 1160 Hightower Trail, Atlanta, Georgia 30350-2910.
(2) Includes 25,027 shares issuable upon exercise of immediately
exercisable options granted to Mr. Noonan by TMR and 52,537 shares
issuable upon exercise of immediately exercisable options granted by
Steve Gorlin. Does not include an additional 38,782 shares issuable
upon exercise of options granted to Mr. Noonan by Mr. Gorlin that are
not exercisable within 60 days.
(3) Includes 26,667 immediately exercisable options to purchase Common
Stock. Does not include 13,333 shares issuable upon exercise of
options that are not exercisable within 60 days.
(4) As to each director, includes 2,500 immediately exercisable options to
purchase Common Stock. Does not include 7,500 shares issuable upon
exercise of options that are not exercisable within 60 days.
(5) Includes 322,851 shares owned by D.H. Blair Capital Corp. and 36,897
shares issuable upon exercise of immediately exercisable warrants
issued to D.H. Blair Investment Banking Corp. Mr. Davis is the sole
stockholder of each of D.H. Blair Capital Corp. and D.H. Blair
Investment Banking Corp. The address of Mr. Davis is 44 Wall Street,
New York, New York 10005.
(6) Does not include 36,897 shares issuable upon the exercise of
immediately exercisable warrants issued to D.H. Blair Investment
Banking Corp. in March 1994 and expiring on March 25, 1999. The sole
stockholder of D.H. Blair Capital Corp. is J. Morton Davis, who is
also the sole stockholder of Blair Investment. The address of D.H.
Blair Capital Corp. is 44 Wall Street, New York, New York 10005.
(7) Includes 91,319 shares subject to options granted by Mr. Gorlin to
Michael E. Noonan. The address of Mr. Gorlin is 5115 Peachtree Road,
Suite 200, Chamblee, Georgia 30341.
(8) Includes 25,027 shares subject to options granted by TMR to Michael E.
Noonan. The address of TMR is 31847 W. Sea Level Drive, Malibu,
California 90265.
(9) Includes 114,231 shares issuable upon exercise of options that are
immediately exercisable. Does not include 82,115 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 1996 Offering, the then stockholders of the
Company placed, on approximately a pro rata basis, 410,000 shares, or one-third
of the outstanding shares of Common Stock of the Company before the 1996
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 are not be Escrow Shares.
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 for the fiscal year ending March 31, 1998;
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<PAGE> 43
(b) the Minimum Pretax Income amounts to at least $4,400,000 for the
fiscal year ending March 31, 1999;
(c) the Minimum Pretax Income amounts to at least $5,700,000 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 the 1996 Offering;
(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 the 1996 Offering;
(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 exclusive of any extraordinary earnings, including any charge to
income relating to the Bridge Financing and repayment of the Bridge 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 Shares 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 canceled 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
probably 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."
The Minimum Pretax Income and Closing Price levels set forth above
were determined by negotiation between the Company and Blair 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.
CONCURRENT OFFERING BY SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part also
relates to the Remaining Selling Securityholder Securities. An aggregate of
997,500 Bridge Warrants were originally issued in connection with the Bridge
Financing completed by the Company in April and May, 1996 ("Bridge Financing").
These Bridge Warrants were automatically converted on the closing of the 1996
Offering into the Remaining Selling Securityholder Class A Warrants. The
Remaining Selling Securityholder Class A Warrants are identical to the Class A
Warrants included
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<PAGE> 44
in the IPO Units offered in the 1996 Offering. Exercise of the Remaining
Selling Securityholder Class A Warrants by the persons named below is further
subject to the existence of an exemption from registration applicable to the
issuance of the underlying securities by the Company to the Remaining Selling
Securityholders. It is likely that sales of the Remaining Selling
Securityholder Class A Warrants or the Remaining Selling Securityholder Class B
Warrants and the Remaining Selling Securityholder Common Stock, or even the
potential of such sales at any time, could have an adverse effect on the market
prices of the Common Stock and Class A and Class B Warrants.
The following table sets forth certain information with respect to
each Remaining Selling Securityholder for whom the Company registered
securities for resale to the public in the 1996 Offering. Some of these Selling
Securityholders may have transferred their Selling Securityholder Warrants
since the 1996 Offering. The Company will not receive any of the proceeds from
the sale of these securities. Except as described below, there are no material
relationships between any of the Remaining Selling Securityholders and the
Company, nor have any such material relationships existed within the past three
years.
<TABLE>
<CAPTION>
NUMBER OF CLASS A WARRANTS
BENEFICIALLY OWNED AND
SELLING SECURITYHOLDER MAXIMUM NUMBER TO BE SOLD(1)
---------------------- --------------------------
<S> <C>
Columbia Funding ............................... 50,000
Stephen Comeau ................................. 25,000
Tom N. Davidson Revocable Living Trust ......... 50,000
Nathan Eisen ................................... 12,500
Jerome Grushkin & Esther Grushkin JTROS ........ 12,500
Jerome J. Grushkin Defined Benefit Plan ........ 12,500
Melving L. Katten .............................. 12,500
Frank G. Lake III .............................. 25,000
Benjamin Lehrer ................................ 12,500
Levine & Staller PA TTEE ....................... 25,000
George Lionikis Sr ............................. 25,000
Joseph O. Manzi ................................ 50,000
Efrain Martinez ................................ 50,000
Albert Milstein ................................ 12,500
Lloyd A. Moriber, M.D .......................... 25,000
Karen A. Omahen ................................ 25,000
Poseidon Capital Pension and Profit-Sharing Plan 12,500
William Rands .................................. 25,000
Jesse D. Roggen ................................ 12,500
Marc Roberts ................................... 75,000
Gary J. Strauss ................................ 25,000
Donald Sallee .................................. 175,000
Melvin Stein ................................... 25,000
Malcolm Levenson Trust ......................... 37,500
The Steiro Company ............................. 10,000
Byron M. Allen ................................. 12,500
The Frank & Brynde Berkowitz Foundation ........ 25,000
Kenneth Cohen & Sherry Cohen JTROS ............. 25,000
Robert M. Freeman .............................. 50,000
Stuart Gruber .................................. 12,500
Edward D. Hurley Keogh Plan .................... 12,500
Richard A. Nelson & Elaine M. Nelson JTROS ..... 25,000
Wolfson Equities ............................... 12,500
------
TOTAL ........................ 997,500
=======
</TABLE>
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<PAGE> 45
(1) Does not include shares of Common Stock and Class B Warrants issuable upon
exercise of the Class A Warrants and the shares of Common Stock issuable upon
the exercise of the Class B Warrants. The Selling Securityholders agreed not to
exercise the Class A Warrants for a period of one year from October 9, 1996.
- ---------------------------
Each Selling Securityholder agreed: (i) not to sell, transfer or
otherwise dispose publicly the Remaining Selling Securityholder Class A
Warrants through a 270-day maximum lock-up period measured from October 9,
1996, which has now expired; and (ii) not to exercise the Remaining Selling
Securityholder Class A Warrants for a period of one year from October 9, 1996.
Purchasers of the Selling Securityholder Class A Warrants will not be subject
to such restrictions.
After the one year period following the effective date of the 1996
Offering, the Selling Securityholders may exercise and sell the Common Stock
issuable upon exercise of the Selling Securityholder Class A and Class B
Warrants (collectively, 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 securities underlying
such Class A Warrants or even the potential of such sales could have an adverse
effect on the market prices of the Company's securities.
With the exception of Donald B. Sallee, Melvin Stein, the Malcolm
Levenson Trust and The Steiro Company, who owned 4.3%, 1.8%, 1.4% and 1.4% as
of the date of the 1996 Offering, respectively, 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 Blair that there are no agreements between Blair
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 or solicited brokerage
activities with respect to any securities of the Company for the applicable
"cooling off" period (which is likely to be five business days) prior to the
commencement of such distribution. Accordingly, in the event Blair 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
or engage in any solicited brokerage activities during the applicable
restrictive period. Any temporary cessation of such market-making activities or
solicited brokerage activities could have an adverse effect on the market price
of the Company's securities. However, neither Blair 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
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<PAGE> 46
subject to the applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Regulation M, 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, Blair 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 Blair, 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 the 1996 Offering, the authorized
capital stock of the Company consisted 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.
COMMON STOCK
As of July 22, 1997, there were 3,185,100 shares of Common Stock
issued and outstanding held by approximately 30 stockholders of record and 490
beneficial holders of the Common Stock. 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.
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 October 8,
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
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<PAGE> 47
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 October 8, 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 were issued
pursuant to a warrant agreement (the "Warrant Agreement") among the Company,
Blair and American Stock Transfer & Trust Company, New York, New York, as
warrant agent (the "Warrant Agent"), and were 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 other
than issuances upon exercise of options granted to employees, directors and
consultants to the Company under the Company's stock option plans, other
outstanding warrants on the date of this Prospectus or with respect to the Unit
Purchase Option.
The exercise prices of the Warrants were determined by negotiation
between the Company and Blair 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
The Company is 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 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
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<PAGE> 48
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.
IPO UNITS
The Company also has outstanding IPO Units which are currently listed
on the Nasdaq SmallCap Market. Each IPO 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. The Common Stock and Warrants
comprising the IPO Units were separately transferable immediately upon
issuance.
UNIT PURCHASE OPTIONS
In conjunction with the 1996 Offering, the Company granted to Blair
the Unit Purchase Option to purchase up to 170,000 Units. These Units were
identical to the IPO Units offered, 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 Blair 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 the 1996 Offering at an exercise price of $6.00 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 "Shares Eligible for
Future Sales."
REGISTRATION RIGHTS
Beginning one year from the date of the 1996 Offering, the holders of
the Unit Purchase Options will have demand and piggy-back registration rights
relating to such options and the underlying securities and Blair 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 "Plan of Distribution." 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 the 1996 Offering.
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.
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<PAGE> 49
BUSINESS COMBINATION PROVISION
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, the
restrictions imposed by such statute apply to the Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of June 30, 1997, the Company had issued and outstanding an
aggregate of 3,185,100 shares of Common Stock. Of these shares, the 1,955,000
shares of Common Stock included in the IPO Units offered by the 1996 Offering
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.
All other shares of Common Stock outstanding prior to the 1996 Offering 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 became eligible for sale
immediately following the date of the 1996 Offering and, subject to compliance
with Rule 144 under the Securities Act, approximately 483,355 of the Restricted
Shares were eligible for sale in the public market beginning 90 days from the
date of the 1996 Offering. 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 Blair's prior written consent for
a period of 13 months after the date of the 1996 Offering.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of the 1996 Offering are now
entitled to sell such shares without having to comply with the holding
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 also subject to all Rule 144 restrictions, but without
the holding period. If all the requirements of Rule 701 are met, an aggregate
of 50,003 shares subject to outstanding vested stock options may be sold
pursuant to such rule, 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 the 1996 Offering without Blair's prior written
consent.
In general, under the recent amendment to Rule 144 that has been
adopted by the Commission, 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 one year 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 two years is
entitled to sell such shares under Rule 144(k) without regard to the volume or
other resale requirements. The above is a brief summary of Rule 144 and is not
intended to be a complete description of the Rule.
Blair 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 "Plan of Distribution."
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<PAGE> 50
PLAN OF DISTRIBUTION
The securities offered hereby are being offered directly by the
Company pursuant to the terms of the Warrants. No underwriter is being utilized
in connection with this offering. The sale of the Company's securities may be
effected from time to time in transactions 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.
Holders of the Company's securities may effect such transactions by selling
their securities directly to purchasers, through broker-dealers acting as
agents for such Holders 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 Holders of the Company's securities 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).
The Company has agreed not to solicit Warrant exercises other than
through Blair, unless Blair declines to make such solicitation. Upon any
exercise of the Warrants after the first anniversary of the date of the 1996
Offering, the Company has agreed to pay Blair 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 Regulation M.
Regulation M under the Securities Exchange Act of 1934 (the "Exchange
Act"), may prohibit Blair & Co. or any other person involved in the
distribution of the Company's securities from engaging in any market making
activities or solicited brokerage activities with respect to the Company's
securities for the period from five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by Blair & Co. of
the exercise of any Warrant offered hereby until the completion of such
solicitation activity or the termination (by waiver or otherwise) of any right
that Blair & Co. may have to receive a fee for the exercise of Warrants
following such solicitation. As a result, Blair & Co. may be unable to continue
to provide a market for the Company's securities during certain periods while
the Warrants offered hereby are exercisable. The prices and liquidity of the
Company's securities may be adversely affected by the cessation of Blair &
Co.'s market making activities. 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 or solicited brokerage activities with respect to any
securities of the Company for the applicable "cooling off" period (which is
likely to be five business days) prior to the commencement of such
distribution. Accordingly, in the event Blair 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 or engage in any solicited
brokerage activities during the applicable restrictive period. Any temporary
cessation of such market-making activities or solicited brokerage activities
could have an adverse effect on the market price of the Company's securities.
The warrant prices and other terms of the Warrants have been
determined by negotiation between the Company and Blair and are not necessarily
related to the Company's asset value, net worth or other established criteria
of value.
Blair 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 Blair.
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<PAGE> 51
EXPERTS
The consolidated financial statements of Laminating Technologies, Inc.
as of March 31, 1997 and for each of the fiscal years ended March 31, 1997 and
March 31, 1996, and for the period from April 19, 1993 (commencement of
operations) through March 31, 1997, 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 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 has filed with the Securities and Exchange Commission (the
"Commission") a Post-Effective Amendment to its Registration Statement on Form
SB-2, File No. 333-6711 ("Registration Statement") under the Securities
Exchange Act of 1933, as amended, with respect to the securities offered
hereby. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete. In each
instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Company will provide, without
charge, to each person who receives a prospectus, upon written or oral request
of such person, a copy of any of the information that is incorporated by
reference in this Prospectus (not including exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Please direct such requests to the Company at 1160
Hightower Trail, Atlanta, Georgia 30350-2910, Attn: Michael E. Noonan,
telephone: (770) 518-6010.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance herewith files
reports, proxy statements and other information with the Commission. For
further information with respect to the Company, reports, proxy statements and
other information and the securities offered, reference is made to such
reports, proxy statements and other information, the Registration Statement and
the exhibits filed as part thereof, which may be examined without charge, and
copies of such material can be obtained at prescribed rates from the Public
Reference Section maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Web site
(http:\\www.sec.gov) that contains reports, proxy statements and information
statements and other information regarding the Company.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and may furnish interim reports as it
deems appropriate. A copy of the Company's Annual Report on Form 10-KSB, as
filed with the Commission, is available upon request, without charge, by
writing to Laminating Technologies, Inc., 1160 Hightower Trail, Atlanta,
Georgia 30350-2910.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 52
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 AT MARCH 31, 1997 AND
JUNE 30, 1997 (UNAUDITED) F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996, THE
YEAR ENDED MARCH 31, 1997 AND THE PERIOD FROM APRIL 19, 1993 (COMMENCEMENT
OF OPERATIONS) THROUGH MARCH 31, 1997, THE THREE MONTH PERIODS ENDED JUNE
30, 1996 (UNAUDITED) AND JUNE 30, 1997 (UNAUDITED) AND FOR THE PERIOD FROM
APRIL 19, 1993 (COMMENCEMENT OF OPERATIONS) THROUGH JUNE 30, 1997
(UNAUDITED) F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
FOR THE PERIOD FROM APRIL 19, 1993 (COMMENCEMENT OF OPERATIONS) THROUGH
MARCH 31, 1994, THE YEARS ENDED MARCH 31, 1995, MARCH 31, 1996, AND MARCH
31, 1997 AND FOR THE THREE MONTHS ENDED JUNE 30, 1997 (UNAUDITED) F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 1996, THE
YEAR ENDED MARCH 31, 1997, THE PERIOD FROM APRIL 19, 1993 (COMMENCEMENT OF
OPERATIONS) THROUGH MARCH 31, 1997, THE THREE MONTH PERIODS ENDED JUNE 30,
1996 (UNAUDITED) AND JUNE 30, 1997 (UNAUDITED) AND FOR THE PERIOD FROM APRIL
19, 1993 (COMMENCEMENT OF OPERATIONS) THROUGH JUNE 30, 1997 (UNAUDITED) F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
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,
1997, and the related consolidated statements of operations, changes in
stockholders' equity (capital deficiency) and cash flows for each of the years
in the two-year period ended March 31, 1997 and for the period from April 19,
1993 (commencement of operations) through March 31, 1997. 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, 1997 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, 1997 and for the period from April
19, 1993 (commencement of operations) through March 31, 1997 in conformity with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
June 4, 1997
F-2
<PAGE> 54
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
============================================================================================================================
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 129,207 $ 907,850
Investments (Note B[2]) 4,382,147 4,032,267
Accounts receivable (net of allowance for doubtful accounts) 16,446 8,772
Inventory (Notes B[3] and C) 184,955 103,326
Other current assets 39,973 41,567
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 4,752,728 5,093,782
Fixed assets, net (Notes B[4] and D) 212,197 209,224
- --------------------------------------------------------------------------------------------------------------------------
$ 4,964,925 $ 5,303,006
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 229,459 $ 256,341
Payroll taxes payable 49,145 51,625
Accrued expenses 44,110 39,268
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 322,714 347,234
- --------------------------------------------------------------------------------------------------------------------------
Commitments and other matters (Note F)
Stockholders' equity (Note E):
Series A convertible preferred stock, par value $.01, 5,000,000 shares
authorized, none issued
Common stock, par value $.01, 20,000,000 shares authorized, 3,185,100
shares and 3,185,000 shares issued and outstanding, respectively 31,851 31,850
Additional paid-in capital 11,709,254 11,708,605
Deficit accumulated during the development stage (7,098,894) (6,784,683)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 4,642,211 4,955,772
- --------------------------------------------------------------------------------------------------------------------------
$ 4,964,925 $ 5,303,006
==========================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-3
<PAGE> 55
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY )
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
APRIL 19, 1993
(COMMENCEMENT
OF OPERATIONS) THREE MONTHS ENDED
YEAR ENDED MARCH 31, THROUGH JUNE 30,
1996 1997 MARCH 31, 1997 1996 1997
=======================================================================================================================
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 119,412 $ 23,918 $ 365,703 $ 32,814
Cost of goods sold 277,454 16,751 1,032,524 30,709
=========================================================================================================================
GROSS PROFIT (LOSS) (158,042) 7,167 (666,821) 2,105
Selling, general and administrative expenses 1,042,290 1,779,339 5,082,384 $ 666,220 393,913
- -------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (1,200,332) (1,772,172) (5,749,205) (666,220) (391,808)
Interest expense 100,874 789,433 955,783 177,554 161
Interest income (109,533) (109,533) (73,146)
Cancellation of debt (121,738) (49,170) (170,908) (53,241) (4,612)
Loss on abandonment of fixed assets 49,277 5,808 104,184
- ------------------------------------------------------------------------------------------------------------------------
NET LOSS $(1,228,745) $(2,408,710) $(6,528,731) $ (790,533) $ (314,211)
========================================================================================================================
NET LOSS PER SHARE OF COMMON STOCK $ (2.02) $ (1.47) $ (.98) $ (.11)
========================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 632,719 1,667,821 820,000 2,775,078
========================================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
APRIL 19, 1993
(COMMENCEMENT
OF OPERATIONS)
THROUGH
JUNE 30, 1997
=========================================================================
(UNAUDITED)
<S> <C>
NET SALES $ 398,517
Cost of goods sold 1,063,233
- -----------------------------------------------------------------------
GROSS PROFIT (LOSS) (664,716)
Selling, general and administrative expenses 5,476,297
- -----------------------------------------------------------------------
OPERATING LOSS (6,141,013)
Interest expense 955,944
Interest income (182,679)
Cancellation of debt (175,520)
Loss on abandonment of fixed assets 104,184
- -----------------------------------------------------------------------
NET LOSS $(6,842,942)
=======================================================================
NET LOSS PER SHARE OF COMMON STOCK
=======================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
=======================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-4
<PAGE> 56
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(NOTE E)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
SHARES AMOUNT SHARES AMOUNT
===================================================================================================================================
<S> <C> <C> <C> <C>
Common stock issued in connection with the acquisition of the assets of Cool-R
Enterprises, Inc. in April 1993 168,114 $ 1,681
Common stock issued in connection with obtaining rights to developed
technology in April 1993 150,126 1,501
Issuance of common stock for cash and settlement of debt in April 1993 235,221 2,352
Cash contributed by stockholder
Issuance of convertible preferred stock for cash in September 1993 250,000 $ 2,500
Common stock issued to an officer in connection with the signing of an employment
agreement in October 1993 46,122 461
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
Issuance of common stock for cash in May 1994 3,690 37
Common stock issued as consideration for compensation in August 1994 50,662 507
Services contributed by stockholder
Net loss for the year ended March 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1995 250,000 2,500 653,935 6,539
Issuance of common stock as settlement of notes payable to a stockholder
in June 1995 33,208 332
Collection of stock subscription
Common stock purchased for treasury (126,114)
Common stock issued from treasury 126,114
Common stock contributed to treasury and cancelled (7,379) (74)
Contribution to capital (Note G)
Net loss for the year ended March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1996 250,000 2,500 679,764 6,797
Warrants issued in connection with Bridge Notes
Conversion of debt to common stock 361,061 3,611
Common stock issued as consideration for compensation 4,689 47
Stock options issued by stockholders to an officer as compensation
Payment of cumulative dividends on Series A preferred stock
Preferred stock conversion (250,000) (2,500) 184,486 1,845
Sale of 1,955,000 shares of common stock (net of offering costs) 1,955,000 19,550
Net loss for the year
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1997 3,185,000 31,850
Common stock issued in connection with the exercise of stock options 100 1
Net loss for the three months ended June 30, 1997 (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 1997 (UNAUDITED) 3,185,100 $31,851
==================================================================================================================================
<CAPTION>
STOCK ADDITIONAL
SUBSCRIPTION PAID-IN TREASURY
RECEIVABLE CAPITAL STOCK
=================================================================================================================================
<S> <C> <C> <C>
Common stock issued in connection with the acquisition of the assets of Cool-R
Enterprises, Inc. in April 1993 $ (1,681)
Common stock issued in connection with obtaining rights to developed technology in
April 1993 (1,501)
Issuance of common stock for cash and settlement of debt in April 1993 635,148
Cash contributed by stockholder 12,500
Issuance of convertible preferred stock for cash in September 1993 497,500
Common stock issued to an officer in connection with the signing of an employment
agreement in October 1993 $(1,250) 124,539
Net loss for the period April 19, 1993 (commencement of operations) through
March 31, 1994
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1994 (1,250) 1,266,505
Issuance of common stock for cash in May 1994 19,963
Common stock issued as consideration for compensation in August 1994 136,799
Services contributed by stockholder 30,000
Net loss for the year ended March 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1995 (1,250) 1,453,267
Issuance of common stock as settlement of notes payable to a stockholder
in June 1995
Collection of stock subscription 1,250
Common stock purchased for treasury $ (150,000)
Common stock issued from treasury 150,000
Common stock contributed to treasury and cancelled 74
Contribution to capital (Note G) 307,457
Net loss for the year ended March 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1996 1,850,466
Warrants issued in connection with Bridge Notes 665,000
Conversion of debt to common stock 974,961
Common stock issued as consideration for compensation 12,660
Stock options issued by stockholders to an officer as compensation 386,000
Payment of cumulative dividends on Series A preferred stock (150,000)
Preferred stock conversion 655
Sale of 1,955,000 shares of common stock (net of offering costs) 7,968,863
Net loss for the year
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1997 11,708,605
Common stock issued in connection with the exercise of stock options 649
Net loss for the three months ended June 30, 1997 (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 1997 (UNAUDITED) $11,709,254
=================================================================================================================================
<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 $ (255,952) $ (255,952)
Common stock issued in connection with obtaining rights to developed technology in
April 1993
Issuance of common stock for cash and settlement of debt in April 1993 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 ended March 31, 1995 (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
Collection of stock subscription 1,250
Common stock purchased for treasury (150,000)
Common stock issued from treasury 150,000
Common stock contributed to treasury and cancelled
Contribution to capital (Note G) 307,457
Net loss for the year ended March 31, 1996 (1,228,745) (1,228,745)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1996 (4,375,973) (2,516,210)
Warrants issued in connection with Bridge Notes 665,000
Conversion of debt to common stock 978,572
Common stock issued as consideration for compensation 12,707
Stock options issued by stockholders to an officer as compensation 386,000
Payment of cumulative dividends on Series A preferred stock (150,000)
Preferred stock conversion
Sale of 1,955,000 shares of common stock (net of offering costs) 7,988,413
Net loss for the year (2,408,710) (2,408,710)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1997 (6,784,683) 4,955,772
Common stock issued in connection with the exercise of stock options 650
Net loss for the three months ended June 30, 1997 (unaudited) (314,211) (314,211)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 1997 (UNAUDITED) $(7,098,894) $ 4,642,211
==========================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-5
<PAGE> 57
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
APRIL 19,1993
(COMMENCEMENT
OF OPERATIONS)
YEAR ENDED MARCH 31, THROUGH
1996 1997 MARCH 31, 1997
===================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,228,745) $ (2,408,710) $ (6,528,731)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Provision for doubtful accounts 7,000 20,000
Depreciation and amortization 34,158 51,311 199,456
Compensation recorded for fair value of common shares issued in excess of
price paid by employee 12,707 273,763
Compensation recorded for stock options issued by stockholders to an officer 386,000 386,000
Services contributed by stockholder 30,000
Noncash finance charge 19,551 665,000 684,551
Loss on disposal of fixed assets 49,277 122,375
Changes in operating assets and liabilities:
Accounts receivable 4,877 549 (16,342)
Inventories 70,454 (103,326) (43,625)
Other assets 17,998 (38,567) (25,550)
Due to related party 71,329 790,082
Accounts payable and accrued expenses 228,761 (327,281) 218,529
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (725,340) (1,762,317) (3,889,492)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (14,733) (253,674) (487,979)
Purchase of government securities (4,032,267) (4,032,267)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,733) (4,285,941) (4,520,246)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable 459,250 1,500,000 2,557,750
Repayment of notes payable (52,118) (2,352,616) (2,583,907)
Proceeds of notes payable - stockholders 350,000 458,700
Repayment of notes payable - stockholders (7,995) (31,036) (49,736)
Advances from stockholders 9,485 11,485
Repayment of capital leases payable (20,288) (41,367)
Proceeds from sale of common stock 7,988,413 8,600,913
Proceeds from sale of preferred stock 500,000
Proceeds from stock subscription receivable 1,250 1,250
Cash contributed by stockholder 12,500
Proceeds from exercise of options
Payment of dividends on preferred stock (150,000) (150,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 739,584 6,954,761 9,317,588
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (489) 906,503 907,850
Cash - beginning of period 1,836 1,347
- -----------------------------------------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 1,347 $ 907,850 $ 907,850
===================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 28,206 $ 507,423 $ 673,773
- -----------------------------------------------------------------------------------------------------------------------------------
Noncash transactions:
Common stock subscribed $ 1,250
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock issued for developed technology $ 406,875
- -----------------------------------------------------------------------------------------------------------------------------------
Conversion of debt to equity $ 978,572 $ 978,572
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock issued as settlement of note payable to stockholder $ 90,000 $ 90,000
- -----------------------------------------------------------------------------------------------------------------------------------
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
===================================================================================================================================
<CAPTION>
APRIL 19,1993
(COMMENCEMENT
THREE MONTHS ENDED OF OPERATIONS)
JUNE 30, THROUGH
1996 1997 JUNE 30, 1997
===================================================================================================================================
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net (loss) to net cash (used in) operating activities: $(790,533) $(314,211) $ (6,842,942)
Provision for doubtful accounts
Depreciation and amortization 20,000
Compensation recorded for fair value of common shares issued in excess of 69,461 20,026 219,482
price paid by employee 12,707 273,763
Compensation recorded for stock options issued by stockholders to an officer 386,000 386,000
Services contributed by stockholder 30,000
Noncash finance charge 125,712 684,551
Loss on disposal of fixed assets 122,375
Changes in operating assets and liabilities:
Accounts receivable 4,843 (7,674) (24,016)
Inventories (81,629) (125,254)
Other assets (60,385) 1,594 (23,956)
Due to related party (24,202) 790,082
Accounts payable and accrued expenses (155,145) (24,520) 194,009
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (431,542) (406,414) (4,295,906)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (22,999) (510,978)
Purchase of government securities (507) (349,880) (4,382,147)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (507) (372,879) (4,893,125)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable 1,500,000 2,557,750
Repayment of notes payable (324,507) (2,583,907)
Proceeds of notes payable - stockholders 458,700
Repayment of notes payable - stockholders (49,736)
Advances from stockholders 11,485
Repayment of capital leases payable (41,367)
Proceeds from sale of common stock (413,177) 8,600,913
Proceeds from sale of preferred stock 500,000
Proceeds from stock subscription receivable 1,250
Cash contributed by stockholder 12,500
Proceeds from exercise of options 650 650
Payment of dividends on preferred stock (150,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 762,316 650 9,318,238
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 330,267 (778,643) 129,207
Cash - beginning of period 1,347 907,850
- ---------------------------------------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 331,614 $ 129,207 $ 129,207
================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 32,148 $ 161 $ 673,934
- ---------------------------------------------------------------------------------------------------------------------------------
Noncash transactions:
Common stock subscribed $ 1,250
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock issued for developed technology $ 406,875
- ---------------------------------------------------------------------------------------------------------------------------------
Conversion of debt to equity $ 978,572 $ 978,572
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock issued as settlement of note payable to stockholder $ 90,000
- ---------------------------------------------------------------------------------------------------------------------------------
Due to stockholder for shares purchased for treasury $ 19,551
- ---------------------------------------------------------------------------------------------------------------------------------
Cancellation of debt obligation in exchange for fixed assets $ 54,279
- ---------------------------------------------------------------------------------------------------------------------------------
Settlement of related party debt by capital contribution $ 307,457
=================================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-6
<PAGE> 58
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE A. THE COMPANY AND BASIS OF PRESENTATION
Laminating Technologies, Inc. and subsidiary (the "Company"), formerly New
Cooler Corp., is a development stage company formed to research, develop,
design and market packaging and specialty display products using the Company's
proprietary processing method. The Company was incorporated on March 29, 1993
and in April 1993 acquired substantially all of the assets and assumed
substantially all of the liabilities of Cool-R Enterprises, Inc. ("Cool-R"),
obtaining the rights to developed technology.
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] BASIS OF PRESENTATION:
(A) 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.
(B) INTERIM FINANCIAL INFORMATION:
The accompanying statements as at June 30, 1997 and for the
three months ended June 30, 1997 and June 30, 1996 and for
the period April 19, 1993 (commencement of operations) to
June 30, 1997 are unaudited but, in the opinion of management
of the Company, reflect all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair
presentation. The results of operations for the three month
period ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the fully year ending
March 31, 1998.
[2] INVESTMENTS:
Investments consist primarily of United States government obligations
with various maturity dates. These investments are accounted for as
available for sale securities and are stated at fair value which
approximates cost.
[3] INVENTORY:
Inventory is recorded at lower of cost or market.
[4] FIXED ASSETS:
Machinery, furniture and equipment, including property under capital
lease arrangements, are carried at cost. Depreciation is provided
using the double declining balance method over the useful lives of the
assets.
F-7
<PAGE> 59
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] NET LOSS PER SHARE OF COMMON STOCK:
Net loss per share of common stock was determined by dividing net
loss, as adjusted by cumulative dividends on the Company's preferred
stock during the time it was outstanding, by the weighted average
number of shares outstanding during each period. The weighted average
number of shares outstanding excludes 410,000 shares held in escrow.
The computation of fully diluted net loss per share of common stock
would have been antidilutive in each of the periods presented.
[6] INCOME TAXES:
Deferred income taxes are provided for temporary differences between
financial statement and taxable income or loss.
[7] 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.
[8] 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.
[9] 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.
[10] STOCK-BASED COMPENSATION:
In fiscal 1997 the Company adopted the "disclosures only" alternative
available under Financial Accounting Standards Board Statement No. 123
("FASB 123") for its employee stock option grants and accounts for
employee stock option grants pursuant to Accounting Principles Board
Opinion No. 25 ("APB 25").
NOTE C. INVENTORY
Inventory is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
========================================================================
<S> <C> <C>
Raw materials $ 62,360 $ 45,393
Work-in-process 82,822 40,964
Finished goods 39,773 16,969
------------------------------------------------------------------------
$184,955 $103,326
========================================================================
</TABLE>
F-8
<PAGE> 60
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE D. FIXED ASSETS
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
========================================================================
<S> <C> <C>
Machinery and equipment $150,707 $147,216
Furniture and fixtures 110,594 91,086
Leasehold improvements 15,371 15,371
------------------------------------------------------------------------
276,672 253,673
Less accumulated depreciation 64,475 44,449
------------------------------------------------------------------------
$212,197 $209,224
========================================================================
</TABLE>
NOTE E. STOCKHOLDERS' EQUITY
[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. In March 1996, the Company increased the
number of authorized common shares to 20,000,000.
[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") for $500,000. In August 1994 the Company increased the
number of authorized shares of Preferred to 2,500,000. In March 1996
the Company increased the number of authorized shares of the Preferred
to 5,000,000.
The Preferred had no voting rights. The holders of the Preferred were
entitled to cumulative quarterly dividends of $.05 per share due upon
the redemption of the shares. The liquidation value of each share of
Preferred is equal to $2.00 plus cumulative dividends.
Concurrent with the public offering in October 1996, the 250,000
shares of the Preferred then outstanding were converted into 184,486
shares of common stock.
[3] INITIAL PUBLIC OFFERING:
In October and November 1996, the Company completed its initial public
offering and issued 1,955,000 units at a price of $5.00 per unit. Each
unit consists of one share of common stock, one Class A warrant and
one Class B warrant. 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. Each Class B warrant entitles the holder to
purchase one share of common stock at an exercise price of $8.75. The
warrants are redeemable by the Company, under certain conditions, at
any time after October 9, 1997. As a result of the offering, the
Company received net proceeds of approximately $7,988,000.
F-9
<PAGE> 61
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE E. STOCKHOLDERS' EQUITY (CONTINUED)
[3] INITIAL PUBLIC OFFERING: (CONTINUED)
In connection with the offering, the underwriter 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 October 9, 1996. 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.
[4] BRIDGE FINANCING:
In April and May 1996, the Company completed a private placement 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 common
stock. The warrants automatically converted into Class A warrants
concurrent with the Company's public offering. Additionally $495,000
of previously existing debt and $55,210 of interest accrued thereon
was converted into Bridge Notes. The Company valued the Bridge loan
warrants at an aggregate of $665,000 which was accounted for as a debt
discount. The unamortized balance of the debt discount was charged to
expense upon the close of the offering.
[5] STOCK OPTIONS AND WARRANTS:
In connection with the Company's initial public offering, the Company
granted to the underwriter an option to purchase 170,000 units at
$6.00 per unit exercisable for a three-year period commencing October
9, 1998.
The Company has outstanding 2,952,500 Class A warrants and 1,955,000
Class B warrants exercisable for a five-year period commencing October
9, 1996.
The Company has outstanding warrants to purchase 36,897 shares of its
common stock which are held by the underwriter of the Company's
initial public offering who assisted in raising capital for the
Company. The warrants, which were issued on March 25, 1994, have an
exercise price of $2.71 and are exercisable through March 25, 1999.
[6] SHARES RESERVED FOR ISSUANCE:
The Company has 8,656,897 shares of common stock for issuance as
follows:
<TABLE>
<S> <C>
Class A warrants 2,952,500
Class B warrants 4,907,500
Underwriter's Unit Purchase Option 510,000
Underwriter's warrants 36,897
1996 Stock Option Plan 250,000
-----------------------------------------------------------
8,656,897
===========================================================
</TABLE>
F-10
<PAGE> 62
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE F. COMMITMENTS AND OTHER MATTERS
[1] EMPLOYMENT CONTRACT:
Effective June 1, 1996 the Company entered into a one-year employment
agreement with the 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,
the Officer 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, the Officer
will be entitled to six months of severance pay. The agreement
contains confidentiality and noncompetition provisions.
In April 1996 two principal stockholders of the Company granted
options to an officer to purchase an aggregate of 116,347 of their
shares of common stock at an exercise price of $.68 per share. Such
options, which are fully vested, contain a predefined schedule for
their exercise. In connection therewith, a contribution to capital and
compensation expense was recorded, in the amount of $386,000 which
represents the difference between the exercise price and the fair
value of the shares, on the date of grant.
[2] OPERATING LEASE:
The Company entered into an operating lease for its office facility.
The lease provides for minimum annual rental payments through 1999 as
follows:
<TABLE>
<CAPTION>
Year Ending
March 31,
============================================
<S> <C>
1998 $46,342
1999 23,952
--------------------------------------------
$70,294
============================================
</TABLE>
[3] CONTINGENCY:
The Company is aware of a patent issued to an unrelated entity that
relates to certain processes by which film, including polyester film,
is reverse-printed and laminated onto linerboard. Such patent may
affect the ability of the Company to obtain patent protection for some
or all of the claims included in its patent application. Moreover,
there can be no assurance that any application of the Company's
technology will not infringe this or any other patents or proprietary
rights of others. Management believes that the Company has not
infringed on any patents.
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.
F-11
<PAGE> 63
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE G. INCOME TAXES
The Company has a deferred tax asset of $2,600,000 as of March 31, 1997
attributable to the net operating losses discussed below. The Company has fully
reserved the deferred tax asset since the likelihood of realization cannot be
determined. The difference between the statutory tax rate of 34% and the
Company's effective tax rate of 0% is due to an increase in the valuation
allowance of $950,000 for the year ended March 31, 1997.
As of June 30, 1997, the Company has a net operating loss carryforward of
$5,250,000 expiring in various amounts through 2012. Under Section 382 of the
Internal Revenue Code, the Company is subject to an annual limitation of
approximately $350,000 on utilization of its net operating loss carryforwards
because an ownership change of more than 50% has occurred.
NOTE H. RELATED PARTY TRANSACTIONS
TransMillenial Resource Corporation ("TMR") provided management services to the
Company. Management fees incurred for the year ended March 31, 1996 were
$45,000.
In addition, TMR advanced funds to the Company and paid certain of its
obligations, resulting in a balance of $735,803 due to TMR as of March 31,
1996. TMR agreed to contribute $307,457 of such debt to the capital of the
Company and to convert the remaining balance of $428,346 into 158,048 shares of
the Company's common stock. The conversion was completed in April 1996. 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 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 deferred financing cost
of $65,000, which was fully 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 I. 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 exercisable at a price to be determined by the
Board of Directors for a period of ten years after the grant date. Through
March 31, 1997, 120,000 options have been granted at exercise prices of $4.00
per share and 10,000 options have been granted at $5.00 per share.
F-12
<PAGE> 64
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE I. 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"). Each of the four Eligible
Directors of the Company were granted Director Options to purchase 10,000
shares of common stock on July 15, 1996 at $5.00 per share. Future Eligible
Directors are to 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, are to 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 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.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1997
===========================================================================
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
===========================================================================
<S> <C> <C>
Options outstanding at beginning of year - 0 -
Granted 170,000 $ 4.29
---------------------------------------------------------------------------
Options outstanding at end of year 170,000 4.29
===========================================================================
Options exercisable at end of year 53,333 4.25
===========================================================================
</TABLE>
The following table presents information relating to stock options outstanding
as of March 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
WEIGHTED- AVERAGE EXERCISE
RANGE OF AVERAGE REMAINING PRICE OF
EXERCISE EXERCISE LIFE EXERCISABLE EXERCISABLE
PRICE SHARES PRICE IN YEARS SHARES SHARES
===========================================================================================
<S> <C> <C> <C> <C> <C>
$4.00 120,000 $4.00 10.00 40,000 $4.00
5.00 50,000 5.00 10.00 13,333 5.00
-------------------------------------------------------------------------------------------
170,000 10.00 53,333
===========================================================================================
</TABLE>
As of March 31, 1997, a total of 80,000 options are available for future grant.
F-13
<PAGE> 65
LAMINATING TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1997 and for the
three month periods ended June 30, 1997
and June 30, 1996 is unaudited)
NOTE I. STOCK OPTION PLAN (CONTINUED)
The weighted average fair value at date of grant for options granted during
1997 was $.60 per option, respectively. The fair value of the options at date
of grant was estimated using the Black-Scholes option-pricing model utilizing
the following assumptions for the year ended March 31, 1997:
<TABLE>
========================================================
<S> <C>
Risk-free interest rates 6.70%
Expected option life in years 5
Expected stock price volatility .30
Expected dividend yield 0%
========================================================
</TABLE>
Had the Company elected to recognize compensation cost based on the fair value
of the options at the date of grant, net loss applicable to common stock in
1997 would have been $2,510,710 or $1.51 per share. There would have been no
effect for the year ended March 31, 1996.
F-14
<PAGE> 66
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 in connection with the offer made by 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 hereof.
------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary ....................3
Risk Factors...........................7
Use of Proceeds........................15
Dividend Policy .......................15
Price Range of Securities..............16
Capitalization.........................16
Selected Financial Data................17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............18
Business...............................20
Management.............................28
Certain Transactions...................35
Principal Stockholders ................37
Concurrent Offering of Selling
Securityholders.......................40
Description of Securities..............42
Shares Eligible for Future Sale........45
Plan of Distribution...................46
Experts................................47
Additional Information.................47
Index to Financial Statements..........F-1
</TABLE>
------------
LAMINATING
TECHNOLOGIES, INC.
1,955,000 UNITS,
EACH CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE CLASS B WARRANT,
ISSUABLE UPON THE EXERCISE
OF REDEEMABLE CLASS A WARRANTS
AND
1,955,000 SHARES
OF COMMON STOCK, ISSUABLE
UPON THE EXERCISE OF
CLASS B WARRANTS
------------
PROSPECTUS
------------
__________, 1997
<PAGE> 67
[ALTERNATE PROSPECTUS]
LAMINATING TECHNOLOGIES, INC.
997,500 REDEEMABLE CLASS A WARRANTS TO PURCHASE 997,500 SHARES OF COMMON STOCK
AND 997,500 REDEEMABLE CLASS B WARRANTS TO PURCHASE 997,500 SHARES OF COMMON
STOCK
This Prospectus relates to 997,500 redeemable Class A Warrants (the
"Class A Warrants") of Laminating Technologies, Inc., a Delaware corporation
(the "Company"), and 997,500 Redeemable Class B Warrants ("Class B Warrants")
issuable upon exercise of the Class A Warrants and 1,995,000 shares of Common
Stock issuable upon exercise of the Class A Warrants and Class B Warrants. The
Class A Warrants were issued to investors (the "Selling Securityholders") in the
1996 Offering in exchange for warrants they received in a private placement by
the Company in April and May 1996 ("Bridge Financing"). (See "Selling
Securityholders" and "Plan of Distribution"). Each Class A Warrant entitles the
holder to purchase, at an exercise price of $6.50, subject to adjustment, one
Class B Warrant and one share of Common Stock. 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 Class A Warrants and the Class B Warrants
(collectively, the "Warrants") are exercisable at any time after issuance
through October 8, 2001, although the Selling Securityholders have contractually
agreed not to exercise the Class A and Class B Warrants for a period of one year
from the date of the 1996 Offering. Commencing one year from the date of the
1996 Offering, 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 per 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
the Warrants are called for redemption. See "Description of Securities."
The securities offered by this Prospectus may be sold from time to time
by the holders thereof ("Selling Securityholders"), or by their transferees. The
distribution of the securities offered hereby 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 paces. 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 "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
Act.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. In the event all of the Class A and
Class B Warrants are fully exercised, the Company will receive gross proceeds of
approximately $6,483,750 and $8,728,125, respectively.
--------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS"
--------------------
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 __________, 1997.
(continued on following page)
A-1
<PAGE> 68
The Company's Class A Warrants and Class B Warrants were issued in
connection with the Company's initial public offering (the "1996 Offering")
which was underwritten by D. H. Blair Investment Banking Corp. ("Blair"). On
October 9, 1996, the Company completed the 1996 Offering which consisted of
1,700,000 units ("IPO Units"), each IPO Unit consisting of one share of Common
Stock, one Class A Warrant and one Class B Warrant. In November 1996, the
Company completed the sale of an additional 255,000 IPO Units upon Blair
exercising its over-allotment option to purchase these IPO Units. The Company
received approximately $7,988,000 net Proceeds from the 1996 Offering after
payment of underwriting discounts and commissions and estimated expenses of the
1996 Offering. The components of the IPO Units were transferrable separately
upon issuance. The Company's IPO Units, Common Stock, Class A Warrants and Class
B Warrants are traded on the Nasdaq SmallCap Market under the symbols LAMTU,
LAMT, LAMTW, and LAMTZ, respectively.
The Company has agreed to pay Blair a solicitation fee (the
"Solicitation Fee") equal to 5% of the exercise price in connections with the
exercise of Warrants under certain conditions. See "Selling Securityholders and
Plan of Distribution." The warrant prices and other terms of the Warrants have
been determined by negotiation between the Company and Blair and are not
necessarily related to the Company's asset value, net worth or other established
criteria of value.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
A-2
<PAGE> 69
[ALTERNATE]
CONCURRENT OFFERING
On October 9, 1996, the Company Filed a Registration Statement under
the Securities Act with respect to an underwritten offering of the 1,955,000 IPO
Units by the Company (i.e., the IPO). The offering of the IPO Units has
subsequently been completed, but the Company may be deemed to continue to be
offering securities pursuant to the outstanding Warrants. Sales of Securities by
the Selling Securityholders, or the potential of such sales, could have an
adverse effect on the market price of the Warrants and of the Common Stock
purchasable upon exercise of the Warrants.
[ALTERNATE]
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of 997,500 Class A Warrants, consisting of one share of
Common Stock and one Class B Warrant may be offered by certain security holders
who received their Class A Warrant in connection with the Bridge Financing in
April and May, 1996.
The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company registered securities for resale to
the public in the 1996 Offering. Some of these Selling Securityholders may have
transferred their Selling Securityholder Warrants since the 1996 Offering. The
Company will not receive any of the proceeds from the sale of these securities.
Except as described below, there are no material relationships between any of
the Remaining Selling Securityholders and the Company, nor have any such
material relationships existed within the past three years.
<TABLE>
<CAPTION>
NUMBER OF CLASS A WARRANTS
BENEFICIALLY OWNED AND
SELLING SECURITYHOLDER MAXIMUM NUMBER TO BE SOLD(1)
---------------------- --------------------------
<S> <C>
Columbia Funding................................................................... 50,000
Stephen Comeau..................................................................... 25,000
Tom N. Davidson Revocable Living Trust............................................. 50,000
Nathan Eisen....................................................................... 12,500
Jerome Grushkin & Esther Grushkin JTROS............................................ 12,500
Jerome J. Grushkin Defined Benefit Plan............................................ 12,500
Melving 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
</TABLE>
A-3
<PAGE> 70
<TABLE>
<CAPTION>
NUMBER OF CLASS A WARRANTS
BENEFICIALLY OWNED AND
SELLING SECURITYHOLDER MAXIMUM NUMBER TO BE SOLD(1)
---------------------- --------------------------
<S> <C>
Donald Sallee...................................................................... 175,000
Melvin Stein....................................................................... 25,000
Malcolm Levenson Trust............................................................. 37,500
The Steiro Company................................................................. 10,000
Byron M. Allen..................................................................... 12,500
The Frank & Brynde Berkowitz Foundation............................................ 25,000
Kenneth Cohen & Sherry Cohen JTROS................................................. 25,000
Robert M. Freeman.................................................................. 50,000
Stuart Gruber...................................................................... 12,500
Edward D. Hurley Keogh Plan........................................................ 12,500
Richard A. Nelson & Elaine M. Nelson JTROS......................................... 25,000
Wolfson Equities................................................................... 12,500
-------
TOTAL........................................................... 997,500
=======
</TABLE>
(1) Does not include shares of Common Stock and Class B Warrants issuable upon
exercise of the Class A Warrants and the shares of Common Stock issuable upon
the exercise of the Class B Warrants. The Selling Securityholders agreed not to
exercise the Class A Warrants for a period of one year from October 9, 1996.
- ---------------------------
Each Selling Securityholder agreed: (i) not to sell, transfer or
otherwise dispose publicly the Remaining Selling Securityholder Class A Warrants
through a 270-day maximum lock-up period measured from October 9, 1996, which
has now expired; and (ii) not to exercise the Remaining Selling Securityholder
Class A Warrants for a period of one year from October 9, 1996. Purchasers of
the Selling Securityholder Class A Warrants will not be subject to such
restrictions.
After the one year period following the effective date of the 1996
Offering, the Selling Securityholders may exercise and sell the Common Stock
issuable upon exercise of the Selling Securityholder Class A and Class B
Warrants (collectively, 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 securities underlying such
Class A Warrants or even the potential of such sales could have an adverse
effect on the market prices of the Company's securities.
With the exception of Donald B. Sallee, Melvin Stein, the Malcolm
Levenson Trust and The Steiro Company, who owned 4.3%, 1.8%, 1.4% and 1.4% as of
the date of the 1996 Offering, respectively, 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 Blair that there are no agreements between Blair 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
A-4
<PAGE> 71
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 or solicited brokerage
activities with respect to any securities of the Company for the applicable
"cooling off" period (which is likely to be five business days) prior to the
commencement of such distribution. Accordingly, in the event Blair 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 or
engage in any solicited brokerage activities during the applicable restrictive
period. Any temporary cessation of such market-making activities or solicited
brokerage activities could have an adverse effect on the market price of the
Company's securities. However, neither Blair 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 Regulation M, 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.
The Company has agreed to pay Blair a Solicitation Fee of 5% of the
aggregate exercise price of each Warrant which is exercised, if (i) the market
price of the Common Stock on the date of the Warrant is exercises is greater
than the then exercise price of the Warrant; (ii) the exercise of the Warrant
was solicited by a member of the NASD; (iii) the Warrant is not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the solicitation of exercise of the Warrants was not in violation of
Regulation M or respective state blue sky laws. Any costs incurred by the
Company in connection with the exercising of the Warrants shall be borne by the
Company.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
A-5
<PAGE> 72
[ALTERNATE]
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 in connection with the offer made by 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 hereof.
------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary ....................3
Risk Factors...........................7
Use of Proceeds........................15
Dividend Policy .......................15
Price Range of Securities..............16
Capitalization.........................16
Selected Financial Data................17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............18
Business...............................20
Management.............................28
Certain Transactions...................35
Principal Stockholders ................37
Concurrent Offering....................40
Description of Securities..............40
Shares Eligible for Future Sale........43
Selling Securityholders and
Plan of Distribution.................44
Experts................................47
Additional Information.................47
Index to Financial Statements..........F-1
</TABLE>
------------
LAMINATING
TECHNOLOGIES, INC.
997,500 REDEEMABLE CLASS A WARRANTS
AND
997,500 SHARES OF COMMON STOCK
AND 997,500 REDEEMABLE
CLASS B WARRANTS ISSUABLE
UPON THE EXERCISE OF
REDEEMABLE CLASS A WARRANTS
AND
997,500 SHARES OF COMMON STOCK
ISSUABLE UPON THE EXERCISE OF
CLASS B WARRANTS
------------
PROSPECTUS
------------
__________, 1997
A-6
<PAGE> 73
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 has also entered 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 (Blair) of the
Registrant, its officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is estimated that the following approximate expenses, in addition to
Blair's Solicitation Fee of 5% of the Warrant exercise price under certain
circumstances, will be incurred in connection with the proposed offering
hereunder. All of such expenses will be borne by the Company:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Legal fees and expenses......................... $10,000.00
Accounting fees and expenses.................... $2,000.00
Printing expenses .............................. $4,000.00
----------
Total .............................. $16,000.00
==========
</TABLE>
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 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
II-1
<PAGE> 74
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.
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. Blair 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.
<TABLE>
<CAPTION>
Exhibit Page No. or
Number Description Method of Filing
------- ----------- ----------------
<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 Unit Purchase Option *
5.1 Opinion and Consent of Bachner, Tally, Polevoy & Misher LLP *
10.1 Employment Agreement between Registrant and Michael E. Noonan *
10.2 Memorandum of Understanding dated August 26, 1994 between *
Registrant and TMR, as amended
10.3 Outsourcing Agreement dated September 1, 1994 between the *
Registrant and TMR
10.4 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. *
</TABLE>
II-2
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit Page No. or
Number Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
23.3 Consent of Richard A. Eisner & Company, LLP Filed Herewith
24.1 Power of Attorney *
27.1 Financial Data Schedule *
- ---------------------
</TABLE>
* Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) It will 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 of 1933;
(ii) Reflect in the prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof), which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in the Registration Statement; and
(iii) Include any additional or changed material
information on the plan of distribution not
previously disclosed in the Registration
Statement.
(4) It will file a post-effective amendment to remove from registration
any of the securities that remain unsold at the termination of the offering.
(5) 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 provisions described in Item 24 hereof, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person thereof 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 Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 76
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 Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, State of Georgia on the 25th
day of August, 1997.
LAMINATING TECHNOLOGIES, INC.
a Delaware corporation
By: /s/ MICHAEL E. NOONAN
----------------------------
Michael E. Noonan,
Chairman of the Board, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement 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 the Board, President August 25, 1997
--------------------- and Chief Executive Officer
Michael E. Noonan
/s/ RICHARD B. CARLOCK Chief Financial Officer August 25, 1997
----------------------
Richard B. Carlock
*
--------------------- Secretary and Director August 25, 1997
Robert L. Dover
*
---------------------- Director August 25, 1997
Ronald L. Christensen
*
-------------------- Director August 25, 1997
William J. Warren
*By: /s/ MICHAEL E. NOONAN August 25, 1997
---------------------
Michael E. Noonan
Attorney-In-Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in the Post-Effective Amendment No. 2 to the
Registration Statement on Form SB-2 in connection with the registering of (i)
common stock and redeemable Class B Warrants of Laminating Technologies, Inc.
and subsidiary ("the Company"), pursuant to outstanding redeemable Class A
Warrants of the Company, and Class B Warrants issued in the Company's initial
public offering and (ii) common stock issuable upon the exercise of such
redeemable Class B Warrants of the Company, of our report dated June 4, 1997
relating to the consolidated financial statements of the Company as at March
31, 1997, for the years ended March 31, 1997 and March 31, 1996, and for the
period from April 19, 1993 (commencement of operations) through March 31, 1997
which is contained in that Registration Statement. We also consent to the
reference to our firm under the captions "Selected Financial Data" and
"Experts."
Richard A. Eisner & Company, LLP
New York, New York
August 20, 1997
