AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996
REGISTRATION NO. 333-7915
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
RESEAL FOOD DISPENSING SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3039 13-3856324
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
342 MADISON AVENUE
SUITE 1034
NEW YORK, NEW YORK 10173
(212) 682-2244
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
DAVID W. BRENMAN, PRESIDENT
RESEAL FOOD DISPENSING SYSTEMS, INC.
342 MADISON AVENUE
SUITE 1034
NEW YORK, NEW YORK 10173
(212) 682-2244
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
SCOTT S. ROSENBLUM, ESQ. STEVEN F. WASSERMAN, ESQ.
KRAMER, LEVIN, NAFTALIS BERNSTEIN & WASSERMAN, LLP
& FRANKEL 950 THIRD AVENUE
919 THIRD AVENUE NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 826-0730
(212) 715-9100
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| __________________
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum Proposed
Offering Maximum Amount of
Title of Each Class of Securities to be Amount To Be Price Per Aggregate Registration
Registered (1) Registered Unit (2) Offering Price (2) Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, consisting of two shares of Common
Stock, par value $.001 per share ("Common
Stock"), and two Class A Warrants to purchase
an additional share of Common Stock ("Class
A Warrants")........................................ 909,091 $11.00 $10,000,001.00 $3,448.28
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock included as part of the Units.......... 1,818,182 -- -- (3)
- -----------------------------------------------------------------------------------------------------------------------------
Class A Warrants included as part of the Units...... 1,818,182 -- -- (3)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the
Class A Warrants included in the Units.............. 1,818,182 $6.30 $11,454,546.00 $3,949.84
- -----------------------------------------------------------------------------------------------------------------------------
Underwriter's Unit Purchase Option.................. 90,909 $.001 $90.91 $.03
- -----------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the Underwriter's
Unit Purchase Option................................ 90,909 $18.15 $1,649,998.30 $568.96
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock included in the Units issuable
upon exercise of the Underwriter's Unit Purchase
Option.............................................. 181,818 -- -- (3)
- -----------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the Units issuable
upon exercise of the Underwriter's Unit Purchase
Option.............................................. 181,818 -- -- (3)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the
Class A Warrants included in the Units issuable
upon exercise of the Underwriter's Unit Purchase
Option.............................................. 181,818 $10.40 $1,890,907.20 $652.04
- -----------------------------------------------------------------------------------------------------------------------------
Bridge Units, consisting of two shares of
Common Stock and two Class A Warrants 787,500 $11.00 $8,662,500.00 $2,987.07
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock included as part of the Bridge
Units .............................................. 1,575,000 -- -- (3)
- -----------------------------------------------------------------------------------------------------------------------------
Class A Warrants included as part of the Bridge
Units .............................................. 1,575,000 -- -- (3)
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Class
A Warrants included in the Bridge Units issuable
upon exercise of the Bridgeholder Options .......... 1,575,000 $6.30 $9,922,500.00 $3,421.55
- -----------------------------------------------------------------------------------------------------------------------------
$15,027.77
Total........................................................................................................ (4)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), this Registration Statement also covers
such indeterminable additional shares of Common Stock as may be
issuable as a result of any future anti-dilution adjustments made in
accordance with the terms of the Class A Warrants included in the Units
and the Underwriter's Unit Purchase Option Units.
(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act.
(3) No separate registration fee required pursuant to Rule 457(i)
promulgated under the Securities Act.
(4) $8,969.88 has previously been paid with the initial filing of the
Registration Statement on July 10, 1996.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- ii -
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
CROSS-REFERENCE SHEET
(SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2)
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM CAPTION IN PROSPECTUS
--------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus.......................... Facing Page; Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Prospectus Cover Page; Prospectus Back Cover
Page
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Risk Factors; Underwriting
6. Dilution............................................. Dilution
7. Selling Security-Holders............................. Selling Securityholders
8. Plan of Distribution................................. Prospectus Cover Page; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and
Control Persons.................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management.............................. Principal Stockholders
12. Description of Securities............................ Description of Capital Stock
13. Interest of Named Experts and Counsel................ Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities.................................... Management
15. Organization Within Five Years....................... Prospectus Summary; Business
16. Description of Business.............................. Business
17. Management's Discussion and Analysis or
Plan of Operation.................................. Management's Discussion and Analysis of
Results of Operations and Financial Condition
18. Description of Property.............................. Business
19. Certain Relations and Related
Transactions....................................... Certain Relationships and Related Transactions
20. Market for Common Equity and Related
Stockholder Matters................................ Description of Capital Stock
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure............................... Not applicable
</TABLE>
- iii -
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the primary offering of Units by ReSeal
Food Dispensing Systems, Inc. (the "Company") and the secondary offering of
securities by certain selling securityholders (the "Selling Securityholders").
The Company is registering 909,091 Units and the Selling Securityholders are
registering 787,500 Units, each Unit consisting of two shares of Common Stock
and two Class A Warrants. The offering of the Units by the Selling
Securityholders assumes the amendment (the "Amendment") of certain agreements
between each of the Selling Securityholders and the Company executed in
connection with loans the Selling Securityholders made to the Company in the
aggregate principal amount of $1,050,000 (the "Bridge Loans"). The 787,500 Units
being registered by the Selling Securityholders (the "Bridge Units") are
currently issuable by the Company to the Selling Stockholders upon exercise of
options (the "Bridgeholders Options") issued in connection with the Bridge
Loans. The Amendment will result in the Bridge Units being deemed issued to the
Selling Securityholders at a date prior to the effective date of this
Registration Statement.
- iv -
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED AUGUST 30, 1996
PROSPECTUS
RESEAL FOOD DISPENSING SYSTEMS, INC.
1,696,591 UNITS
ReSeal Food Dispensing Systems, Inc. (the "Company") is offering (the
"Offering") 909,091 Units (the "Company Units") on a "best efforts, all-or-none"
basis at a price of $11.00 per Unit. Each Company Unit consists of two shares of
common stock, par value $0.001 per share, of the Company (the "Common Stock")
and two redeemable class A warrants (the "Class A Warrants"). Pending the sale
of all of the Company Units, all proceeds will be held in an escrow account. If
the Company Units are not sold within 90 days from the date of this Prospectus
(the "Effective Date"), which period (the "Offering Period") may be extended an
additional 30 days by mutual agreement of the Company and Stratton Oakmont, Inc.
(the "Underwriter"), all monies received will be promptly refunded to
subscribers in full without interest thereon.
This Offering also includes 787,500 Units (the "Bridge Units," and
together with the Company Units, the "Units") owned and offered by sixteen
non-affiliates of the Company (collectively, the "Selling Securityholders"). The
Bridge Units consist of an aggregate of 1,575,000 shares of Common Stock and
1,575,000 Class A Warrants. The Company will not receive any of the proceeds
from the sale of the Bridge Units by the Selling Securityholders. See
"Description of Capital Stock," "Selling Securityholders" and "Underwriting."
The Common Stock and the Class A Warrants underlying the Units are
detachable and may trade separately immediately upon issuance. The Class A
Warrants will be exercisable commencing one year after the Effective Date. Each
Class A Warrant entitles the holder thereof to purchase one share of Common
Stock at $6.30 per share (subject to certain adjustments) during the four-year
period commencing one year from the Effective Date. The Class A Warrants are
redeemable by the Company for $0.05 per Class A Warrant, at any time commencing
two years from the Effective Date, if the average closing bid price of the
Common Stock as reported by the National Association of Securities Dealers, Inc.
(the "NASD") OTC Bulletin Board equals or exceeds $8.00 per share for any 20
consecutive trading days ending within 10 days of the notice of redemption. Upon
30 days' prior written notice to all holders of the Class A Warrants, the
Company shall have the right to reduce the exercise price and/or extend the term
of the Class A Warrants in compliance with the requirements of Rule 13e-4 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the
extent applicable. See "Description of Capital Stock."
The Selling Securityholders have agreed not to sell or transfer the
Bridge Units and its underlying securities (the "Bridge Securities") for a
period of 13 months from the Effective Date without the prior written consent of
the Underwriter. The Underwriter may release the Bridge Securities held by the
Selling Securityholders at any time after the Company Units have been sold. The
resale of the Bridge Securities is subject to prospectus delivery and other
requirements of the Securities Act of 1933, as amended (the "Securities Act").
If the Underwriter releases the Selling Securityholders' Bridge Securities
(which has happened in previous offerings underwritten by the Underwriter), then
sales of the Bridge Securities, as well as the potential of such sales at any
time, may have an adverse effect on the market prices of the securities offered
hereby. See "Selling Securityholders" and "Underwriting."
Prior to this Offering, there has been no public market for the
securities of the Company and there is no assurance that a market will develop
or, if a market should develop, that it will continue. See "Risk Factors--No
Prior Public Market for Securities." It is currently anticipated that the
initial public offering price will be $11.00 per Unit and $5.50 per share of
Common Stock. The price of the securities and the exercise price of the Class A
Warrants have been determined by negotiations between the Company and the
Underwriter and do not necessarily bear any relationship to the Company's
assets, book value, net worth or
<PAGE>
results of operations or any other established criteria of value. See "Risk
Factors--Arbitrary Offering Price" and "Underwriting."
The Company intends to apply for the inclusion of the Units, the Class
A Warrants and the Common Stock (collectively, the "Securities") on the OTC
Bulletin Board, an unorganized, inter-dealer, over-the-counter market which
provides significantly less liquidity than The Nasdaq Stock Market ("Nasdaq"),
and quotes for stocks included on the OTC Bulletin Board are not listed in the
financial sections of newspapers as are those for Nasdaq. In the event the
Securities are not included on the OTC Bulletin Board, quotes for the Securities
may be included in the "pink sheets" for the over-the-counter market. See "Risk
Factors--No Prior Public Market for Securities."
The Underwriter, from time to time, will become a market maker and
otherwise effect transactions in the securities of this Offering. The
Underwriter, if it participates in the market, may become an influence and
thereafter a factor of increasing importance in the market for the securities.
However, there is no assurance that the Underwriter will or will not continue to
be a dominating influence. The prices and liquidity of the Units, Common Stock
and Class A Warrants may be significantly affected by the degree, if any, of the
Underwriter's participation in such market as a market maker. The Underwriter
may discontinue such market making activities at any time or from time to time.
On February 28, 1995, the Underwriter became subject to a court-imposed
permanent injunction to comply with certain procedures recommended by an
independent consultant arising out of the settlement of a Securities and
Exchange Commission (the "Commission") proceeding. The failure by the
Underwriter to comply with such permanent injunction may adversely affect the
Underwriter's activities in that the court may issue a further order restricting
the ability of the Underwriter to act as a market maker of the Company's
securities. See "Risk Factors--Litigation Involvement of Underwriter May Have
Adverse Consequences."
-------------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON
STOCK INCLUDED IN THE UNITS AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 AND "DILUTION."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===================================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SECURITYHOLDERS (3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Unit Offered by the Company (4)....... $11.00 $0.94 $10.06 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Per Unit Offered by Selling Securityholders $11.00 $ -- $ -- $11.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total............................. $18,662,501.00 $854,545.54 $9,145,455.40 $8,662,500.00
===================================================================================================================================
</TABLE>
(Footnotes on next page)
The Units are being offered by the Underwriter when, as, and if
delivered to and accepted by the Underwriter and subject to various prior
conditions, including the right to reject orders in whole or in part . It is
expected that delivery of the Units will be made upon transfer of the funds in
escrow by the escrow agent to the Company's account.
-------------------------
- 2 -
<PAGE>
STRATTON OAKMONT, INC.
The date of this Prospectus is ________, 1996
- ----------------
(Footnotes from previous page)
(1) Does not include additional compensation to be received by the
Underwriter in the form of (i) a 3% non-accountable expense allowance,
(ii) an option (exercisable for a period of four years commencing one
year after the Effective Date) entitling the Underwriter to purchase up
to an aggregate of 90,909 Units at an exercise price of $18.15 per Unit
(the "Underwriter's Unit Purchase Option"), (iii) in certain instances,
a warrant solicitation fee equal to 4% of the exercise price of the
Class A Warrants, beginning one year from the Effective Date, and (iv)
a finder's fee to the Underwriter, based on a formula that provides a
maximum fee of five percent, in connection with financing and/or merger
and acquisition activities of the Company. The Company has agreed to
permit the Underwriter to designate an individual as an observer to the
Company's Board of Directors for a period of three years commencing on
the Effective Date. In addition, the Company and the Underwriter have
agreed to certain indemnity and contribution arrangements regarding
certain civil liabilities, including liabilities under the Securities
Act. See "Underwriting."
(2) Before deducting expenses of this Offering payable by the Company,
estimated at $200,000, not including the Underwriter's non- accountable
expense allowance. See "Underwriting."
(3) The Company will not receive any of the proceeds from the sale of
Bridge Units offered by the Selling Securityholders. See "Selling
Securityholders."
(4) The 909,091 Company Units are being offered on a "best efforts,
all-or-none" basis. There is no assurance that any or all of these
Company Units will be sold. Pending the sale of all of the Company
Units, all proceeds of the offering will be deposited in escrow in a
non-interest bearing account. Unless all of the Company Units are sold
within a period of 90 days from the date of this Prospectus, or a 30
day extension period thereafter at the option of the Company and the
Underwriter, the Offering will terminate and all funds collected will
be promptly returned to the subscribers without deduction therefrom or
interest thereon. Moreover, during the period of escrow, subscribers
will not be entitled to a return of their subscriptions. There can be
no assurance that any or all of the Units being offered will be sold.
See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
COMMON STOCK AND CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
THE SECURITIES TO BE SOLD IN THIS OFFERING MAY, IN THE ORDINARY COURSE
OF BUSINESS, BE SOLD ONLY TO CUSTOMERS OF THE UNDERWRITER, AND THE CONCENTRATION
OF SECURITIES IN CUSTOMERS OF THE UNDERWRITER MAY ADVERSELY AFFECT THE MARKET
FOR AND LIQUIDITY OF THE COMPANY'S SECURITIES SINCE THE UNDERWRITER MAY BE A
DAILY MARKET MAKER. IN THE EVENT THAT ONLY A LIMITED NUMBER OF ADDITIONAL
BROKER-DEALERS MAKE A MARKET IN THE COMPANY'S SECURITIES AND THE UNDERWRITER
BECOMES A MARKET MAKER, THE UNDERWRITER MAY BECOME A DOMINATING INFLUENCE ON THE
MARKET. THE UNDERWRITER DOES NOT HAVE ANY CURRENT PLANS OR AGREEMENTS TO OFFER
AND/OR SELL ANY OF THE SECURITIES TO A SPECIFIC CUSTOMER OR CUSTOMERS. SUCH
PURCHASERS, AS CUSTOMERS OF THE UNDERWRITER, SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE SECURITIES THROUGH AND/OR WITH THE
UNDERWRITER, ALTHOUGH NO AGREEMENTS OR UNDERSTANDINGS, WRITTEN OR ORAL, EXIST
FOR SUCH TRANSACTIONS, AND SUCH TRANSACTIONS MAY FURTHER ENHANCE THE
UNDERWRITER'S DOMINATING INFLUENCE ON THE MARKET. SEE "RISK
FACTORS--UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE ADVERSE CONSEQUENCES."
- 3 -
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information and the Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated in Delaware in October 1995. The Company
was formed primarily for the purpose of commercializing and marketing certain
proprietary and patented delivery and dispensing technologies (the "RESEAL(TM)
Technologies") which, when utilized in dispensing flowable food and beverage
products, are designed to maintain the sterility, purity and freshness of such
product throughout the period of time it is being consumed (its "use life"),
with the possibility of eliminating or reducing the need for adding
preservatives to the product to keep it fresh and/or refrigeration throughout
its use life.
The Company will focus its marketing activities on the application of
the RESEAL(TM) Technologies in the Field of Use (as defined) set forth in that
certain Amended and Restated License Agreement (the "Company License Agreement")
between the Company and ReSeal International Corporation, a Florida corporation
("RIC"), which encompasses the food and beverage industries as broadly defined.
Within such categories, the applications of the licensed technologies can be
divided into a number of potential markets, including but not limited to the
following: (i) beverages, which include milk/cream, coffee, tea (hot and cold),
hot chocolate, juices, sweeteners, baby formula, baby food (in puree form),
wines and water; (ii) foods, which include soups, liquid eggs, liquid butter,
sauces, yogurt, melted cheese (nachos), baby foods and hot toppings in liquid
form; and (iii) condiments, which include ketchup, barbecue sauce, mayonnaise,
salad dressings, oils and mustard. See "Business--Strategic Focus."
The Company licenses the RESEAL(TM) Technologies from RIC, which
technologies consist of barrier oriented, closed delivery and dispensing systems
(the "RESEAL(TM) Systems") composed of: (i) self-adjusting reservoir bodies,
(ii) patented, barrier capable, unidirectional flow valves (the "RESEAL(TM)
Valve Assemblies"), and (iii) as required, mechanisms to activate and facilitate
the product delivery and flow functions (the "RESEAL(TM) Pump Assemblies"). The
self-adjusting reservoir body of a RESEAL(TM) System is designed to shrink in
proportion to the amount of the product being dispensed through the RESEAL(TM)
Valve Assembly. The RESEAL(TM) Valve Assemblies are designed to dispense a
product without letting either air or contaminants flow back into the internal
reservoir in which the remaining product is held. The Company believes that by
maintaining the purity of the product that remains in the container, the
RESEAL(TM) Systems will provide higher levels of freshness for significantly
longer periods of time and, if preservatives are eliminated, the level of
purity, of a wide array of packaged flowable products. See "Business."
The Company will undertake the formation of strategic alliances or
direct license/supply agreements with major food and beverage companies
currently generating substantial revenues from their existing markets. It is
further intended that these relationships will include co-development of new
products in tandem with the production of new dispensing systems which
incorporate the ReSeal Technologies. Upon successful consummation of a strategic
alliance or direct license/supply relationship, of which there can be no
assurance, the customer or strategic partner will utilize the RESEAL(TM)
Technologies in conjunction with products that have an existing market share, as
well as the RESEAL(TM) System associated with the new products. See "Business."
The Company's principal executive offices are at 342 Madison Avenue,
Suite 1034, New York, New York 10173 and its telephone number is (212) 682-2244.
- 4 -
<PAGE>
THE OFFERING
Securities Offered
by the Company......................... 909,091 Company Units. Each such Unit
consists of two shares of Common Stock
and two Class A Warrants. The Class A
Warrants will be exercisable commencing
one year after the Effective Date. Each
Class A Warrant entitles the holder
thereof to purchase one share of Common
Stock at $6.30 per share during the
four-year period commencing one year
from the Effective Date. The Class A
Warrants are redeemable upon certain
conditions. Should all of the Class A
Warrants underlying the Company Units be
exercised, of which there is no
assurance, the Company shall receive
additional gross proceeds equal to
$11,454,546. The Offering of the Company
Units is being made on a "best efforts,
all-or-none" basis. See "Description of
Capital Stock" and "Underwriting."
Securities Offered by the
Selling Securityholders................ 787,500 Bridge Units. Each such Unit is
identical to the Company Units. See
"Underwriting."
Public Offering Price.................. $11.00 per Unit.
Common Stock Outstanding Prior to
the Offering(1)........................ 7,900,000 shares.
Common Stock Outstanding After
Completion of the Offering(1)(2)...... 9,718,182 shares.
Class A Warrants Outstanding after
Completion of the Offering(3).......... 3,393,182 Class A Warrants.
Use of Proceeds........................ The net proceeds of the Offering
received by the Company will be used (i)
to repay certain indebtedness, (ii) to
pay licensing fees, and (iii) for
general corporate purposes. See "Use of
Proceeds."
Risk Factors........................... The Units offered hereby involve a high
degree of risk and immediate substantial
dilution and should be purchased only by
persons who can afford to sustain a
total loss of their investment. See
"Risk Factors" and "Dilution."
Proposed OTC Bulletin Board
Symbols(4)........................... Units: RESLU
Stock: RESLC
A Warrants: RESLW
(1) Does not include the 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units.
(2) Does not include: (i) 1,818,182 shares of Common Stock issuable upon
the exercise of the Class A Warrants contained in the Company Units;
(ii) 181,818 shares of Common Stock issuable upon the exercise of the
Underwriter's Unit Purchase Option; and (iii) 181,818 shares of Common
Stock issuable upon the exercise of the Class A Warrants included in
the Underwriter's Unit Purchase Option.
(3) Does not include 181,818 Class A Warrants issuable upon the exercise of
the Underwriters' Unit Purchase Option. See "Underwriting."
(4) Application will be made for the inclusion of the Units, Class A
Warrants and Common Stock on the OTC Bulletin Board. See "Risk
Factors--No Prior Public Market for Securities."
- 5 -
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data is qualified in its entirety by,
and should be read in conjunction with, the Company's Financial Statements and
the Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(October 10, 1995) (October 10, 1995)
through Six Months through
December 31, Ended June 30,
1995 June 30, 1996 1996
(unaudited) (unaudited)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
General and administrative costs 168,530 451,491 620,021
Depreciation and amortization 882 441 1,323
Loss from operations 169,412 451,932 621,344
Interest expense 4,145 26,015 30,160
------------- ------------- -------------
Net loss before extraordinary loss $ 173,557 $ 477,947 $ 651,504
Extraordinary loss on retirement of debt $ -- $ 250,000 $ 250,000
------------- ------------- -------------
Net loss $ 173,557 $ 727,947 $ 901,504
============= ============= =============
Net loss per share before extraordinary item $ (.02) $ (.06)
Extraordinary loss per share $ -- $ (.03)
------------- -------------
Net loss per share $ (.02) $ (.09)
============ ============
Shares used in computing net loss per
share amounts 7,900,000 7,900,000
December 31, 1995 June 30, 1996
----------------- --------------------------
Actual As Adjusted (1)
------ ---------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 5,168 $ 488,379 $ 7,630,142
Working capital (3,840,377) (3,943,023) 4,728,740
Total assets 27,788 585,698 7,705,698
Current liabilities 3,845,545 4,431,402 2,901,402
Long term liabilities 175,000 -- --
Stockholder's equity (deficit) (3,992,757) (3,845,704) 4,804,296
- ------------
<FN>
(1) Adjusted to give effect to (a) the sale of the Units offered hereby, at
an assumed initial public offering price of $11.00 per Unit, and (b) the
application of the estimated net proceeds of this Offering, including (i)
the repayment of the $1,050,000 Bridge Loan and interest thereon and (ii)
payments to the holders of certain convertible promissory notes issued by
the Company (the "Convertible Notes") in an aggregate amount of $400,000.
See "Use of Proceeds."
</FN>
</TABLE>
- 6 -
KL2:157052.1
<PAGE>
RISK FACTORS
The securities being offered hereby are highly speculative in nature and
involve a high degree of risk. In addition to the other information included in
this Prospectus, the following factors should be considered carefully in
evaluating the Company and its business before purchasing the securities offered
hereby.
1. LACK OF PRIOR HISTORY; DEVELOPMENT STAGE BUSINESS. The Company was
recently formed for the purpose of licensing, marketing and commercializing the
RESEAL(TM) Technologies in the food and beverage industries, solely in the Field
of Use (as defined). Since its inception, the Company's activities have been
limited to the completion of the Company License Agreement, organizational and
initial capitalization activities, product design and business development.
Consequently, the Company has not generated any revenues to date and must be
considered in its developmental stages. Although the Company's management and
consultants have extensive experience in various aspects of the food and
beverage industries, there can be no assurance that the Company will derive
sufficient revenues and have sufficient funds available to develop the business
contemplated in this Prospectus successfully. The Company anticipates entering
into license agreements, sublicense agreements or other revenue generating
agreements relating to the RESEAL(TM) Technologies. However, there can be no
assurance that definitive agreements will be consummated and if consummated,
when and on what terms. The operations of the Company will be subject to the
risks inherent in the establishment of a new enterprise and uncertainties
arising from the absence of an operating history. As a result of the start-up
nature of the Company's business, operating losses can be expected. There can be
no assurance that the Company can be operated profitably in the future.
2. SUFFICIENCY OF CAPITAL; NEED FOR ADDITIONAL FINANCING. The Company
is relying on the sale of the Company Units offered hereby and the receipt of
the net proceeds therefrom to fund its initial operations and implement its
proposed business plan. There can be no assurance, however, that the net
proceeds of this Offering received by the Company will be adequate for these
purposes. In the event that the net proceeds received by the Company from this
Offering are not sufficient for its purposes, the Company may have to seek
additional financing. There can be no assurance that such financing will be
available in amounts and on terms which will enable the Company to pursue its
business plan and which are otherwise satisfactory to the Company. The Company's
inability to raise sufficient financing could have a material adverse effect on
its business and on the value of the Company's securities. See "Use of
Proceeds."
As of June 17, 1996, according to the unaudited financial statements of
RIC, RIC had outstanding indebtedness of approximately $3,800,000 which includes
obligations with respect to the patents covered by the Company License
Agreement. RIC shall receive licensing fees out of the proceeds of this Offering
(see "Use of Proceeds") as well as possible licensing fees in connection with
other applications of the RESEAL(TM) Technology. RIC may need to seek additional
financing to discharge the remaining indebtedness. There can be no assurance
that such financing will be available in amounts and on terms satisfactory to
RIC. RIC's inability to raise sufficient funds could affect its obligations in
connection with the patents covered in the Company License Agreement.
3. AUDITOR'S REPORT OF ACCOUNTANTS; COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN. As a result of the Company's current financial condition, the
Company's independent auditors have modified their report on the Company's
financial statements for the period October 10, 1995 (inception) to December 31,
1995, to include explanatory language regarding the Company's ability to
continue as a going concern. The Company is in the development stage, and the
Company's ability to continue in the normal course of business is dependent upon
successful completion of this Offering to raise capital and the success of
future operations. The uncertainties raise substantial doubt about the Company's
ability to continue as a going concern. There can be no assurance that the
Company will not incur net losses in the future. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and "Financial
Statements and Notes."
4. UNCERTAINTY OF PATENT LICENSES AND PROPRIETARY RIGHTS IN EVENT OF
BANKRUPTCY; ENFORCEABILITY CONTINGENT ON FINANCIAL CAPABILITIES. Initially, the
Company's sole significant business activity will be dependent upon the Company
License Agreement relating to the RESEAL(TM) Technologies. The financial status
of ReSeal International Limited Partnership, RIC's parent ("RILP"), RIC and the
Company, due to an insufficiency of funds, could limit their ability to honor
certain obligations under the Company License Agreement. See "--Sufficiency of
Capital; Need for Additional Financing." Further, in the event of the bankruptcy
of RIC or RILP, the status of the continuing obligations of the various parties
to and under the Company License Agreement is unclear since a court in a
bankruptcy proceeding might not enforce such continuing obligations. In
addition, problems may arise relating to the RESEAL(TM) Technologies or the
patents held by RILP or RIC which may inure to the Company's detriment. While
the Company intends to rely on the Company License Agreement and the
- 7 -
<PAGE>
patents and other proprietary rights of RIC licensed to the Company pursuant
thereto, existing laws and regulations covering patents, trademarks and other
intellectual property and proprietary rights provide limited practical
protection. It is RILP's, RIC's and the Company's policy to file patents on
improvements. However, no assurance can be given that they will receive any
patents in the future based on its continuation of the technology. A patent for
an invention registered in the United States generally expires after a term of
17 years and grants the holder of the patent the right to exclude others from
making, using or selling the invention in the United States, and if the
invention is a process, the right to exclude others from using or selling
throughout the United States, products made by that process. The duration of
patents granted outside the United States and the protections afforded thereby
vary. Most of RILP and RIC's patents do not expire before 2009. See
"Business--Patents, Trademarks and Other Intellectual Property."
The grant of a patent does not preclude the possibility of unlawful
infringement by third parties during the term of the patent or third parties
alleging infringement on their patents, which the Company may not be able to
prevent. While the Company believes its patent positions to be sound and
substantial, sublicense and confidentiality agreements entered into by RILP, RIC
or the Company with third parties may be difficult to enforce. Despite RILP, RIC
and the Company's precautions, third parties may copy or infringe upon aspects
of the RESEAL(TM) Technologies and other products or technologies developed or
licensed by RIC to the Company, or otherwise obtain or use information that the
Company regards as proprietary, without the proper authorization of and
remuneration to the Company.
Even if an unlicensed competitor's products infringe upon the RESEAL(TM)
Technologies, it may be too costly to enforce such rights. An infringement
action may require the diversion of funds from the Company's operations and may
require management to expend effort that might otherwise be devoted to the
Company's operations. Furthermore, there can be no assurance that the Company
will be successful in enforcing its patent rights. In addition, others may
develop and market competitive products or methods that do not use any of the
technology within the RESEAL(TM) Technologies and yet are equivalent or superior
to the RESEAL(TM) Technologies.
Furthermore, the use of the RESEAL(TM) Technologies and other products or
technologies developed or licensed by RIC to the Company may infringe the
proprietary rights of third parties, who might be able to prevent the Company
from using the RESEAL(TM) Technologies and such other products and technologies.
In addition, the RESEAL(TM) Technologies may become obsolete by new technology
that does not infringe upon the patents licensed to the Company.
5. ABSENCE OF RESEARCH AND MANUFACTURING FACILITIES; DEPENDENCE ON
SUBCONTRACTORS. At the present time, the Company does not own any research
laboratories or manufacturing facilities. Therefore, the Company will need to
rely on subcontracting sources to support research and manufacturing. The
Company does not currently have any written or oral contracts with such
subcontractors and no assurance can be given that any will be entered into.
Also, there can be no assurance that the Company will construct or acquire
research and/or manufacturing facilities, and if any such facilities are
constructed or acquired, when this would occur or on what terms.
6. NO ASSURANCE OF COMMERCIALIZATION OF TECHNOLOGY. The Company and RIC
have produced prototypes using the RESEAL(TM) System. The Company's engineers
are in the process of determining how to reduce the materials and assembly costs
so that the marketplace will perceive that the "value added" to a product by
incorporating the RESEAL(TM) Technology is worth the increased cost. In the
past, RIC has conducted tests on early prototypes but there can be no assurance
that, when commercially produced, the current prototypes will meet the standards
necessary to be commercially successful.
7. LIMITED HUMAN RESOURCES. The Company currently has limited human
resources to market and sell the technology. As of August 26, 1996, the Company
had three full-time employees. To the extent that the Company is unable to, or
determines not to, enter into marketing agreements or third party distribution
agreements for its products, significant additional resources will be required
to develop a sales force and distribution organization. To the extent that the
Company enters into co-marketing or other licensing arrangements with third
parties, any revenues received by the Company will be shared with and will be
dependent on the efforts of such third parties, and there can be no assurance
that such efforts will be successful. See "Business--Marketing."
8. ABSENCE OF INDEPENDENT SYSTEMS EFFICACY TEST RESULTS. RILP and RIC have
utilized the services of a contract laboratory previously sponsored by RILP, to
conduct testing and efficacy studies of the RESEAL(TM) Technologies. The
RESEAL(TM) System has been designed to maintain sterility, purity, freshness and
- 8 -
<PAGE>
integrity of products with the possibility of eliminating or reducing the need
for preservatives and/or refrigeration. The RESEAL(TM) System has been tested
with a range of material compositions. Although not all combinations have proven
to be effective, certain combinations of materials have proven to be
satisfactory under certain laboratory controlled conditions. Although management
believes that the RESEAL(TM) Technologies can be adjusted to accommodate the
specific requirements of each product utilizing the RESEAL(TM) System, there can
be no assurance that the RESEAL(TM) System will be compatible or advantageous
for use with any products that may be submitted by potential licensees or end
customers for development. The RESEAL(TM) Technologies have been subjected to
numerous testing procedures. In addition, in all likelihood, any licensee or
strategic alliance partner will assist in designing specific additional
protocols for testing which relate to the use of the RESEAL(TM) Technologies in
order to demonstrate its performance and efficacy with respect to a specific
product. There can be no assurance that the RESEAL(TM) Technologies will satisfy
testing standards and objectives established by potential licensees, end
customers or strategic alliance partners.
9. PRODUCT LIABILITY CLAIM AND UNINSURED RISKS. In commercializing,
marketing and distributing the RESEAL(TM) Technologies, RESEAL(TM) Systems, or
RESEAL(TM) Valve Assemblies, the Company may be exposed to potential liabilities
resulting from the use of the RESEAL(TM) Technologies with particular products.
Such liabilities might result from claims made directly by consumers, the
sublicensee, or other users or sellers of the RESEAL(TM) Technologies. The
Company will seek to be named as a beneficiary under product liabilities
policies of third party manufacturers where appropriate. To date, the Company
does not have its own product liability insurance. While the Company intends to
obtain product liability insurance on a cost effective basis, there can be no
assurance that the Company will be able to obtain such insurance, or that such
insurance, if obtained, would be adequate to protect the Company against
potential liability.
10. GOVERNMENT REGULATION. New preservative-free formulations of products
which may be packaged utilizing the RESEAL(TM) Technologies may likely require
the approval of the U.S. Food and Drug Administration (the "FDA") and/or various
state and local agencies in the United States. Products packaged for
distribution outside of the United States may also be subject to similar foreign
laws and regulation. Compliance with applicable laws and regulations could delay
or impair the distribution of the RESEAL(TM) Technologies.
11. POTENTIAL ANTI-TAKEOVER EFFECTS. Certain provisions of the Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation") , the
Company's Bylaws and Delaware law could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. Such
provisions could diminish the opportunities for a stockholder to participate in
tender offers, including tender offers at a price above the then current market
value of the Common Stock. Such provisions may also inhibit increases in the
market price of the Common Stock that could result from takeover attempts. The
Company's Board of Directors has the authority to issue "blank check" preferred
stock with such designations, rights and preferences as may be determined from
time to time by the Board . Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Common Stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. The possible impact on takeover attempts could adversely affect the
price of the Company's securities. Although the Company has no present intention
to issue any shares of its preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Capital Stock."
12. LITIGATION INVOLVEMENT OF UNDERWRITER MAY HAVE ADVERSE CONSEQUENCES.
Recent NASD Actions Involving Stratton Oakmont, Inc.
The Company has been advised by the Underwriter that the NASD (District 10)
filed a complaint (No. C10950081) on October 5, 1995 ("Complaint") against the
Underwriter, Steven Sanders, the head trader of the Underwriter, Daniel M.
Porush, the president of the Underwriter, and Paul F. Byrne, formerly the
Underwriter's director of compliance (collectively, the "Respondents"), alleging
various violations of the NASD Rules of Fair Practice. The Complaint consisted
of three causes. The first cause alleged that the Underwriter and Mr. Sanders
effected principal retail sales of securities at prices that were fundamentally
excessive. The second cause alleged that the Underwriter and Mr. Sanders charged
excessive markups. The third cause alleged the Underwriter and Messrs. Porush
and Byrne failed to establish, maintain and enforce reasonable supervisory
procedures designed to assure compliance with the NASD's rules and policies.
- 9 -
<PAGE>
On April 15, 1996 the NASD in its decision found all of the Respondents,
except Paul Byrne, in violation of all three causes and imposed the following
sanctions:
o Mr. Sanders was censured, fined $25,000 and was suspended from
association with any member of the NASD in any capacity for a period
of one year.
o The Underwriter was censured, fined $500,000 and was required to
disgorge its excess profits to its customers, totaling $1,876,205,
plus prejudgment interest. In addition, the Underwriter was suspended
for a period of one year from effecting any principal retail
transactions.
o Mr. Porush was censured, fined $250,000 and barred from association
with any member of the NASD in any capacity.
The Underwriter and Messrs. Porush and Sanders have appealed the NASD's
decision, thereby staying imposition of the sanctions.
If the sanctions imposed on the Underwriter are not reversed on appeal, the
Underwriter's ability to act as a market maker of the Company's securities will
be restricted. The Company cannot ensure that other broker dealers will make a
market in the Company's securities. In the event that other broker dealers fail
to make a market in the Company's securities, the possibility exists that the
market for and the liquidity of the Company's securities may be adversely
affected to such an extent that public security holders may not have anyone to
purchase their securities when offered for sale at any price. In such event, the
market for and liquidity of the Company's securities may not exist. It should be
noted that although the Underwriter may not be the sole market maker in the
Company's securities, it may likely be the dominant market maker in the
Company's securities.
In April 1996, the NASD settled an action whereby it fined the Underwriter
$325,000 for fraud and other violations (which were neither admitted or denied)
in connection with its underwriting of an initial public offering. Steven
Sanders was fined $50,000 and was suspended for a period of 45 days from
associating with an NASD member and agreed not to engage in any trading-related
activities for any NASD member for a period of 50 days. The settlement also
requires that the Underwriter file certain new supervisory procedures with the
NASD. The Underwriter filed with the NASD on April 11, 1996 procedures relating
to the conduct of associated persons during and preceding an initial public
offering, which were aimed at preventing violations of Section 5 of the
Securities Act and Rule 10b-6 violations and the type of arbitrary pricing which
occurred in connection with the trading of securities underwritten by the
Underwriter on January 16, 1991. These procedures have been in effect since
April 11, 1996. See "Underwriting."
The Company has been advised by the Underwriter that the NASD (District 10)
filed a complaint (No. C10960080) on June 6, 1996 ("June 1996 Complaint")
against the Underwriter, Daniel Porush, Steven Sanders, Irving Stitsky, formerly
a registered representative of the Underwriter, and Jordan Shamah, a vice
president and director of the Underwriter (collectively, the "Respondents"),
alleging various violations of the Exchange Act and the NASD Rules of Fair
Practice. The June 1996 Complaint consists of seven causes of action. The first
cause alleges that the Underwriter, through Messrs. Porush and Sanders, engaged
in the use of fraudulent and manipulative devices in the failure to make bona
fide distributions in specified public offerings of securities underwritten by
the Underwriter. The second cause alleges that the Underwriter, through Messrs.
Porush, Sanders, Stitsky and Shamah, engaged in the use of fraudulent and
manipulative devices in the failure to make a bona fide distribution of common
stock of a company whose initial public offering was underwritten by the
Underwriter. The third cause alleges that the Underwriter, through Messrs.
Porush and Sanders for a period of three days, manipulated the common stock of
such company. The fourth cause alleges that the Underwriter, through Mr.
Sanders, charged fraudulently excessive markups in connection with the warrants
of such company. The fifth cause alleges that the Underwriter, through Mr.
Porush, violated the NASD's Free-Riding and Withholding Interpretation inasmuch
as he allegedly allocated securities in certain public offerings to persons
restricted from purchasing such securities. The sixth cause alleges that Messrs.
Porush and Stitsky failed to adequately supervise the Underwriter's activity
relating to the various alleged violations. The seventh cause alleges that the
Underwriter and Mr. Porush failed to establish and maintain reasonable
supervisory procedures to prevent the Underwriter's violative conduct. The
Respondents have filed answers to the June 1996 Complaint denying all material
allegations and alleged violations and are contesting the proceeding.
In addition, the Company has been advised by the Underwriter that the NASD
(District 10) filed a complaint (No. C10960068) on June 6, 1996 ("Complaint")
against the Underwriter and Patrick Gerard Hayes, the
- 10 -
<PAGE>
compliance director of the Underwriter (collectively, the "Respondents"),
alleging violations of the NASD Rules of Fair Practice. The Complaint consists
of two causes of action. The first cause alleges that the Underwriter failed to
report information regarding at least 59 customer complaints the Underwriter
received during the relevant time periods as required by the NASD Rules of Fair
Practice. The second cause alleges that the Underwriter, through its compliance
director, failed to establish, maintain and enforce written procedures designed
to ensure that the Underwriter complied with the NASD Rules of Fair Practice.
The Respondents have filed answers to the Complaint and are contesting the
proceeding.
On or about July 13, 1996, the District Business Conduct Committee for
District No. 10 ("District Committee") of the NASD issued a complaint against
the Underwriter alleging that the Underwriter violated Article III, Section 1
and Article IV, Section 5 of the NASD Rules of Fair Practice by entering into
settlement agreements with former customers which condition customers' ability
to cooperate with NASD investigations. The charges in the complaint were upheld
by the District Committee on this same date as well as the National Business
Conduct Committee of the NASD, and a fine of $20,000 was assessed and the
Underwriter was ordered to get the NASD's agreement on language used in certain
customer settlement agreements. The Underwriter also is required, if asked by
the NASD, to release customers from provisions in settlement agreements that
impose conditions on a customer's ability to provide information to the NASD.
The sanctions follow an appeal of findings that the firm used certain agreements
when settling customer complaints that precluded, restricted, or conditioned
customers' ability to cooperate with the NASD in connection with its
investigation of customer complaints. The Underwriter also failed to release a
customer from the restrictive provisions of such a settlement. This action had
been appealed to the Commission and the sanctions aren't in effect pending
consideration of the appeal. The Underwriter contests the charges and has
perfected an appeal to the Commission.
Permanent Injunction Granted--Stratton Oakmont, Inc. Enjoined to Comply
with Recommendations of an Independent Consultant and an Independent
Auditor Appointed Pursuant to an Administrative Order
The Company has been advised by the Underwriter that the Commission
instituted an action on December 14, 1994 in the United States District Court
for the District of Columbia against the Underwriter. The complaint alleged that
the Underwriter was not complying with the Administrative Order entered by the
Commission on March 17, 1994 ("Administrative Order") by failing to adopt the
recommendations of an independent consultant. The Administrative Order was
previously consented to by the Underwriter, without admitting or denying the
findings contained therein, as settlement of an action commenced against the
Underwriter by the Commission in March 1992, which found willful violations of
the securities laws such that the Underwriter:
o engaged in fraudulent sales practices;
o engaged in and/or permitted unauthorized trading in customer accounts;
o knowingly and recklessly manipulated the market price of a company's
securities by dominating and controlling the market for those
securities;
o made improper and unsupported price predictions with regard to
recommended over-the-counter securities; and
o made material misrepresentations and omissions regarding certain
securities and its experience in the securities industry.
Pursuant to the Administrative Order, the Underwriter was censured and an
independent consultant (the "Stratton Consultant") was chosen by the Commission
to advise and consult with the Underwriter and to review and recommend new
supervisory and compliance procedures. The complaint sought:
o to enjoin the Underwriter from violating the Administrative Order;
o an order commanding the Underwriter to comply with the Administrative
Order;
o to have a Special Compliance Monitor appointed to ensure compliance
with the Administrative Order; and
- 11 -
<PAGE>
o the Underwriter claimed that the Stratton Consultant exceeded his
authority under the Administrative Order and had violated the terms of
the Administrative Order.
On February 28, 1995, the court granted the Commission's motion for a
permanent injunction (the "Permanent Injunction") and ordered the Underwriter to
comply with the Administrative Order, which required the appointment of an
independent consultant and a separate independent auditor and required that all
recommendations be complied with, including the taping of all telephone
conversations between the Underwriter's brokers and their customers. In granting
the Commission's motion for a Permanent Injunction, the court determined that
the Underwriter's conduct unequivocally demonstrated that there is a substantial
likelihood that it will continue to evade its responsibilities under the
Administrative Order. On April 20, 1995, the Underwriter filed an appeal to the
United States Court of Appeals for the District of Columbia, and on April 24,
1995 filed a motion to stay the Permanent Injunction pending the outcome of the
appeal. The motion to stay was denied. Subsequently, the Underwriter voluntarily
dismissed its appeal. The failure by the Underwriter to comply with the
Administrative Order or Permanent Injunction may adversely affect the
Underwriter's activities in that the court may enter a further order restricting
the ability of the Underwriter to act as a market maker of the Company's
securities. The effect of such action may prevent the holders of the Company's
securities from selling such securities since the Underwriter may be restricted
from acting as a market maker of the Company's securities and, in such event,
will not be able to execute a sale of such securities. Also, if other broker
dealers fail to make a market in the Company's securities, the public security
holders may not have anyone to purchase their securities when offered for sale
at any price and the security holders may suffer the loss of their entire
investment.
Recent State Administrative Proceedings Involving Stratton Oakmont,
Inc.--Possible Loss of Liquidity
As a result of the Permanent Injunction, the States of Pennsylvania,
Indiana and Illinois have commenced administrative proceedings seeking, among
other things, to revoke the Underwriter's license to do business in such states.
In Indiana, the Commissioner suspended the Underwriter's license for a three
year period. The Underwriter has appealed the decision and has requested a stay
pending appeal. The requested stay would maintain the status quo pending appeal.
In Illinois, the Underwriter intends to file an answer to the administrative
complaint denying the basis for revocation. The District of Columbia suspended
the Underwriter's license pending the outcome of an investigation. The States of
North Carolina and Arkansas also have suspended the Underwriter's license
pending a resolution of the proceedings in those states. The States of
Minnesota, Vermont, and Nevada have served upon the Underwriter notices of
intent to revoke the Underwriter's license in such states. The State of Rhode
Island has served on the Underwriter a Notice of Intent to suspend its license
in that state. The State of Connecticut has served on the Underwriter a notice
of intent to suspend or revoke the Underwriter's registration in that state with
a notice of right to hearing. In the State of Mississippi, the Underwriter has
agreed to a suspension of its license pending resolution of certain claims and
review of its procedures and practices by the state authorities. In addition,
the Underwriter withdrew its registration in the State of New Hampshire (with
the right of reapplication) and in the State of Maryland. There may be further
administrative action against the Underwriter in Maryland. The Underwriter
withdrew its registration in Massachusetts with a right to reapply for
registration after two years, withdrew its registration in Delaware with a right
to reapply in three years and agreed to a temporary cessation of business in
Utah pending an on-site inspection and further administrative proceedings. The
Underwriter's license in the State of New Jersey was revoked by an
administrative judge pursuant to an administrative hearing, which revocation was
affirmed by the New Jersey Bureau of Securities, and an appeal has been filed
with the appellate division of the New Jersey Superior Court. The States of
Georgia, Alabama and South Carolina have lifted their suspensions and have
granted the Underwriter conditional licenses. Such conditional licenses were
granted pursuant to an order, which the Underwriter has proposed to various
states, which provides provisions for: (i) the suspension of revocation, (ii)
compliance with recommendations of the Consultant, (iii) an expedited claims
mediation arbitration process, (iv) resolution of claims seeking compensatory
damages, (v) restrictions on use of operating revenue, (vi) the limitation on
selling group members in offerings underwritten by the Underwriter and the
prohibition of participating as a selling group member in offerings underwritten
by certain other NASD member firms, (vii) the periodic review of the
Underwriter's agents, (viii) the retention of an accounting firm, and (ix)
supervision and training, restrictions on trading, discretionary accounts and
other matters.The State of Oregon, as a result of the Permanent Injunction, has
filed a notice of intent to revoke the Underwriter's license subject to the
holding of a hearing to determine definitively the Underwriter's license status,
and the Underwriter, in this proceeding as well as other proceedings, expects to
be able to demonstrate that the Permanent Injunction is not of a nature as to be
a lawful basis to revoke the Underwriter's license permanently. Finally, the
Underwriter has received an order limiting its license in the State of Nebraska.
Such proceedings, if ultimately successful, may adversely affect the market for
and liquidity of the Company's securities if additional broker-dealers do not
make a market in the Company's securities. Moreover, should investors purchase
any of the securities in this Offering
- 12 -
<PAGE>
from the Underwriter prior to a revocation of the Underwriter's license in their
state, such investors will not be able to resell such securities in such state
through the Underwriter but will be required to retain a new broker-dealer firm
for such purpose. The Company cannot ensure that other broker-dealers will make
a market in the Company's securities. In the event that other broker-dealers
fail to make a market in the Company's securities, the possibility exists that
the market for and the liquidity of the Company's securities may be adversely
affected to such an extent that public security holders may not have anyone to
purchase their securities when offered for sale at any price. In such event, the
market for, and liquidity and prices of the Company's securities may not exist.
It should be noted that although the Underwriter may not be the sole market
maker in the Company's securities, it will most likely be the dominant market
maker in the Company's securities. In addition, in the event that the
Underwriter's license to do business is revoked in the states set forth above,
the Underwriter has advised the Company that the members of the selling
syndicate in this Offering may be able to make a market in the Company's
securities in such states and that such an event will not have a materially
adverse effect on this Offering, although no assurance can be made that such an
event will not have a materially adverse effect on this Offering. The Company
has applied to register this Offering for the offer and sale of its securities
in the following states: California, Colorado, Connecticut, Delaware, Florida,
Georgia, Hawaii, Illinois, Louisiana, New York, Rhode Island and Virginia. The
offer and sale of the securities of this Offering are not available in any other
state, absent an exemption from registration. See "Underwriting."
FOR ADDITIONAL INFORMATION REGARDING STRATTON OAKMONT, INC., INVESTORS MAY
CALL THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AT 1-800-289-9999.
Paul Carmichael v. Stratton Oakmont, Inc.
The Company has been advised by the Underwriter that Honorable John E.
Sprizzo, United States Judge for the Southern District of New York, on May 6,
1994 denied the class certification motion in Paul Carmichael v. Stratton
Oakmont, Inc., et al., Civ. 0720 (JES), of the plaintiff Paul Carmichael. The
class action complaint alleges manipulation and fraudulent sales practices in
connection with a number of securities. The allegations were substantially
similar and involve much of the same time period as the Commission's civil
complaint (discussed above). The Company has further been informed that counsel
for the class action plaintiff sought to re-argue the motion for class
certification, which motion for re-argument was denied.
13. DEPENDENCE UPON KEY PERSONNEL. The success of the Company's business is
largely dependent upon the continued active participation of Jon Silverman,
currently a consultant to the Company. Upon the closing of this Offering, the
Company intends to engage the services of Mr. Silverman in the capacity of
Chairman, Chief Executive Officer and President, pursuant to a three-year
employment agreement. See "Management--Employment Agreements." In the event his
services are lost for any reason whatsoever, the Company's business, financial
condition and results of operations may be adversely affected.
14. IMMEDIATE AND SUBSTANTIAL DILUTION. An investor in this Offering will
experience immediate and substantial dilution. At June 30, 1996, the Company had
a negative net tangible book value of $(3,915,367), or approximately $(.62) per
share of Common Stock, based upon 6,325,000 shares outstanding. After giving
effect to the sale of the Units offered hereby at an assumed initial public
offering price of $11.00 per Unit ($5.50 per share) and the receipt and
application of the estimated net proceeds therefrom, pro forma net tangible book
value would have been $4,754,596 or approximately $.49 per share. The result
will be an immediate increase in net tangible book value to existing
stockholders of $1.11 per share and an immediate dilution to new investors of
$5.01 per share. As a result, new investors will bear most of the risk of loss
since their shares are being purchased at a cost substantially above the price
that existing stockholders acquired their shares. See "Dilution."
15. BEST EFFORTS OFFERING; ESCROW OF INVESTOR'S FUNDS. Since this Offering
is being made on a "best efforts, all-or-none" basis, there can be no assurance
that any of the Units will be sold. Under the terms of this Offering, the
Underwriter is offering the Company's Units for a period of 90 days which may be
extended up to an additional 30 days. Pending the sale of all Company Units, all
proceeds will be held in an escrow account. No commitment exists by anyone to
purchase all or any of the Units offered hereby. Consequently, subscribers'
funds may be escrowed for as long as 120 days and then returned without interest
thereon or deduction therefrom in the event all Company Units are not sold
within the Offering Period. Investors, therefore, will not have the use of any
subscription funds during the subscription period. See "Underwriting."
- 13 -
<PAGE>
16. ARBITRARY OFFERING PRICE. The initial public offering price of the
securities offered hereby and the exercise price of the Class A Warrants have
been arbitrarily determined by negotiations between the Company and the
Underwriter and bear no relationship to the Company's earnings, book value or
any other recognized criteria of value. See "Underwriting."
17. FUTURE ISSUANCES OF STOCK BY THE COMPANY. The Company is authorized to
issue 40,000,000 shares of Common Stock. Upon consummation of this Offering,
there will be a total of 9,718,182 shares of Common Stock issued and
outstanding. This total number of shares of Common Stock issued and outstanding
does not include: (i) 1,818,182 shares of Common Stock issuable upon the
exercise of the Class A Warrants included as part of the Company Units; (ii)
181,818 shares of Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option; (iii) 181,818 shares of Common Stock issuable upon exercise of
the Class A Warrants included in the Underwriter's Unit Purchase Option; and
(iv) 1,575,000 shares of Common Stock issuable upon exercise of the Class A
Warrants included as part of the Bridge Units. See "Underwriting." The remaining
shares of Common Stock not reserved for issuance in connection with the
foregoing specific purposes, as well as 2,000,000 shares of Preferred Stock, may
be issued without any action or approval of the Company's stockholders. Although
there are no present plans, agreements or undertakings involving the issuance of
such shares, any such issuance could be used as a method of making acquisitions
of related businesses and for discouraging, delaying or preventing a change in
control of the Company. There can be no assurance that the Company will not
undertake to issue such shares if it deems it appropriate to do so. Any issuance
of additional shares of Common Stock or securities convertible into shares of
Common Stock may cause stockholders of the Company to suffer significant
dilution which may adversely affect the market price of the Company's
securities. See "Dilution," "Description of Capital Stock" and "Shares Eligible
for Future Sale."
18. UNDERWRITER'S UNIT PURCHASE OPTION. In connection with this Offering,
the Company will sell to the Underwriter, for nominal consideration, the
Underwriter's Unit Purchase Option to purchase up to an aggregate of 90,909
Units. The Underwriter's Unit Purchase Option will be exercisable for a period
of four years commencing one year after the Effective Date, at an exercise price
of 165% of the initial public offering price of the Units ($18.15 per Unit),
subject to certain adjustments. The exercise price of the Class A Warrants
included in the Units issuable upon exercise of the Underwriter's Unit Purchase
Option during the period of exercisability shall be 165% of the exercise price
of the Class A Warrants included in the Company Units and the Bridge Units
($10.40 per Unit). The holders of the Underwriter's Unit Purchase Option will
have an opportunity to profit from a rise in the market price of the Common
Stock, if any, without assuming the risks of ownership, with a resulting
dilution in the interests of other stockholders. The Company may find it more
difficult to raise additional equity capital while the Underwriter's Unit
Purchase Option remains outstanding. At any time when the holders thereof might
be expected to exercise this option, the Company would probably be able to
obtain additional capital on terms more favorable than that provided by the
Underwriter's Unit Purchase Option. The holders of the Underwriter's Unit
Purchase Option have the right to require the registration under the Securities
Act, of the Units, the Common Stock and the Class A Warrants included in such
Units, and the Common Stock issuable upon exercise of such Class A Warrants, as
well as certain "piggyback" registration rights. See "Description of Capital
Stock--Registration Rights." The cost to the Company of effecting a demand
registration may be substantial. See "Dilution" and "Underwriting."
19. IMPACT OF PENNY STOCK REGULATIONS ON MARKETABILITY OF SECURITIES;
BROKER-DEALER SALES OF THE UNITS. The Commission has adopted regulations which
generally define "penny stock" to be an equity security that has a market price
(as defined) of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Because the Company's securities
are not listed on Nasdaq or any national securities exchange, the Company's
securities will, if their market price decreases to less than $5.00 per share,
be subject to a rule, absent the availability of an exemption, that imposes
additional sales practice requirements on broker-dealers who sell such "penny
stocks" to persons other than established customers and accredited investors
(accredited investors are generally persons having net worth in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with a
spouse). For transactions covered by this rule, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale, as well as
disclosing certain information concerning the risks of purchasing low-priced
securities on the market for such securities. The broker-dealer also must
disclose the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
aforementioned
- 14 -
<PAGE>
regulations will adversely affect the ability of broker-dealers to sell the
Company's securities and the ability of purchasers in this Offering to sell
their securities in the secondary market.
20. NO OBLIGATION ON UNDERWRITER TO CONTINUE TO ACT AS MARKET MAKER. As of
the date of this Prospectus, several brokerage firms, including the Underwriter,
have indicated their intention to engage in market making activities with
respect to the securities. There is no obligation on the part of such brokerage
firms to act, or the Underwriter to continue to act, as a market maker. In the
event that the market makers cease to function as such, public trading in the
Company's securities will be adversely affected or may cease entirely.
21. NO PRIOR PUBLIC MARKET FOR SECURITIES. Prior to this Offering, there
has been no public market for the Company's securities. Although the Company
intends to apply for the inclusion of the Securities on the OTC Bulletin Board,
there can be no assurance that such application will be approved or that, even
if it is approved, a regular trading market for the Securities will develop
after this Offering or that, if developed, it will be sustained. The OTC
Bulletin Board is an unorganized, inter-dealer, over-the-counter market which
provides significantly less liquidity than Nasdaq and quotes for stocks included
on the OTC Bulletin Board are not listed in the financial sections of newspapers
as are those for Nasdaq. Therefore, prices for securities traded solely on the
OTC Bulletin Board may be difficult to obtain and purchasers of the Units may be
unable to resell the Securities offered hereby at or near their original
offering price or at any price. In the event the Securities are not included on
the OTC Bulletin Board, quotes for the Securities may be included in the "pink
sheets" for the over-the-counter markets. See "Underwriting."
22. CONTRACTUAL OBLIGATION TO UNDERWRITER. The Company has agreed to pay
fees to the Underwriter if the Underwriter arranges or assists with mergers and
acquisitions for the Company during a period of five years commencing on the
Effective Date. Further, in addition to an eight and one-half (8.5%) percent
underwriting discount available to the Underwriter , the Company has also agreed
to pay the Underwriter a non-accountable expense allowance of three (3%) percent
of the gross proceeds of this Offering from the sale of Company Units and has
agreed that for a period of three years from the Effective Date, the Underwriter
shall be entitled to designate one individual as an observer to the Company's
Board of Directors. In addition, the Company has agreed to pay the Underwriter,
under certain circumstances, a fee of 4% of the exercise price of the Class A
Warrants when such warrants are exercised. To the extent the foregoing
compensation is paid from the proceeds of this Offering received from the sale
of the Company Units, the amounts available to the Company will be reduced. On
the closing date, the Company will sell to the Underwriter for nominal
consideration the Underwriter's Unit Purchase Option to purchase up to an
aggregate of 90,909 Units at 165% of the initial public offering price. See
"Underwriting."
23. CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE CLASS A
WARRANTS. The Class A Warrants may not be exercised by the holders thereof
unless at the time of exercise a registration statement covering the shares of
Common Stock issuable upon exercise of the Class A Warrants is effective and
such shares of Common Stock have been registered under the Securities Act and
qualified, or deemed to be exempt, under the securities laws of the states of
residence of the respective holders of such Class A Warrants. While the Class A
Warrants are being registered herewith, there can be no assurance, however, that
such registration statement will remain current or that such Class A Warrants
will be properly qualified under applicable state securities laws, the failure
of which may result in the exercise of the Class A Warrants and the resale or
other disposition of Common Stock issued upon such exercise becoming unlawful.
See "Description of Capital Stock--Class A Warrants."
24. POTENTIAL ADVERSE EFFECT OF REDEMPTION OF CLASS A WARRANTS. The Class A
Warrants may be redeemed by the Company at any time commencing two years from
the Effective Date, at a redemption price of $.05 per Class A Warrant, upon 30
days' prior written notice, provided the closing bid price of the Common Stock
as reported by the OTC Bulletin Board for 20 consecutive trading days ending
within 10 days of the notice of redemption equals or exceeds $8.00 per share,
subject to adjustment. Redemption of the Class A Warrants could force the
holders to exercise the Class A Warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, to sell the Class A
Warrants at the then current market price when they might otherwise wish to hold
the Class A Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Class A Warrants at the time of
redemption. See "Description of Capital Stock--Class A Warrants."
25. EXERCISE OF CLASS A WARRANTS MAY HAVE DILUTIVE EFFECT ON MARKET. The
Class A Warrants issued in connection with this Offering will provide, during
their term, an opportunity for the holder to profit from a rise in the market
price, of which there is no assurance, with resulting dilution in the ownership
interest in the
- 15 -
<PAGE>
Company held by the then present stockholders. Holders of the Class A Warrants
most likely would exercise the Class A Warrants and purchase the underlying
Common Stock at a time when the Company may be able to obtain capital by a new
offering of securities on terms more favorable then those provided by such Class
A Warrants, in which event the terms on which the Company may be able to obtain
additional capital would be adversely affected.
See "Underwriting."
26. UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE ADVERSE CONSEQUENCES.
Although the Underwriter has no legal obligation to do so, it may, from time to
time in the future, make a market in and otherwise effect transactions in the
Company's securities. To the extent the Underwriter acts as a market maker in
the Units, the Common Stock or the Class A Warrants, it may be a dominating
influence in that market. The price and liquidity of such securities may be
affected by the degree, if any, of the Underwriter's participation in the
market, inasmuch as a significant amount of such securities may be sold to
customers of the Underwriter. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Underwriter. Such market making activities, if commenced, may be discontinued at
any time or from time to time by the Underwriter without obligation or prior
notice. If a dominating influence at such time, the Underwriter's discontinuance
may adversely affect the price and liquidity of the securities.
Further, unless granted an exemption by the Commission to its Rule 10b-6,
the Underwriter may be prohibited from engaging in any market making activities
with regard to the Company's securities for the period from two or nine business
days prior to any solicitation of the exercise of the Class A Warrants until the
later of the termination of such solicitation activity or the termination, by
waiver or otherwise, of any right that the Underwriter may have to receive a fee
for the exercise of the Class A Warrants following the solicitation. As a
result, the Underwriter may be unable to continue to provide a market for the
Company's securities during certain periods while the Class A Warrants are
exercisable, which may adversely affect the price and liquidity of the
securities.
27. ABSENCE OF DIVIDENDS. The Company intends to retain future earnings, if
any, to provide funds for the operations of its business and, accordingly, does
not anticipate paying any dividends on its Common Stock in the reasonably
foreseeable future. See "Dividend Policy."
28. SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET. All of
the Company's 7,900,000 currently outstanding shares of Common Stock are
"restricted securities" and, in the future, may be sold upon compliance with
Rule 144 adopted under the Securities Act, or upon the filing and effectiveness
of a registration statement with respect thereto. Rule 144 provides, in essence,
that a person holding "restricted securities" for a period of two years may sell
an amount of such securities every three months equal to the greater of (i) one
percent of the Company's issued and outstanding shares, or (ii) the average
weekly volume of sales during the four calendar weeks preceding the sale. The
amount of "restricted securities" which a person who is not an affiliate of the
Company may sell is without volume limitation after the non-affiliate has held
such shares for three years.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Common Stock in any
market which may develop and, therefore, the ability of an investor to market
his shares may be dependent directly upon the number of shares that are offered
and sold. See "Shares Eligible for Future Sale."
- 16 -
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $8,650,000 (after deducting the Underwriter's discount and
commission, the non-accountable expense allowance and other estimated fees and
expenses). The Company will not receive any of the proceeds from the sale of
Bridge Securities by the Selling Securityholders.
The Company presently intends that the net proceeds it receives from this
Offering will be applied approximately as follows:
Percentage of
Net
Description Amount Proceeds
Administrative Expenses
Management/Employee Compensation $1,200,000 13.9%
Consultant Compensation 400,000 4.6%
Bridge Loan Repayment(1) 1,130,000 13.1%
Payment of Convertible Notes 400,000 4.6%
Operating Costs and Working Capital
General Overhead 880,000 10.2%
Licensing Fees(2) 2,700,000 31.2%
Product Development/
Tooling/Equipment 1,940,000 22.4%
========== =====
TOTAL $8,650,000 100.0%
- -------------
(1) Approximately $1,130,000 of the proceeds of this Offering received by
the Company will be used to repay the principal from and interest on
the Bridge Loans received by the Company from October 1995 to April
1996. The Bridge Loans bear interest at the rate of 8% per year and
are due the earlier of the closing of this Offering or January 1,
1997.
(2) As of the Effective Date, the Company will have paid to RIC
approximately $1,300,000 of the $4,000,000 licensing fee owed under
the Company License Agreement. The remaining $2,700,000 shall be paid
out of the proceeds of this Offering received by the Company.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this Offering
received by the Company, together with cash flow from operations, will be
sufficient to satisfy its contemplated cash requirements for approximately
sixteen months following consummation of the Offering. In the event that (i) the
Company's plans change, (ii) the Company's assumptions change or prove to be
inaccurate or (iii) the amount of proceeds of this Offering received by the
Company or cash flow prove to be insufficient to fund operations (due to
unanticipated expenses, technical difficulties, problems or otherwise), the
Company would be required to seek additional financing sooner than anticipated.
The Company has no current arrangements with respect to, or sources of,
additional financing and there can be no assurance that additional financing
will be available to the Company on acceptable terms, or at all. Any inability
to obtain additional financing could possibly require the Company to
significantly curtail its operations.
The allocation of the net proceeds of the Offering set forth above
represents management's best estimates based upon its present plans and certain
assumptions regarding the Company's anticipated revenues and
- 17 -
<PAGE>
expenditures. If any of these factors change, the Company may find it necessary
or advisable to reallocate some of the net proceeds within the above-described
categories for other purposes, including but not limited to acquisitions of
companies in related businesses.
Proceeds received by the Company not immediately required for the purposes
set forth above will be invested principally in United States government
securities, short-term certificates of deposit, money market funds or other
interest-bearing investments.
DIVIDEND POLICY
The Company expects that it will retain all available earnings generated by
its operations for the development and growth of its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any future determination as to dividend policy will be made at the
discretion of the Board of Directors of the Company and will depend on a number
of factors, including the future earnings, capital requirements, financial
condition and business prospects of the Company and such other factors as the
Board of Directors may deem relevant.
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share after this
Offering constitutes the dilution to investors in the Offering. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. At June 30, 1996, the net tangible book
value of the Company was $(3,915,367) or $(.62) per share.
Without taking into account any other changes in the net tangible book
value of the Company except for the sale of the Company Units offered hereby at
an assumed initial public offering price of $11.00 per Unit ($5.50 per share of
Common Stock) and the receipt and application of the estimated net proceeds
therefrom, and without ascribing any value to the Class A Warrants included in
the Units, the pro forma net tangible book value of the Company at June 30, 1996
would have been $4,754,596, or $.49 per share, representing an immediate
increase in net tangible book value of $1.10 per share to the existing
shareholders and an immediate dilution of $5.01 per share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)........................ $5.50
Net tangible book value before Offering........................ $(.62)
Increase attributable to purchase by new investors............. $1.11
--------
Pro forma net tangible book value after offering.......................... $.49
------
Dilution of net tangible book value to new investors...................... $5.01
======
- --------------
<FN>
(1) Represents the initial public offering price per share, before
deducting underwriting discounts and offering expenses payable by the
Company.
</FN>
</TABLE>
- 18 -
<PAGE>
The following table summarizes, as of the Effective Date, the differences
between existing stockholders and investors in this Offering with respect to the
number and percentage of shares of Common Stock purchased from the Company
(attributing no value to the Class A Warrants and not giving effect to the sales
by the Selling Securityholders of the 787,500 Bridge Units), the amount and
percentage of consideration paid and the average price paid per share, before
deduction of offering expenses and underwriting discounts:
<TABLE>
<CAPTION>
Shares Owned Consideration Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Present Stockholders 7,900,000 81.3% $ 1,050,000 9.5% $ 0.13
New Investors 1,818,182 18.7% 10,000,001 90.5% 5.50
----- ----------- ----- -----
Total 9,718,182 100.0% $11,050,000 100.0%
========= ====== =========== ======
</TABLE>
The foregoing computations do not include (i) 1,575,000 shares of
Common Stock issuable upon the exercise of the Class A Warrants contained in the
Bridge Units; (ii) 1,818,182 shares of Common Stock issuable upon exercise of
the Class A Warrants contained in the Company Units; (iii) 181,818 shares of
Common Stock issuable upon exercise of the Underwriter's Unit Purchase Option;
and (vi) 181,818 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Underwriter's Unit Purchase Option.
- 19 -
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, and (ii) as adjusted to reflect the sale of the Units offered
hereby at an assumed initial public offering price of $11.00 per Unit and the
application of the estimated net proceeds therefrom. For purposes hereof, no
value has been ascribed to the Class A Warrants included as part of the Units .
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------
Actual As Adjusted(1)
<S> <C> <C>
Short-term debt, including current portion
of long-term debt: ............................................ $1,450,000 $ --
Long-term debt.................................................... -- --
Stockholders' equity:
Preferred Stock, par value $.001 per share:
2,000,000 shares authorized, no shares
issued and outstanding................................... -- --
Common Stock, par value $.001 per share:
20,000,000 shares authorized, 6,325,000
shares issued and outstanding; 9,718,182 shares
issued and outstanding as adjusted(2) ................... 6,325 9,718
Additional paid-in capital...................................... 1,049,475 9,696,082
Accumulated deficit............................................. (4,901,504) (4,901,504)
Total stockholders' equity............................... (3,845,704) 4,804,296
--------- ---------
Total capitalization................................. (2,395,704) 4,804,296
========= =========
- ------------
<FN>
(1) Adjusted to give effect to (a) the sale of the Units offered hereby,
at an assumed initial public offering price of $11.00 per Unit and (b)
the application of the estimated net proceeds of this Offering,
including (i) the repayment of the $1,050,000 Bridge Loan and (ii)
payments to the holders of the Convertible Notes . See "Use of
Proceeds."
(2) Does not include (i) 1,575,000 shares of Common Stock issuable upon
the exercise of the Class A Warrants contained in the Bridge Units;
(ii) 1,818,182 shares of Common Stock issuable upon exercise of the
Class A Warrants contained in the Company Units; (iii) 181,818 shares
of Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option; and (iv) 181,818 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Underwriter's Unit
Purchase Option.
</FN>
</TABLE>
- 20 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company was incorporated in Delaware in October 1995. The Company was
formed primarily for the purpose of commercializing and marketing the RESEAL(TM)
Technologies licensed from RIC, which technologies consist of the RESEAL(TM)
Systems composed of: (i) self-adjusting reservoir bodies, (ii) the RESEAL(TM)
Valve Assemblies, and (iii) the RESEAL(TM) Pump Assemblies. When utilized in
dispensing flowable food and beverage products like milk, juice, wine, etc.,
RESEAL(TM) Systems are designed to maintain the sterility, purity and freshness
of such product throughout its use life, with the possibility of eliminating or
reducing the need for adding preservatives to the product to keep it fresh
and/or refrigeration throughout its use life. The self-adjusting reservoir body
of a RESEAL(TM) is designed to shrink in proportion to the amount of the product
being dispensed through the RESEAL(TM) Valve Assembly. The RESEAL(TM) Valve
Assemblies are designed to dispense a product without letting either air or
contaminants flow back into the internal reservoir in which the remaining
product is held. The Company believes that by maintaining the purity of the
product that remains in the container, the RESEAL(TM) Systems will provide
higher levels of freshness for significantly longer periods of time and, if
preservatives are eliminated, the level of purity, of a wide array of packaged
flowable products. See "Business."
The Company will focus its marketing activities on the application of the
licensed technologies in the Field of Use set forth in the Company License
Agreement, which encompasses the food and beverage industries as broadly
defined. Within such categories, the applications of the licensed technologies
can be divided into a number of potential markets, including but not limited to
the following: (i) beverages, which include milk/cream, coffee, tea (hot and
cold), hot chocolate, juices, sweeteners, baby formula, baby food (in puree
form), wines and water; (ii) foods, which include soups, liquid eggs, liquid
butter, sauces, yogurt, melted cheese (nachos), baby foods and hot toppings in
liquid form; and (iii) condiments, which include ketchup, barbecue sauce,
mayonnaise, salad dressings, oils and mustard.
The Company will undertake the formation of strategic alliances or direct
license/supply agreements with major food and beverage companies currently
generating substantial revenues from their existing markets. It is further
intended that these relationships will include co-development of new products in
tandem with the production of new dispensing systems which incorporate the
ReSeal Technologies. Upon successful consummation of a strategic alliance or
direct license/supply relationship, of which there can be no assurance, the
customer or strategic partner will utilize the RESEAL(TM) Technologies in
conjunction with products that have an existing market share, as well as the
RESEAL(TM) System associated with the introduction of new products. See
"Business."
RESULTS OF OPERATIONS
The Company has not generated any revenues to date and must be considered
in the development stage. The activities of the Company since inception in
October 1995 have been primarily directed at formational activities including
the completion of initial capitalization, pursuant to which the Company obtained
aggregate capital of $2,250,000. These funds were procured through the issuance
by the Company of the Convertible Notes, the Bridgeholder Options and the sale
of Common Stock. See "Description of Capital Stock."
In addition, the Company has engaged in on-going marketing discussions with
a number of potential strategic alliance partners, licensees and end users of
the ReSeal Technologies. In this regard, discussions have been conducted with
major companies in Canada and the United States to explore opportunities in the
product categories. See "Business."
The Company has reported a net loss from operations of $901,504 since
inception.
FINANCIAL CONDITION
As reflected in the financial statements, the Company has experienced
continuing net losses and negative cash flows from operations and has maintained
negative working capital and negative equity at June 30, 1996. The Company's
continuing existence is dependent on its ability to raise additional capital and
achieve and maintain profitable operations. The Company continues to be in the
development stage and does not foresee operating revenue until fiscal year 1997.
Management plans to finance the Company by obtaining additional financing
through either this Offering or additional private placements of equity. As of
June 30, 1996, the Company had liquid assets of $488,379.
- 21 -
<PAGE>
BUSINESS
OVERVIEW
The RESEAL(TM) Technologies consist of the "RESEAL(TM) Systems" composed of
(i) self-adjusting reservoir bodies, (ii) the RESEAL(TM) Valve Assemblies and
(iii) the RESEAL(TM) Pump Assemblies. When utilized in dispensing flowable food
and beverage products, RESEAL(TM) Systems are designed to maintain the
sterility, purity and freshness of such product throughout its use life, with
the possibility of eliminating or reducing the need for adding preservatives to
the product to keep it fresh and/or refrigeration throughout its use life. The
self-adjusting reservoir body of a RESEAL(TM) System is designed to shrink in
proportion to the amount of the product being dispensed through the RESEAL(TM)
Valve Assembly. The RESEAL(TM) Valve Assemblies are designed to dispense a
product without letting either air or contaminants flow back into the internal
reservoir in which the remaining product is held. The Company believes that by
maintaining the purity of the product that remains in the container, the
RESEAL(TM) Systems will provide higher levels of freshness for significantly
longer periods of time and, if preservatives are eliminated, the level of
purity, of a wide array of packaged flowable products.
HISTORICAL SUMMARY
Conceptualized in 1968 and initially patented in the early 1970's by RILP's
predecessor, the technology underlying the creation of the RESEAL(TM) Systems
was acquired by RILP for further development and testing. By 1982,
implementation of the RESEAL(TM) Technologies resulted in the creation of
RESEAL(TM) Valve Assemblies composed of up to seventeen different parts. From
1982 to the present many modifications and improvements were made to the initial
RESEAL(TM) Technology in order to produce a commercially and economically viable
product. Such modifications and improvements have resulted in the development of
RESEAL(TM) Valve Assemblies that to date are composed of only three principal
parts and, therefore, have resulted in the current generation of RESEAL(TM)
Systems which the Company believes to be cost effective and commercially viable.
Throughout more than fifteen years of development, RILP and RILP's predecessor
corporation engaged in testing programs in an attempt to demonstrate the
integrity and efficacy of the RESEAL(TM) Technologies for its intended purposes,
including, but not limited to, dye immersion tests and microbial challenge tests
to define broadscale barrier function, and dispensing and delivery trials to
define in use issues and factors. At various stages of the development of the
RESEAL(TM) Technologies, RILP obtained patents on the RESEAL(TM) Technologies.
Additionally, RILP maintains various trademarks. See "--Patents, Trademarks and
Other Intellectual Property."
Based upon certain limited market research and laboratory test results, the
Company believes that the RESEAL(TM) Technologies have application in numerous
product areas. For example, the Company's initial marketing and
commercialization efforts in the food and beverage area include wine, water,
juices, coffee, tea, milk and other dairy products. The Company is working to
develop RESEAL(TM) Systems for these markets. The Company is also pursuing
marketing opportunities with RESEAL(TM) Systems that the Company intends to
develop to dispense soups, condiments, sauces, edible oils and salad dressings.
In addition, the Company believes that the range of products which can be
dispensed through RESEAL(TM) Systems is expanding as the Company identifies
additional materials and structures which can be combined to produce RESEAL(TM)
Systems that are applicable to a greater number of products in the food and
beverage industries. The most recent generation of RESEAL(TM) Systems employs
the RESEAL(TM) Technologies for the first time within traditional packaging
formats, including tubes, bags or "bag-in-a-box," and pouches. In all such
cases, these basic systems would be adapted in a manner appropriate to
specialized utilization within the Company's targeted markets which may include
consumer, institutional and industrial applications. Consequently, distributors
of flowable products should have the ability to employ the RESEAL(TM)
Technologies without significantly altering the outward appearance of their
existing packaging.
Previously, RILP had engaged research and development laboratory services
to perform a variety of tests (including, but not limited to, dye immersion and
microbial challenge tests), in accordance with basic scientifically accepted
protocols, to determine the reliability of the RESEAL(TM) Technologies to
provide barrier capabilities in order to maintain contamination free and intact
contents throughout the product's designated use-life. This is achieved by the
dispensing of product without allowing contaminants to enter the self-adjusting
reservoir to which RESEAL(TM) Valve Assemblies are attached. The Company, based
on such test results, believes that RESEAL(TM) Systems, when structured
appropriately for product and use specific objectives, should effectively
protect the contents of the RESEAL(TM) System from contamination under static
and repeat use conditions for extended periods. See "Risk Factors--Systems
Efficacy Test."
- 22 -
<PAGE>
LICENSE AGREEMENT
The Company was organized primarily for the purpose of licensing the
RESEAL(TM) Technologies in the Field of Use (as defined below) from RIC. The
RESEAL(TM) Technologies are licensed by RIC from RILP, on a worldwide exclusive
basis in all of their applications, pursuant to a License Agreement dated
November 16, 1992 (the "RIC License Agreement"). The Company has licensed the
RESEAL(TM) Technologies from RIC, on a worldwide exclusive basis, solely in the
Field of Use pursuant to the Company License Agreement, and will endeavor to
commercialize and market the RESEAL(TM) Technologies to third parties for its
implementation in the food and beverage industries.
Pursuant to the Company License Agreement, RIC granted the Company a
royalty-free exclusive worldwide license for an aggregate of $4,000,000 and
2,900,000 shares of Common Stock, to (i) directly or indirectly make (or
subcontract to make), use, sell and otherwise commercially exploit the
RESEAL(TM) Technology, solely in the Field of Use, and (ii) grant sublicenses to
affiliated and non-affiliated third parties, solely in the Field of Use,
provided, however, that the Company shall not be permitted to sublicense the
right to manufacture the RESEAL(TM) Valve Assemblies. "Field of Use" means the
use of the RESEAL(TM) Technology to make, use, lease, sell or distribute (a) any
food or beverage dispensers or containers that embody the RESEAL(TM) Technology
or the manufacture, use, lease, sale or distribution of which uses the
RESEAL(TM) Technology (collectively, the "Product") intended for use in any
acceptable food and beverage application. This includes but is not limited to an
industrial or commercial place of business in the preparation of food or
beverage at such place of business, (b) any food or beverage Product intended
for use in an industrial or commercial place of business by a customer
purchasing food or beverage at such place of business for consumption on or off
the premises of such place of business, or (c) any food or beverage Product
intended to be sold to or by food or beverage wholesale price discounters,
retailers and similar establishments that sell food or beverage to consumers.
The Company is primarily responsible for all research and development
activities necessary to exploit fully the commercial possibilities of the
RESEAL(TM) Technology. The research and development activities shall include
testing of proposed Products and ongoing technical support for the modification,
improvement, enhancement, development or variation of existing Products and the
development of new Products. RIC is responsible for causing RILP to manage all
intellectual property associated with the RESEAL(TM) Technology, including
patents and trademarks, in order to maximize its commercial potential. This
obligation includes the prosecution of all patent and trademark applications,
subject to the Company's approval of budgets and expenditures in advance, and,
in the sole discretion of RIC (or upon receipt by RIC of the Company's
commitment to pay 100% of the related reasonable costs and expenses), all suits
against third parties for infringement of patents or trademarks. If RIC or RILP
is unwilling or unable to undertake such patent obligations, then the Company is
authorized to undertake such obligations on behalf of RILP.
The Company License Agreement may not be assigned by either party thereto
without the express written consent of the other party, except that the Company
may sublicense applications of the RESEAL(TM) Technologies within the Field of
Use at its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the RESEAL(TM) Technologies in the
Field of Use.
STRATEGIC FOCUS
The Company will focus its marketing activities on the application of the
RESEAL(TM) Technologies to the food and beverage industries, specifically the
food service and consumer products markets. First, the Company plans to market
the RESEAL(TM) Technologies to the food service industry, which purveys bulk
foods and beverages such as milk, juices, wine and condiments to restaurants,
fast food chains and institutions. In this industry, there is a trend, away from
the traditional large tins for condiments and the cartons for milk and juice, to
one, two and three gallon plastic bags that are shipped in corrugated boxes to
the food outlet, where they are inserted into a permanent counter-dispenser-unit
for customer and/or kitchen food preparation use. The Company intends to market
the RESEAL(TM) Valve and the RESEAL(TM) System for application to the products
mentioned above, on a worldwide basis. The Company will approach companies that
already are marketing their products in a bag-in-a-box. The Company believes
that the RESEAL(TM) System is ideal for the bag-in-a-box format since the bag is
already a collapsible container and thus only minimum alterations in the
production line, if any, will need to be made to incorporate it into the
RESEAL(TM) System.
Second, the Company plans to market the RESEAL(TM) Technology to companies
that sell food and beverage products directly to the consumer through
supermarkets, grocery stores and other retail outlets. For example, sellers of
wines and fruit juices in the bag-in-a-box format can utilize the RESEAL(TM)
Technology since these products tend
- 23 -
<PAGE>
to spoil quickly after being opened and exposed to air and airborne
contaminants, which is what the RESEAL(TM) Systems are designed to prevent.
Also, the RESEAL(TM) System would enable many consumer products to be marketed
in larger, economy sizes, which would otherwise spoil. While in many cases the
bag-in-a-box format would be used, the RESEAL(TM) System can be used with a
variety of tubes and pouches, and thereby is applicable to condiments, salad
dressings and baby foods. The Company believes that the RESEAL(TM) System also
has the potential to be used with concentrated liquid products (i.e., teas,
coffees, juices, etc.) packaged without the use of preservatives.
In addition, in many countries around the world, the milk market is
dominated by ultra high temperature ("UHT") milk, which if unopened will remain
fresh without refrigeration for up to one year. Once opened, UHT milk must be
refrigerated and has the same shelf-life as regular pasteurized milk, a number
of days. With the RESEAL(TM) System, various bag-in-a-box sizes of UHT milk can
be sold, dispensed from, and still remain fresh, without refrigeration, for a
longer period of time.
The Company has engaged in preliminary marketing discussions with a number
of potential strategic alliance partners, licensees and end users of the
RESEAL(TM) Technologies and has had preliminary discussions with a substantial
dairy company which supplies milk products in a food service capacity to the
restaurant industry, including fast food franchise operations and commercial
establishments throughout Canada. Management has also had discussions regarding
the use of RESEAL(TM) Technologies in connection with a bag-in-a-box creamer for
offices, fast food outlets and coffee bars, as well as possible applications for
yogurt and the baby food industry. Based upon discussions that have taken place
between the Company and potential users, the Company intends to focus its
initial marketing efforts in the areas of wine, milk and condiments for the food
service industry.
Management anticipates that the RESEAL(TM) Technology will prove capable of
accomplishing these objectives at commercially viable cost structures. There can
be no assurance, however, that any agreement will be entered into between the
Company and any products provider, or that if such agreement is reached that the
products marketed utilizing the RESEAL(TM) Technology will ultimately obtain
commercial success.
To oversee product development, the Company has engaged the services of
Michael Handler, a product development engineer, to create bag-in-a-box
prototype systems for application in the wine, milk, condiment and baby-bottle
design industries. It is anticipated that these prototype systems will embody
the fundamental approach to the RESEAL(TM) Systems. It is anticipated that
various RESEAL(TM) Systems will be prepared in advanced prototypical form during
the third and fourth quarters of 1996.
COMPETITION AND OPPORTUNITIES IN THE PACKAGING INDUSTRY
Most competing dispensing technology is designed to inhibit the
contamination of various products, minimally. When a can, bottle or other
dispenser, such as a bag-in-a-box, is initially used and a portion of its
contents is dispensed, the remaining contents becomes contaminated as air is
drawn into the vessel to fill the space created by the displaced contents or the
dispensing mechanisms are simply not capable of functioning as an adequate
barrier. Air transports various types of contaminants which can lead to the
degradation of a product, as well as basic oxidation processes initiated or
accelerated by the air itself. In effect, a RESEAL(TM) System dispenses in an
outward direction as product leaves the package, but the system seals itself
closed when the dispensing is completed. Thus, RESEAL(TM) Systems are designed
to maintain a product's purity throughout the product's use-life by virtue of
being closed and by providing appropriate mechanical barriers to contamination
while the product is being dispensed. The Company believes that the RESEAL(TM)
Technologies provide the only commercially viable closed delivery and dispensing
system, which allows for continuous delivery of a product in the desired metered
or measured amounts while maintaining the product's purity.
Competition
The Company's competition are the manufacturers of all existing packages
and bottles that contain flowable food and beverage products. Typically, large
sizes of beverages and other flowable products, such as condiments, certain
fruit juices and wine, will remain fresh without refrigeration for a relatively
long period of time before being opened; however, once the container is opened,
the contents will spoil within a short period of time. In the case of containers
with general purpose valves, where the product is dispensed by applying pressure
with a finger, the product flows out at the same time air enters the container,
thereby accelerating the spoilage of the remainder of the product, and the
repeated use of fingers directly adjacent to the spout also can lead to
unsanitary conditions. There are several faucet-type valves that eliminate some
of the sanitary problems described above, but they are
- 24 -
<PAGE>
costly and not widely used. Also, there are soda-fountain-type pumps utilized
for various condiments employing stainless steel or plastic containers into
which the condiments are poured and which may encounter spillage onto the
dispensing mechanism during the course of a day and require frequent servicing.
To be sanitary, these pumps need to be disassembled, cleaned and sterilized
daily.
The RESEAL(TM) System should offer a distinct advantage over each of these
systems in that it is designed to prohibit the flow of air and contaminants back
into the system when product is being dispensed and it is anticipated that it
will require no cleanup, since the product will always be contained in a bag or
a pouch and the entire system will be disposable and recyclable. A
self-contained system, like the RESEAL(TM) System, provides the opportunity for
considerably more product purity and cleanliness.
Design Advantages
The RESEAL(TM) Technology is designed to keep products fresher and purer
while being consumed, potentially with less preservatives and sometimes without
refrigeration. In instances where available on premises, additional precise
temperature control in conjunction with the RESEAL(TM) Systems will provide
vendors with the ability to serve and sell perishable products at their optimum
temperature.
Possible Future Alliances
The Company plans to enter into strategic alliances, supply agreements,
direct license agreements and joint ventures with leaders in the food and
beverage industry. However, to date, the Company has not entered into any such
alliances, agreements or ventures and there can be no assurance that the Company
will be able to in the future. Under such agreements, the Company anticipates
that under some circumstances the sublicensee will pay a license fee of a
negotiated sum to the Company upon entering into the sublicense. Thereafter, the
Company would receive income from sale of RESEAL(TM) Valve Assemblies or other
components of the RESEAL(TM) Systems and, under certain circumstances, royalties
and profits from the sale of products employing the RESEAL(TM) Technologies. The
Company may provide the relevant RESEAL(TM) Technologies to its customers and,
with input from the customers, assist in transferring and adapting the
RESEAL(TM) Technologies to specific product requirements. As some customers may
choose to take a more active role in adapting the RESEAL(TM) Technologies to
their specific product, a portion of development and marketing costs and a
portion of the costs of adapting the RESEAL(TM) Technologies to a particular
application may be borne by the sublicensees or supply partners. The particular
relationship between the customer and the Company will vary depending on each
party's resources and needs. Therefore, a variety of structuring and cost
sharing alternatives may be used by the Company in commercializing the
RESEAL(TM) Technologies.
All component parts of the RESEAL(TM) Systems must be made of materials
which are compatible with the specific contents or formulation to be dispensed.
RESEAL(TM) Systems must be adapted to meet the specific requirements of the
particular product and to the desired type of delivery to allow the dispensing
of a flowable product in accordance with such customer's needs. In light of the
potentially undesirable health effects of preservatives in certain products and
other market factors and the adaptability of the RESEAL(TM) Technologies in the
dispensing of non-preserved products in a variety of applications, the Company
believes that significant marketing opportunities exist in the United States and
around the world for the establishment of strategic alliances involving
RESEAL(TM) Systems for various applications and product categories. The Company
will endeavor to integrate other existing technology with RESEAL(TM) Systems
which can be commercialized, marketed and manufactured in a wide variety of
applications, worldwide. The Company anticipates that, in many cases, the
RESEAL(TM) Technologies will facilitate positive changes in the nature of
product formulation, quality and efficacy.
In addition to all the advantages inherent in a barrier system, the Company
believes that the RESEAL(TM) System will offer basic mechanical advantages,
including without limitation portion control and a pumping mechanism that will
enable customers to mix concentrates (such as teas and juices) with water when
being served.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
RILP has been granted numerous patents and trademarks covering RESEAL(TM)
Systems and their component parts.
- 25 -
<PAGE>
The Company License Agreement includes all of the patents RIC licensed from
RILP. These patents encompass a broad range of delivery and dispensing
technologies and product applications for food and beverages. The following sets
forth a summary of certain key patents.
1. A valve assembly for a container permitting the easy dispensing of
fluid while preventing backflow of contaminants through the valve
assembly into the container holding the remaining fluid.
U.S. Patent No. Re. 34,243 (Expiration Date:
July 11, 2006)
2. An enclosing sleeve for a one-way valve presses an elastomeric sheath
against the valve body to provide a seal between the sheath and the
valve body. In addition, the sleeve can form a closure over the outlet
end of the valve body protecting it from contamination or contact with
contaminating surfaces.
U.S. Patent No. 5,092,855 (Expiration Date:
March 3, 2009)
3. An elastomeric sleeve stretched over the valve body with ring-shaped
enlargements on each end forming "molded o-rings" in tight sealed
contact to the valve body.
U.S. Patent No. 5,305,783 (Expiration Date:
April 26, 2011)
4. A fluid dispensing unit includes a collapsible reservoir with a
one-way valve at its outlet for directing flow into a metering
chamber. The metering chamber has an outlet connected to another
one-way valve which prevents backflow of contaminants into the
container after fluid is dispensed. Both the collapsible reservoir and
the metering chamber can be completely collapsed to ensure that the
dispensing unit is completely empty.
U.S. Patent No. 5,279,447 (Expiration Date:
January 18, 2011)
5. A disc shaped valve body enclosed circumferentially by an elastomeric
membrane. Fluid flows through separate passageways between the
circumferential edge of the valve body and the elastomeric membrane.
U.S. Patent No. 5,279,330 (Expiration Date:
January 18, 2011)
6. A one-way valve assembly with a cover member which encloses an
expandable elastomer sleeve and valve body and which presses the
sleeve into fluid-tight contact with the valve body at two axially
spaced locations.
U.S. Patent No. 5,305,786 (Expiration Date:
April 26, 2011)
7. A dispenser with two separate collapsible chambers, each holding a
component or substance to be mixed before use with at least one
component being in a flowable condition. A one-way valve permits flow
of the flowable component into the other chamber and prevents any
backflow, thereby providing the dispensing of a mixture having a short
use lifetime where the components of the mixture are capable of being
stored separately for an extended period.
U.S. Patent No. 5,353,961 (Expiration Date:
October 11, 2011)
8. An embodiment that replaces the tubular or disc shaped valve core with
a flat valve platform more appropriate for higher speed and lower cost
manufacturing. The elastomeric sheath can be executed as a flat sheet
from roll stock. A housing component protects the sheath while
providing the necessary sealing and resistance needed for successful
functioning.
U.S. Patent Pending; Application No. 08/327,608
- 26 -
<PAGE>
PROPERTIES
The Company currently leases, from a non-affiliated third party,
approximately 3,716 square feet of space for its principal executive office at
342 Madison Avenue, New York, New York 10173. The monthly rental on this
property is $7,509. Management believes that this facility is adequate for the
Company's intended activities in the foreseeable future. The lease terminates on
November 20, 1997. If this lease is not renewed, the Company does not anticipate
any significant problems in finding suitable alternative space.
EMPLOYEES
As of August 26, 1996, the Company employed three persons. The Company
anticipates that the number of employees will increase to seven persons upon
completion of this Offering, as it expects to hire Jon Silverman as its Chief
Executive Officer, as well as to add a senior marketing person, engineer and
office manager.
Jon Silverman, as a consultant, and Joseph Koster, have been specifically
dedicating time to the marketing of the RESEAL(TM) Technologies to food and
beverage industries. In addition, Michael Handler has been hired as a
consultant. The backgrounds and experience of these individuals are set forth in
the section entitled "Management."
LITIGATION
The Company is not a party to any legal proceedings. However, certain
affiliates of RIC and the Company were named as defendants in a complaint filed
on or about October 31, 1994, alleging, among other things, breach of fiduciary
duty, mismanagement, waste and fraud. A settlement in connection therewith has
been entered into, which includes the dismissal with prejudice of the lawsuit.
See "Certain Relationships and Related Transactions--Settlements of Legal
Proceedings--Stanson Settlement."
In addition, certain affiliates of RIC and the Company were named as
defendants in a complaint filed on or about December 11, 1992, alleging, among
other things, violation of certain federal securities laws, common law fraud and
negligent misrepresentation. A settlement in connection therewith has been
entered into, which provides for the eventual dismissal with prejudice of the
lawsuit upon satisfaction of certain conditions. See "Certain Relationships and
Related Transactions--Settlements of Legal Proceedings--Banco Settlement."
- 27 -
<PAGE>
MANAGEMENT
The executive officers, directors and significant employees of the Company
are as follows:
Name Age Position(s)
David W. Brenman 40 President, Treasurer and Director
Joseph F. Koster, Jr. 61 Secretary and Director
George V. Kriste 49 Director
Gregory B. Abbott 46 Director
Jon D. Silverman 55 Consultant
Michael D. Handler 46 Consultant
David W. Brenman has been the President, Treasurer and a director of the
Company since its inception. He also has served as a director, member of the
Executive Committee, Chief Financial Officer and Treasurer of RIC since May
1993. Mr. Brenman has been a self-employed attorney and financial consultant
since 1988. Prior thereto, he was a Vice President of Lloyds International
Corporation, the merchant banking subsidiary of Lloyds Bank Plc from 1986 to
1988. Mr. Brenman served as President of Cogenco International, Inc., a publicly
held corporation engaged in the energy industry, from 1984 to 1986 and is
currently a member of the Board of Directors and an executive officer of that
company. Mr. Brenman is a member of the Board of Directors and serves as
President of Taltos SpA, an Italian corporation engaged in the production of
ultra-thin stone products. Prior to 1986, Mr. Brenman was an associate with the
law firm of Brenman, Raskin, Friedlob, and Tenenbaum P.C. of Denver, Colorado,
where he specialized in the fields of taxation and securities law. Mr. Brenman
is also a member of the Board of Directors of U.S. Energy Corp., a corporation
engaged in the mining and mineral industry.
Joseph F. Koster, Jr. will serve as Executive Vice President of the Company
as of the closing of this Offering. He has been the Secretary and a director of
the Company since October 26, 1995. From January 1992 through October 1995, he
was a consultant to RIC, RPS, RILP and ReSeal Technologies and Advancements,
Inc., RILP's general partner, where he principally worked in marketing and in
setting up their investment banking relationships. From 1964 to 1966, Mr. Koster
worked at Colgate Palmolive, where he reached the level of National Brand
Manager. From 1966 to 1974, he was a partner at Brown Elders Koster Enterprises,
a marketing company. Thereafter, prior to 1992, he was a self-employed business
consultant and writer.
George V. Kriste has served as a director of the Company since October 26,
1995. He has been the Chairman and Chief Executive Officer of New Century Media,
a radio station owner, since January 1992. Prior thereto, he had been the Chief
Operating Officer of Cook Inlet Region, an investment company formed by the
Federal government for Alaska natives, since 1977.
Gregory B. Abbott has served as a director of the Company since October 26,
1995. Mr. Abbott has been a private investor and a writer for more than the past
five years. From 1973 to 1986 he was employed by Ithaca Industries ("Ithaca"), a
private label manufacturer of pantyhose, men's and women's underwear, and
T-shirts. From 1979 to 1986 he served as Chairman and CEO of Ithaca, during
which time the company grew from having just one major customer to over 400, and
in the process became the largest private label maker in the U.S. in each of its
product lines. Mr. Abbott also negotiated a leveraged buyout of Ithaca with
Merrill Lynch and Butler Capital.
Jon D. Silverman has served as a consultant to the Company since its
inception. It is the present intention of the Company to engage the services of
Mr. Silverman as its Chairman, President, Chief Executive Officer and director
of the Company upon completion of this Offering. Since 1980 he has served as the
principal of Tilis Products, Inc., his own specialized international business
consulting, mergers and acquisitions firm (including capital formation) in the
food, beverages and other consumer products and services industries. He has
served as Vice Chairman, Board of Trustees, of the United Hospital, Port
Chester, New York for 15 years and is currently an Honorary Trustee; is a
director of Pastificio Gazzola, Mondovi, Italy, a leading pasta exporter; and a
past director of Combined Moretti/Prinz Brau Breweries, a subsidiary of John
Labatt, Ltd. From 1979 to 1980, he was Executive Vice President of Esquire,
Inc., an educational, magazine and music publishing firm, manufacturer of
lighting equipment and importer of sporting goods. Before that he was employed
by the Seagram Company, Ltd. from 1965 to 1979, where he held numerous
positions, including President of Seagram, Germany, and Executive Vice President
of Seagram Overseas Sales Company, the international division of Seagram.
- 28 -
<PAGE>
Michael D. Handler has served as a consultant to the Company since March
1996. Since January 1994, he has been the President and Chief Executive Officer
of Nologies, Inc. ("Nologies"), a product and technology development company.
From May 1993 through January 1994, he held various positions with RIC and its
affiliates, including Vice President of Research and Development. Prior thereto
he worked at a private contract research and development consulting company for
19 years. He has 25 years of experience in the management and implementation of
research and development activities.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
services, in all capacities for fiscal 1995, of those persons who were, at the
end of fiscal 1995, the Chief Executive Officer and the most highly compensated
executive officers of the Company (collectively, the "Named Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
Other
Name and Annual Restricted Securities All
Principal Fiscal Compensation Stock Underlying Other
Position(1) Year Salary($) Bonus($) ($)(2) Awards($) Options(#) Compensation($)
----------- ---- --------- -------- ------ --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
David Brenman 1995 $18,000 -- -- -- -- --
President
-----------------
<FN>
(1) No executive officer earned more than $100,000 in fiscal 1995.
(2) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Officers did not
exceed the lesser of (i) 10% of such officer's total annual salary and
bonus for fiscal 1995 and (ii) $50,000. Thus, such amounts are not
reflected in the table.
</FN>
</TABLE>
The Company plans to submit for approval of its stockholders, in the near
future, a stock option plan covering 1,200,000 shares of Common Stock.
EMPLOYMENT AND NON-COMPETE AGREEMENTS
Jon D. Silverman
It is anticipated that the Company will enter into a three-year employment
agreement with Jon Silverman upon the closing of this Offering. Pursuant to such
proposed employment agreement, Mr. Silverman will receive a monthly salary of
$15,000. In addition, the Company will be obligated to pay the premium on his
$1,000,000 life insurance policy, to which his estate is the beneficiary. This
insurance policy is in addition to the $1,000,000 key-man life insurance policy
to be maintained by the Company on the life of Mr. Silverman. He will also be
entitled to customary benefits and perquisites.
Michael D. Handler
The Company has entered into an agreement, dated March 5, 1996, with
Nologies, under which Nologies will assist in (i) the directing and managing of
product and technology development, (ii) licensing and strategic alliance
pursuits, and (iii) other related services that the Company may request from
time to time, in the area of food and beverage dispensing and delivery systems.
The term of such agreement is for twelve months and may be terminated upon 30
days written notice. The Company shall pay Nologies $8,000 per month and
reimburse it for reasonable documented business expenses. Pursuant to the terms
of such agreement, Nologies agrees (a) not to disclose, at any time, any
confidential business or technical information or trade secrets acquired during
its association with the Company and which relates to the present or
contemplated business of the Company, whether or not conceived of, discovered,
developed or prepared by Nologies, (b) during the term of the agreement and for
- 29 -
<PAGE>
a one year period thereafter, it will not represent, consult, serve, or be
employed by any competing enterprise, and (c) never to divulge any confidential
information to any third party.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware permits
indemnification by a corporation of certain officers, directors, employees and
agents. Consistent therewith, Article Eighth of the Certificate of Incorporation
requires that the Company indemnify all persons whom it may indemnify pursuant
thereto to the fullest extent permitted by Section 145.
In addition, Article Seventh of the Certificate of Incorporation provides
that directors and officers of the Company shall not be personally liable for
monetary damages to the Company or its stockholders for a breach of fiduciary
duty as a director, except for liability as a result of (i) a breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) an act related to the unlawful stock repurchase or
payment of a dividend under Section 174 of Delaware General Corporation Law, and
(iv) transactions from which the director derived an improper personal benefit.
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to the
limits of the policy, against certain losses arising from claims made against
such directors and officers by reason of any acts or omissions covered under
such policy in their respective capacities as directors or officers, including
liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
that such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company will be reimbursed for reasonable
travel and lodging expenses incurred in attending meetings of the Board of
Directors and any committees on which they may serve. Directors do not presently
receive any fees for attendance or participation at Board or committee meetings.
- 30 -
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LICENSE AGREEMENT
The Company has licensed the RESEAL(TM) Technologies from RIC, on a
worldwide exclusive basis, solely in the Field of Use pursuant to the Company
License Agreement, and will endeavor to commercialize and market the RESEAL(TM)
Technologies to third parties for its implementation in the food and beverage
industries. Pursuant to the Company License Agreement, RIC granted the Company a
royalty-free exclusive worldwide license for an aggregate of $4,000,000 and
2,900,000 shares of Common Stock, to (i) directly or indirectly make (or
subcontract to make), use, sell and otherwise commercially exploit the
RESEAL(TM) Technology, solely in the Field of Use, and (ii) grant sublicenses to
affiliated and non-affiliated third parties, solely in the Field of Use,
provided, however, that the Company shall not be permitted to sublicense the
right to manufacture the RESEAL(TM) Valve Assemblies. From October 1995 to the
Effective Date, the Company has paid RIC $750,000 and has advanced an aggregate
of approximately $550,000 to RIC, which shall be offset against the $4,000,000
license fee discussed above. The remaining $2,700,000 shall be paid out of the
proceeds of this Offering received by the Company.
The Company is primarily responsible for all research and development
activities necessary to exploit fully the commercial possibilities of the
RESEAL(TM) Technology. The research and development activities shall include
testing of proposed Products and ongoing technical support for the modification,
improvement, enhancement, development or variation of existing Products and the
development of new Products. RIC is responsible for causing RILP to manage all
intellectual property associated with the RESEAL(TM) Technology, including
patents and trademarks, in order to maximize its commercial potential. This
obligation includes the prosecution of all patent and trademark applications,
subject to the Company's approval of budgets and expenditures in advance, and,
in the sole discretion of RIC (or upon receipt by RIC of the Company's
commitment to pay 100% of the related reasonable costs and expenses), all suits
for infringement of patents or trademarks. If RIC or RILP is unwilling or unable
to undertake such patent obligations, then the Company is authorized to
undertake such obligations on behalf of RILP.
The Company License Agreement may not be assigned by either party thereto
without the express written consent of the other party, except that the Company
may sublicense applications of the RESEAL(TM) Technologies within the Field of
Use at its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the RESEAL(TM) Technologies in the
Field of Use. See "Business--License Agreement."
PRIVATE PLACEMENT; BRIDGE FINANCING
Between October 1995 and April 1996, the Company (i) sold an aggregate of
525,000 shares of Common Stock to the Selling Securityholders for a total of
$1,050,000 (the "Private Placement") and (ii) entered into the Bridge Loan with
the Selling Securityholders in the aggregate amount of $1,050,000. Each Selling
Securityholder participated in both the Private Placement and the Bridge Loan.
The Bridge Loan bears interest at the rate of eight (8%) percent per annum and
will be repaid out of the proceeds of this Offering received by the Company. As
further consideration for the Bridge Loan, the Selling Securityholders were
given the right to acquire, commencing on the Effective Date, the 787,500 Bridge
Units which are comprised of 1,575,000 shares of Common Stock and 1,575,000
Class A Warrants. The Class A Warrants included in the Bridge Units are
identical to the Class A Warrants included in the Company Units . The Company
and the Selling Securityholders are in the process of amending the Bridge Loan
agreements to reflect that all of the 787,500 Bridge Units will be outstanding
prior to this Offering and will be included in the Registration Statement. The
Registration Statement, of which this Prospectus forms a part, also covers the
registration of (i) the 1,575,000 shares of Common Stock included as part of the
Bridge Units, (ii) the Class A Warrants to purchase 1,575,000 shares of Common
Stock included as part of the Bridge Units, and (iii) the 1,575,000 shares of
Common Stock issuable upon exercise of the Class A Warrants included in the
Bridge Units. The Bridge Securities held by the Selling Securityholders may be
sold commencing thirteen (13) months from the Effective Date; however, the
Underwriter may release the Bridge Securities held by the Selling
Securityholders at any time after the Company Units have been sold. If the
Underwriter releases the Bridge Securities (which has happened in previous
offerings underwritten by the Underwriter), then sales of such securities, as
well as the potential of such sales at any time, may have an adverse effect on
the market prices of the securities offered hereby. The resale of the Bridge
Securities of the Selling Securityholders are subject to prospectus delivery and
other requirements of the Securities Act. The Company will not receive any of
the proceeds from the sale of the Bridge Securities. Should the Class A Warrants
offered by the Selling Securityholders be exercised, of which there is no
assurance, the Company will receive the proceeds therefrom aggregating up to an
additional $9,922,500. The Class A Warrants are redeemable upon certain
conditions.
- 31 -
<PAGE>
Prior to making the Bridge Loan to the Company and purchasing shares of
Common Stock in the Private Placement, the Selling Securityholders did not own
any other securities of the Company. None of the Selling Securityholders were
otherwise affiliated with the Company at the time of making the Bridge Loan, at
the Effective Date or at any other time. The Company believes that its financial
transactions with the Selling Securityholders served a legitimate business
purpose, i.e., providing needed working capital for the Company, and were fair
and reasonable under the circumstances. The Company's financial transactions
with the Selling Securityholders were managed by the Underwriter and no
commissions or other remuneration were paid to the Underwriter in connection
with such transactions. To the extent that the Underwriter acts as a
broker-dealer for the Selling Securityholders in connection with effecting the
sale of their securities, the Underwriter would receive brokerage and commission
income. See "Selling Securityholders," "Description of Capital Stock" and
"Underwriting."
CONVERTIBLE NOTES
In November and December 1995, the Company issued to each of Ross Portenoy
and ATG Group, Inc. a Convertible Note in the principal amount of $100,000 (the
"Portenoy Note") and $50,000 (the "ATG Note"), respectively. The notes bear
interest at an annual rate of 8%. The Portenoy Note came due on April 15, 1996
and the ATG Note comes due on December 20, 1996. On June 28, 1996, in accordance
with an agreement with the Company, the holder of the ATG Note, which contained
the right to convert into 1.2 million shares of Common Stock, agreed to transfer
such note to the Company for cancellation in return for the Company agreeing to
pay it $300,000. The amounts owed by the Company to the holders of the
Convertible Notes shall be paid out of the proceeds of this Offering received by
the Company. See "Use of Proceeds."
SETTLEMENTS OF LEGAL PROCEEDINGS
Stanson Settlement
In October 1995, in connection with a settlement of actions and claims
against certain affiliates of RIC and RIC's officers and directors, including
David Brenman (the "Stanson Settlement"), the licensor of the RESEAL(TM)
Technology, the Company agreed to issue (i) 2,900,000 shares of Common Stock to
RIC, as partial compensation under the Company License Agreement, (ii) an
aggregate of 1,500,000 shares of Common Stock (the "Investor Shares") to certain
investors in RILP, including Gregory Abbott (422,000 shares) and George Kriste
(130,000 shares), and (iii) an aggregate of 450,000 shares of Common Stock to
certain individuals for services rendered, including Joseph Koster (58,000
shares), David Brenman (53,000 shares) and Jon Silverman (50,000 shares). In
addition, the Company agreed that its Board of Directors would consist of Jon
Silverman, David Brenman, Joseph Koster, Gregory Abbott and George Kriste.
Pursuant to such settlement, the holders of the Investor Shares may require
the Company to file a Registration Statement under the Securities Act with
respect to 25% of such shares of Common Stock, commencing one year from the
Effective Date, subject to certain conditions and limitations. Further, if the
Company proposes to register any shares of Common Stock under the Securities
Act, other than pursuant to an initial public offering or the previous sentence,
then the holders of the Investor Shares are entitled to include an additional
25% of their shares of Common Stock in such registration. See "Description of
Capital Stock--Registration Rights."
Banco Settlement
In May 1996, in connection with the settlement of a lawsuit (the "Banco
Settlement") brought by Banco Inversion, S.A. and Administratadora General de
Patrimonios, S.A. (collectively, "Banco") against certain affiliates of RIC, RIC
entered into an agreement pursuant to which it agreed, among other things, (i)
to transfer an aggregate of 300,000 of its shares of the Company's Common Stock
(the "Settlement Shares") to Banco, (ii) to pay Banco $50,000 at the closing of
such settlement and $150,000 out of the licensing fees RIC receives from the
proceeds of this Offering and (iii) to exchange mutual releases with the parties
of such lawsuit.
The number of Settlement Shares, subject to certain anti-dilution
adjustments, may be increased up to 600,000 shares in the event that 30 months
after the Effective Date the market value of the 300,000 Settlement Shares is
less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the right
to register such shares along with shares registered by the Company in a public
offering, whether on behalf of the Company or other holders of Common Stock,
subject to customary market factor limitations. Such registration rights
terminate upon the earlier
- 32 -
<PAGE>
of (i) the date that all Settlement Shares have been either registered or sold,
or (ii) the date that all such shares may be sold pursuant to Rule 144(k) under
the Securities Act. See "Description of Capital Stock--Registration Rights."
EMPLOYMENT AND NON-COMPETE AGREEMENTS
It is anticipated that the Company will enter into a three-year employment
agreement with Jon Silverman upon the closing of this Offering. Pursuant to such
proposed employment agreement, Mr. Silverman will receive a monthly salary of
$15,000. In addition, the Company will be obligated to pay the premium on his
$1,000,000 life insurance policy, to which his estate is the beneficiary. This
insurance policy is in addition to the $1,000,000 key-man life insurance policy
to be maintained by the Company on the life of Mr. Silverman. He will also be
entitled to customary benefits and perquisites.
The Company has entered into an agreement, dated March 5, 1996, with
Nologies, under which Nologies will assist in (i) the directing and managing of
product and technology development, (ii) licensing and strategic alliance
pursuits, and (iii) other related services that the Company may request from
time to time, in the area of food and beverage dispensing and delivery systems.
The term of such agreement is for twelve months and may be terminated upon 30
days written notice. The Company shall pay Nologies $8,000 per month and
reimburse it for reasonable documented business expenses. Pursuant to the terms
of such agreement, Nologies agrees (a) not to disclose, at any time, any
confidential business or technical information or trade secrets acquired during
its association with the Company and which relates to the present or
contemplated business of the Company, whether or not conceived of, discovered,
developed or prepared by Nologies, (b) during the term of the agreement and for
a one year period thereafter, it will not represent, consult, serve, or be
employed by any competing enterprise, and (c) never to divulge any confidential
information to any third party. Michael D. Handler is the President and Chief
Executive Officer of Nologies.
RENTAL SHARING
The Company may, at its own discretion, make payments for certain expenses
incurred by RIC and withhold such amounts from the licensing fees due to RIC
under the Company License Agreement. Such expenses, if advanced, may include
certain salaries, patent costs, insurance, medical plans, rent, phone and office
supplies, which in the past has aggregated approximately $21,000 per month.
- 33 -
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of August 26, 1996, and as
adjusted to reflect the sale of shares offered hereby, for (i) each person or
group that is known by the Company to be a beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each of the Named Officers and
directors, and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that such beneficial
owners, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws,
where applicable.
<TABLE>
Percent Owned(2)
Name and Address Number
of Beneficial Owner(1) of Shares Before Offering(3) After Offering(4)
<S> <C> <C> <C>
ReSeal International Corporation 2,375,000(5) 30.1% 24.4%
342 Madison Avenue, Suite 1034
New York, New York 10173
Jon Silverman 500,000 6.3% 5.1%
c/o ReSeal Food Dispensing Systems, Inc.
342 Madison Avenue, Suite 1034
New York, New York 10173
Gregory Abbott 422,000 5.3% 4.3%
c/o ReSeal Food Dispensing Systems, Inc.
342 Madison Avenue, Suite 1034
New York, New York 10173
David Brenman 253,000(6) 3.2% 2.6%
Joseph Koster 158,000 2.0% 1.6%
George Kriste 130,000 1.6% 1.3%
All directors and executive officers as a group 963,000 12.2% 9.9%
(4 persons)...................................
</TABLE>
- ------------
(1) Address provided for beneficial owners of more than 5% of the Common
Stock.
(2) For purposes of computing the percentage of outstanding shares of
Common Stock held by each person or group of persons named above, any
security which such person or persons have or have the right to acquire
within 60 days is deemed to be outstanding but is not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Does not include the 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units.
(4) Does not include (i) 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units; (ii)
1,818,182 shares of Common Stock issuable upon the exercise of the
Class A Warrants contained in the Company Units; (iii) 181,818 shares
of Common Stock issuable upon the exercise of the Underwriter's Unit
Purchase Option; and (iv) 181,818 shares of Common Stock issuable upon
the exercise of the Class A Warrants included in the Underwriter's Unit
Purchase Option.
(5) This number may be reduced by 150,000 shares in the near future, since
RIC anticipates transferring such number of shares to one of its
stockholders in exchange for shares of RIC that such individual owns.
- 34 -
<PAGE>
(6) Includes 200,000 shares of Common Stock owned of record by Venture
Financial Limited Partnership, a limited partnership of which David
Brenman is the sole shareholder of the General Partner, Venture
Financial, Inc.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, par value $0.001 per share (the "Common Stock"), of which
7,900,000 shares are currently outstanding, and 2,000,000 shares of Preferred
Stock, par value $0.001 per share (the "Preferred Stock"), of which no shares
are currently outstanding. At August 26, 1996, there were approximately 40
record holders of the Common Stock.
UNITS
Each of the Units offered hereby consists of two shares of Common Stock and
two redeemable Class A Warrants. Each Class A Warrant entitles the holder
thereof to purchase one share of Common Stock. The Class A Warrants shall be
exercisable commencing one year from the Effective Date and shall be evidenced
by separate certificates. The Common Stock and Class A Warrants are detachable
and may trade separately immediately upon issuance.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote. Holders
of the Common Stock have equal ratable rights to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors and are
entitled to share ratably, as a single class, in all of the assets of the
Company available for distribution to holders of shares of Common Stock upon the
liquidation, dissolution or winding up of the affairs of the Company. Holders of
Common Stock do not have preemptive, subscription or conversion rights. There
are no redemption or sinking fund provisions for the benefit of the Common Stock
in the Certificate of Incorporation. The Company's stockholders do not have the
right to cumulative voting in the election of directors. All outstanding shares
of Common Stock are, and those shares of Common Stock included in the Units
offered hereby and issuable upon exercise of the Class A Warrants included in
such Units will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued in series, and shares of each series will
have such rights and preferences as are fixed by the Board of Directors in the
resolutions authorizing the issuance of that particular series. In designating
any series of Preferred Stock, the Board of Directors may, without further
action by the holders of Common Stock, fix the number of shares constituting
that series and fix the dividend rights, dividend rate, conversion rights,
voting rights (which may be greater or lesser than the voting rights of the
Common Stock), rights and terms of redemption (including any sinking fund
provisions) and the liquidation preferences of the series of Preferred Stock.
Holders of any series of Preferred Stock, when and if issued, may have priority
claims to dividends and to any distributions upon liquidation of the Company,
and other preferences over the holders of the Common Stock.
The Board of Directors may issue a series of Preferred Stock without action
by the stockholders of the Company. The issuance of Preferred Stock may
adversely affect the rights of the holders of the Common Stock. For example, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the stockholders. In addition, the issuance of
Preferred Stock may dilute the voting power of holders of Common Stock (such as
by issuing Preferred Stock with supervoting rights) and may render more
difficult the removal of current management, even if such removal may be in the
stockholders' best interests. The Company has no current plans to issue any of
the Preferred Stock.
CLASS A WARRANTS
The Class A Warrants will be issued in registered form pursuant to an
agreement, dated the Effective Date (the "Warrant Agreement"), between the
Company and Continental Stock Transfer & Trust Company (the "Warrant Agent").
The following discussion of certain terms and provisions of the Class A Warrants
is qualified in its entirety by reference to the detailed provisions of the
Warrant Agreement, the form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
- 35 -
<PAGE>
Each Class A Warrant represents the right of the registered holder to
purchase one share of Common Stock at an exercise price equal to $6.30, subject
to adjustment (the "Purchase Price"). The Class A Warrants will be entitled to
the benefit of adjustments in the Purchase Price and in the number of shares of
Common Stock and/or other securities deliverable upon the exercise thereof in
the event of a stock dividend, stock split, reclassification, reorganization,
consolidation, merger or the issuance of Common Stock or options to purchase
Common Stock at a price below the Purchase Price then in effect. The Company has
the right to reduce the Purchase Price or increase the number of shares of
Common Stock issuable upon the exercise of the Class A Warrants.
Unless previously redeemed, the Class A Warrants may be exercised at any
time commencing one year from the Effective Date and prior to the close of
business on the fifth anniversary of the Effective Date (the "Expiration Date").
On and after the Expiration Date, the Class A Warrants become wholly void and of
no value. The Company may, upon 30 days written notice to all holders of the
Class A Warrants, reduce the exercise price or extend the Expiration Date of all
outstanding Class A Warrants for such increased period of time as it may
determine. The Class A Warrants may be exercised at the office of the Warrant
Agent.
The Company has the right at any time after the second anniversary of the
Effective Date to redeem the Class A Warrants at a price of $.05 each, by
written notice mailed 30 days prior to the redemption date to each Class A
Warrant holder at his address as it appears on the books of the Warrant Agent.
Such notice shall only be given within 10 days following any period of 20
consecutive trading days during which the average closing bid price of the
shares of Common Stock as reported by the OTC Bulletin Board exceeds $8.00,
subject to adjustments for stock dividends, stock splits and the like. If the
Class A Warrants are called for redemption, they must be exercised prior to the
close of business on the date prior to the date of any such redemption or the
right to purchase the applicable shares of Common Stock will lapse.
The Warrants may be exercised by filling out and signing the appropriate
notice of exercise form attached to the Warrant and mailing or delivering it
(together with the Warrant) to Continental Stock Transfer & Trust Company of New
York, New York, the Warrant Agent, in time to reach the Warrant Agent prior to
the time fixed for termination or redemption of the Warrants, accompanied by
payment of the full warrant exercise price.
No holder, as such, of Class A Warrants shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purpose whatsoever until such Class A Warrants have been duly exercised and the
Purchase Price has been paid in full. Although the Company intends to apply for
the Warrants to be included for quotation on the OTC Bulletin Board, of which
there can be no assurance, at the present time there is no market for the
Warrants and there can be no assurance that a trading market for the Warrants
will ever develop.
If required, the Company will file a new registration statement with the
Commission with respect to the securities underlying the Class A Warrants prior
to the exercise of the Class A Warrants and deliver a prospectus with respect to
such securities to all Class A Warrant holders as required by Section 10(a)(3)
of the Securities Act. See "Risk Factors--Current Prospectus and State
Registration Required to Exercise Class A Warrants."
BRIDGE UNITS
In connection with the Bridge Loans, the Company issued to the Selling
Securityholders, Bridgeholders Options to receive an aggregate of 787,500 Bridge
Units. Each Bridge Unit contains two shares of Common Stock and two Class A
Warrants. The Class A Warrants included in the Bridge Units are identical to the
Class A Warrants included in the Company Units. The Selling Securityholders and
the Company are in the process of amending the Bridge Loan agreements to reflect
that all of the 787,500 Bridge Units will be outstanding prior to this Offering
. The Registration Statement, of which this Prospectus forms a part, covers the
787,500 Bridge Units, the 1,575,000 shares of Common Stock and the 1,575,000
Class A Warrants contained in the Bridge Units, and the 1,575,000 shares of
Common Stock underlying the Class A Warrants contained in the Bridge Units,
although the Company will not receive any of the proceeds from the sale of such
securities. The Bridge Securities are not transferable until the earlier of 13
months following the Effective Date or at such earlier date as may be permitted
by the Underwriter. The securities underlying the Bridge Units may trade
separately .
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company will be subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an
- 36 -
<PAGE>
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless, among
other exceptions, the business combination is approved by (i) the Board of
Directors prior to the date the interested stockholder obtained such status or
(ii) the holders of two-thirds of the outstanding shares of each class or series
of stock entitled to vote generally in the election of directors, not including
those shares owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or, more of the
corporation's voting stock.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violating of
law. The Company's Certificate of Incorporation also contains provisions to
indemnify its directors and officers to the fullest extent permitted by the
General Corporation Law of Delaware. These provisions have the practical effect
in certain cases of eliminating the ability of stockholders to collect damages
from such individuals. The Company believes that these provisions have assisted
the Company in attracting and retaining qualified individuals to serve as
directors and officers.
REGISTRATION RIGHTS
Pursuant to the terms of the Stanson Settlement, the holders of the
Investor Shares may require the Company to file a Registration Statement under
the Securities Act with respect to 25% of such shares of Common Stock,
commencing one year from the Effective Date, subject to certain conditions and
limitation. Further, if the Company proposes to register any shares of Common
Stock under the Securities Act, other than pursuant to an initial public
offering or the previous sentence, then the holders of the Investor Shares are
entitled to include an additional 25% of their shares of Common Stock in such
registration. See "Certain Relationships and Related Transactions--Settlement of
Legal Proceedings."
Under the terms of a Registration Rights Agreement entered into in
connection with the Banco Settlement, if the Company proposes to register any
shares of Common Stock, either for its own account or the account of holders of
shares having registration rights, other than pursuant to an initial public
offering or the registration of any of the Bridge Units and its underlying
securities, then Banco or their successors are entitled to notice of such
registration and to include their shares of Common Stock in such registration.
These rights are subject to certain conditions and limitations, including the
right of the underwriter to limit the number of shares included in such
registration. See "Certain Relationships and Related Transactions--Settlements
of Legal Proceedings."
Upon the consummation of this Offering, the Company will issue, for nominal
consideration, an Underwriter's Unit Purchase Option to acquire up to an
aggregate of 90,909 Units, which Units contain certain registration rights under
the Securities Act relating to the shares of Common Stock constituting a portion
of such Units and the shares of Common Stock issuable upon exercise of the Class
A Warrants that make up the remainder of such Units (collectively, the "Option
Shares"). Under the terms of the Underwriter's Unit Purchase Option, the Company
is obligated to register all or part of the Option Shares if it receives a
request to do so by the holders owning or entitled to purchase at least 50% of
the Option Shares, provided that the request is made 12 months after the
Effective Date. The Underwriter's Unit Purchase Option provides for one such
request, which will be at the Company's expense, other than legal fees and
expenses of the holders, and underwriting discounts and commissions on
securities sold by such holders. The demand registration rights contained in the
Underwriter's Unit Purchase Option will expire no later than five years from the
Effective Date. In addition, if the Company proposes to register any of its
securities under the Securities Act for its own account, holders of the
Underwriter's Unit Purchase Option or Option Shares are entitled to notice of
such registration and the Company is obligated to use all reasonable efforts to
cause the Option Shares to be included, provided that the underwriter of any
such offering shall have the right to limit the number of shares included in the
registration. The Company is responsible for all expenses incurred in connection
with any such piggyback registration of the Option Shares, other than legal fees
and expenses of the holders, and underwriting discounts and commissions on
securities sold by such holders. The piggyback registration rights contained in
the Underwriter's Unit Purchase Option will expire no later than five years from
the Effective Date.
Prior to this Offering, there has been no public market for the Company's
securities. The Company can make no prediction as to the effect, if any, that
sales of the Company's securities or the availability of such
- 37 -
<PAGE>
securities for sale will have on the market price prevailing from time to time.
Sales of substantial amounts of the Company's securities in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the Company's securities and could impair the Company's future ability
to raise capital through an offering of its equity securities.
STOCK TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The stock transfer agent, warrant agent and registrar for the Units, Common
Stock and Class A Warrants is Continental Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 7,900,000 shares of Common Stock currently outstanding may be
deemed "restricted securities" as that term is defined under the Securities Act,
and in the future may be sold pursuant to a registration under the Securities
Act, in compliance with Rule 144 under the Securities Act, or pursuant to
another exemption therefrom. Rule 144 provides, that, in general, a person
holding restricted securities for a period of two years and any affiliate of the
Company may, every three months, sell in brokerage transactions an amount of
shares which does not exceed the greater of one percent of the Company's then
outstanding Common Stock or the average weekly trading volume of the Common
Stock during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of shares without any quantity limitations
by a person who is not an affiliate of the Company and was not an affiliate at
any time during the 90 day period prior to sale and who has satisfied a three
year holding period. Sales of the Common Stock by certain present stockholders
under Rule 144 may, in the future, have a depressive effect on the market price
of the Company's securities.
The Company has agreed that, with certain exceptions, it will not offer,
sell, grant any option to purchase or otherwise issue any of its securities for
a period of 24 months after this Offering is complete without the prior consent
of the Underwriter. In addition, the holders of all of the restricted securities
have agreed not to offer, sell, grant any option to purchase or otherwise
dispose of any securities of the Company for a period of 24 months after this
Offering is completed without the prior consent of the Underwriter other than
certain transfers between related parties or entities. See "Risk Factors--Shares
Eligible for Future Sale" and "Underwriting."
- 38 -
<PAGE>
SELLING SECURITYHOLDERS
This Offering includes the 787,500 Bridge Units, consisting of 1,575,000
shares of Common Stock and 1,575,000 Class A Warrants. The Class A Warrants
included in the Bridge Units are identical to the Class A Warrants included in
the Company Units. The Bridge Securities are all being registered for resale
under the Registration Statement, of which this Prospectus forms a part, but may
not be sold for a period of 13 months from the Effective Date without the prior
written consent of the Underwriter. The Underwriter may release the Bridge
Securities held by the Selling Securityholders at any time after the Company
Units have been sold. The resale of the Bridge Securities is subject to
prospectus delivery and other requirements of the Securities Act. If the
Underwriter releases the Selling Securityholders' Bridge Securities (which has
happened in previous offerings underwritten by the Underwriter), then sales of
the Bridge Securities, as well as the potential of such sales at any time, may
have an adverse effect on the market prices of the securities offered hereby.
See "Underwriting."
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF COMMON STOCK NUMBER OF
SHARES OF CLASS A OWNED SHARES COMMON STOCK OWNED
COMMON STOCK WARRANTS PRIOR TO TO BE AFTER OFFERING (1)(3)
BRIDGE UNDERLYING UNDERLYING OFFERING(1) OFFERED(2) NUMBER PERCENT
NAME OF INVESTOR UNITS BRIDGE UNITS BRIDGE UNITS NUMBER PERCENT
<S> <C> <C> <C> <C> <C> <C> <C>
Armstrong Industries 131,250 262,500 262,500 612,500 7.5% 525,000 87,500 *
Harvey Bibicoff 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Calvin Caldwell 46,875 93,750 93,750 218,750 2.7 187,500 31,250 *
Edward Ferree 18,750 37,500 37,500 87,500 1 .1 75,000 12,500 *
Andre Van Gils 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Daryl Hagler 18,750 37,500 37,500 87,500 1.1 75,000 12,500 *
Irving Kraut 93,750 187,500 187,500 437,500 5.4 375,000 62,500 *
David Landua 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Steven Madden 75,000 150,000 150,000 350,000 4.3 300,000 50,000 *
Roger Oppenheimer 9,375 18,750 18,750 43,750 * 37,500 6,250 *
Plus One Finance Ltd. 56,250 112,500 112,500 262,500 3.3 225,000 37,500 *
Douglas Preston 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Rotanes Inc. 18,750 37,500 37,500 87,500 1.1 75,000 12,500 *
Raphael Schneiderman 93,750 187,500 187,500 437,500 5.4 375,000 62,500 *
Harry Shuster 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Lloyd Solomon 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
-------- ----------- ----------- --------- -------
Total............... 787,500 1,575,000 1,575,000 3,150,000 525,000
======== ========== = ========= =========== =======
</TABLE>
- ----------------
* less than 1%
(1) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Common Stock which such
person has the right to acquire after the Effective Date. For purposes
of computing the percentage of outstanding shares of Common Stock held
by each person or group of persons named above, any security which
such person or persons has or have the right to acquire after the
Effective Date is deemed to be outstanding but is not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person. Except as indicated in the footnotes to this table
and pursuant to applicable community property laws, the Company
believes based on information supplied by such persons, that the
persons named in this table have sole voting power with respect to all
shares of Common Stock which they beneficially own.
(2) Includes the shares of Common Stock included in the Bridge Units and
the shares of Common Stock underlying the Class A Warrants included in
the Bridge Units.
(3) Assumes the sale of all Bridge Units registered in this Offering.
- 39 -
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed to sell on behalf of the
Company 909,091 Company Units on a "best efforts, all-or-none" basis during the
Offering Period. The Underwriter has made no commitment to purchase or take down
all or any part of the Units offered hereby. The Underwriter has agreed to use
its best efforts to find purchasers for the Company Units offered hereby within
a period of 90 days from the Effective Date, subject to an extension by mutual
agreement of the parties for an additional period of 30 days. Each subscriber
will receive from the Underwriter confirmation of his subscription to purchase
Company Units with instructions to forward their funds to the escrow agent. All
proceeds raised in this Offering from sales of Company Units will be deposited
by noon of the next business day following receipt, in an escrow account. All
subscriber checks will be made payable to the escrow agent, as escrow agent for
the Company. If all the Company Units are not sold within 90 days from the
Effective Date (which may be extended an additional 30 days) and the offering is
cancelled, all monies received and held in the escrow account will be promptly
returned to the investor without interest thereon. In addition, during the
period of escrow, subscribers will not be entitled to a refund of their
subscription.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at $11.00 per Unit as set forth on the cover page of this
Prospectus and that it may allow to certain dealers who are NASD members
concessions not to exceed $[____] per Unit . The Units will be sold on a fully
paid basis only. Common Stock and Warrant certificates will be issued to
purchasers only if the proceeds from the sale of all Company Units are released
to the Company. Until such time as the funds have been released by the escrow
agent, such purchasers, if any, will be deemed subscribers and not stockholders.
The funds in escrow will be held for the benefit of those subscribers until
released to the Company, and will not be subject to creditors of the Company or
the expenses of this Offering. After the initial public offering, the public
offering price, concession and allowance may be changed by the Underwriter. The
Underwriter has informed the Company that it does not intend to confirm sales to
any accounts over which it exercises discretionary authority.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be provided to officers, directors or persons controlling the Company , the
Company has been informed that in the opinion of the Commission, such
indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay the Underwriter, in addition to underwriting
discounts and commissions of eight and one-half (8.5%) percent of the proceeds
from sales of Company Units, a non-accountable expense allowance of three (3%)
percent of the gross proceeds of this Offering from the sale of the Company
Units. The Underwriter's expenses in excess of the stated expense allowance will
be borne by the Underwriter. To the extent that the expenses of the Underwriter
are less than the stated expense allowance, the difference may be deemed
compensation to the Underwriter in addition to the sales commission payable to
the Underwriter. The Company has also agreed to pay to the Underwriter a fee of
four (4%) percent of the exercise price of the Class A Warrants on all Class A
Warrants exercised one year after the Effective Date (not including Class A
Warrants exercised by the Underwriter), provided, among other things, that the
exercising warrantholder identifies the Underwriter in writing as having
solicited the exercise of such Class A Warrants and that the fees paid are in
compliance with Rule 2710(c)(6)(B)(xi) of the NASD Conduct Rules.
The Company has agreed to sell to the Underwriter, or its designees, for a
purchase price of $.001 per underlying Unit, the Underwriter's Unit Purchase
Option to purchase up to an aggregate of 90,909 Units. The Underwriter's Unit
Purchase Option shall be exercisable for a term of four (4) years commencing
twelve (12) months after the Effective Date. The Underwriter's Unit Purchase
Option may not be assigned, transferred, sold or hypothecated by the Underwriter
until twelve (12) months after the Effective Date, except to officers of the
Underwriter. Any profits realized by the Underwriter upon the sale of the Units
issuable upon exercise of the Underwriter's Unit Purchase Option may be deemed
to be additional underwriting compensation. The exercise price of the Units
issuable upon exercise of the Underwriter's Unit Purchase Option during the
period of exercisability shall be 165% of the initial public offering price of
the Units ($18.15 per Unit). The exercise price of the Class A Warrants included
in the Units issuable upon exercise of the Underwriter's Unit Purchase Option
during the period of exercisability shall be 165% of the exercise price of the
Class A Warrants included in the Company Units and the Bridge Units ($10.40 per
Unit). The exercise price of the Underwriter's Unit Purchase Option and the
Class A Warrants included thereunder, as well as the number of shares covered
thereby, are subject to adjustment
- 40 -
<PAGE>
in certain events to prevent dilution. For the life of the Underwriter's Unit
Purchase Option, the holders thereof are given, at a nominal cost, the
opportunity to profit from a rise in the market price of the Company's Units,
Common Stock and Class A Warrants with a resulting dilution in the interest of
other stockholders. The Company may find it more difficult to raise capital for
its business if the need should arise while the Underwriter's Unit Purchase
Option is outstanding. At any time when the holders of the Underwriter's Unit
Purchase Option might be expected to exercise it, the Company would probably be
able to obtain additional capital on more favorable terms. See "Description of
Capital Stock--Registration Rights."
For a period of five (5) years following the Effective Date, if the Company
enters into a transaction (including a merger, joint venture or the acquisition
of another entity) introduced to the Company by the Underwriter, the Company has
agreed to pay the Underwriter a finder's fee equal to (i) 5.0% of the first
$3,000,000 of consideration involved in the transaction, (ii) 4.0% of the next
$3,000,000 of such consideration, (iii) 3.0% of the next $2,000,000 of such
consideration, (iv) 2.0% of the next $2,000,000 of such consideration and (v)
1.0% of such consideration in excess of $10,000,000.
As of the Effective Date, all of the Company's stockholders have agreed
that with respect to all of the shares held by them, they will not sell,
transfer, pledge or otherwise encumber any securities of the Company for a
period of 24 months from the Effective Date, without the Underwriter's prior
written consent. Moreover, except for the issuance of shares of capital stock by
the Company in connection with a dividend, recapitalization, reorganization or
similar transaction or as a result of the exercise of warrants or outstanding
options disclosed in the Registration Statement, the Company shall not, for a
period of 24 months following the Effective Date, directly or indirectly, offer,
sell or issue any shares of its Common Stock, or any security exchangeable or
exercisable for, or convertible into, shares of Common Stock, without the prior
written consent of the Underwriter.
In accordance with the Underwriting Agreement, the Underwriter is entitled
to designate an observer (the "Board Observer") to the Board of Directors, who
will be kept apprised of all material activities conducted by the Board,
including being in attendance at all meetings of the Board. The Board Observer
will not be reimbursed for expenses incurred by him in connection with his
activities.
Following the consummation of this Offering, the Underwriter intends to
seek others to make a market in the Company's securities in addition to the
Underwriter. As of the Effective Date, no such others have been identified and
the Underwriter has not entered into any agreements, contracts, understandings
or guarantees with respect thereto. The failure of others to make a market in
the Company's securities will likely have an adverse impact on the ability of
the holders of such securities to sell them.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and the Underwriter's Unit Purchase Option which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
The Company has been advised by the Underwriter that the NASD (District 10)
filed a complaint (No. C10950081) on October 5, 1995 ("Complaint") against the
Underwriter, Steven Sanders, the head trader of the Underwriter, Daniel M.
Porush, the president of the Underwriter, and Paul F. Byrne, formerly the
Underwriter's director of compliance (collectively, the "Respondents"), alleging
various violations of the NASD Rules of Fair Practice. The Complaint consisted
of three causes. The first cause alleged that the Underwriter and Mr. Sanders
effected principal retail sales of securities at prices that were fundamentally
excessive. The second cause alleged that the Underwriter and Mr. Sanders charged
excessive markups. The third cause alleged the Underwriter and Messrs. Porush
and Byrne failed to establish, maintain and enforce reasonable supervisory
procedures designed to assure compliance with the NASD's rules and policies.
On April 15, 1996 the NASD in its decision found all of the Respondents,
except Paul Byrne, in violation of all three causes and imposed the following
sanctions:
o Mr. Sanders was censured, fined $25,000 and was suspended from
association with any member of the NASD in any capacity for a period
of one year.
o The Underwriter was censured, fined $500,000 and was required to
disgorge its excess profits to its customers, totaling $1,876,205,
plus prejudgment interest. In addition, the Underwriter was suspended
for a period of one year from effecting any principal retail
transactions.
- 41 -
<PAGE>
o Mr. Porush was censured, fined $250,000 and barred from association
with any member of the NASD in any capacity.
The Underwriter and Messrs. Porush and Sanders have appealed the NASD's
decision, thereby staying imposition of the sanctions.
If the sanctions imposed on the Underwriter are not reversed on appeal, the
Underwriter's ability to act as a market maker of the Company's securities will
be restricted. The Company cannot ensure that other broker dealers will make a
market in the Company's securities. In the event that other broker dealers fail
to make a market in the Company's securities, the possibility exists that the
market for and the liquidity of the Company's securities may be adversely
affected to such an extent that public security holders may not have anyone to
purchase their securities when offered for sale at any price. In such event, the
market for and liquidity of the Company's securities may not exist. It should be
noted that although the Underwriter may not be the sole market maker in the
Company's securities, it may likely be the dominant market maker in the
Company's securities.
In April 1996, the NASD settled an action whereby it fined the Underwriter
$325,000 for fraud and other violations (which were neither admitted or denied)
in connection with its underwriting of an initial public offering. Steven
Sanders was fined $50,000 and was suspended for a period of 45 days from
associating with an NASD member and agreed not to engage in any trading-related
activities for any NASD member for a period of 50 days. The settlement also
requires that the Underwriter file certain new supervisory procedures with the
NASD. The Underwriter filed with NASD on April 11, 1996 procedures relating to
the conduct of associated persons during and preceding an initial public
offering, which were aimed at preventing violations of Section 5 of the
Securities Act and Rule 10b-6 violations and the type of arbitrary pricing which
occurred in connection with the trading of securities underwritten by the
Underwriter on January 16, 1991. These procedures have been in effect since
April 11, 1996.
The Company has been advised by the Underwriter that the NASD (District 10)
filed a complaint (No. C10960080) on June 6, 1996 ("June 1996 Complaint")
against the Underwriter, Daniel Porush, Steven Sanders, Irving Stitsky, formerly
a registered representative of the Underwriter, and Jordan Shamah, a vice
president and director of the Underwriter (collectively, the "Respondents"),
alleging various violations of the Exchange Act and the NASD Rules of Fair
Practice. The June 1996 Complaint consists of seven causes of action. The first
cause alleges that the Underwriter, through Messrs. Porush and Sanders, engaged
in the use of fraudulent and manipulative devices in the failure to make bona
fide distributions in specified public offerings of securities underwritten by
the Underwriter. The second cause alleges that the Underwriter, through Messrs.
Porush, Sanders, Stitsky and Shamah, engaged in the use of fraudulent and
manipulative devices in the failure to make a bona fide distribution of common
stock of a company whose initial public offering was underwritten by the
Underwriter. The third cause alleges that the Underwriter, through Messrs.
Porush and Sanders for a period of three days, manipulated the common stock of
such company. The fourth cause alleges that the Underwriter, through Mr.
Sanders, charged fraudulently excessive markups in connection with the warrants
of such company. The fifth cause alleges that the Underwriter, through Mr.
Porush, violated the NASD's Free-Riding and Withholding Interpretation inasmuch
as he allegedly allocated securities in certain public offerings to persons
restricted from purchasing such securities. The sixth cause alleges that Messrs.
Porush and Stitsky failed to adequately supervise the Underwriter's activity
relating to the various alleged violations. The seventh cause alleges that the
Underwriter and Mr. Porush failed to establish and maintain reasonable
supervisory procedures to prevent the Underwriter's violative conduct. The
Respondents have filed answers to the June 1996 Complaint denying all material
allegations and alleged violations and are contesting the proceeding.
In addition, the Company has been advised by the Underwriter that the NASD
(District 10) filed a complaint (No. C10960068) on June 6, 1996 ("Complaint")
against the Underwriter and Patrick Gerard Hayes, the compliance director of the
Underwriter (collectively, the "Respondents"), alleging violations of the NASD
Rules of Fair Practice. The Complaint consists of two causes of action. The
first cause alleges that the Underwriter failed to report information regarding
at least 59 customer complaints the Underwriter received during the relevant
time periods as required by the NASD Rules of Fair Practice. The second cause
alleges that the Underwriter, through its compliance director, failed to
establish, maintain and enforce written procedures designed to ensure that the
Underwriter complied with the NASD Rules of Fair Practice. The Respondents have
filed answers to the Complaint and are contesting the proceeding.
On or about July 13, 1996, the District Business Conduct Committee for
District No. 10 ("District Committee") of the NASD issued a complaint against
the Underwriter alleging that the Underwriter violated Article
- 42 -
<PAGE>
III, Section 1 and Article IV, Section 5 of the NASD Rules of Fair Practice
by entering into settlement agreements with former customers which condition
customers' ability to cooperate with NASD investigations. The charges in the
complaint were upheld by the District Committee on this same date as well as the
National Business Conduct Committee of the NASD, and a fine of $20,000 was
assessed and the Underwriter was ordered to get the NASD's agreement on language
used in certain customer settlement agreements. The Underwriter also is
required, if asked by the NASD, to release customers from provisions in
settlement agreements that impose conditions on a customer's ability to provide
information to the NASD. The sanctions follow an appeal of findings that the
firm used certain agreements when settling customer complaints that precluded,
restricted, or conditioned customers' ability to cooperate with the NASD in
connection with its investigation of customer complaints. The Underwriter also
failed to release a customer from the restrictive provisions of such a
settlement. This action had been appealed to the Commission and the sanctions
aren't in effect pending consideration of the appeal. The Underwriter contests
the charges and has perfected an appeal to the Commission.
The Company has been advised by the Underwriter that the Commission
instituted an action on December 14, 1994 in the United States District Court
for the District of Columbia against the Underwriter. The complaint alleged that
the Underwriter was not complying with the March 17, 1994 Administrative Order
by failing to adopt the recommendations of an independent consultant. The
Administrative Order was previously consented to by the Underwriter, without
admitting or denying the findings contained therein, as settlement of an action
commenced against the Underwriter by the Commission in March 1992, which found
willful violations of the securities laws such that the Underwriter:
o engaged in fraudulent sales practices;
o engaged in and/or permitted unauthorized trading in customer accounts;
o knowingly and recklessly manipulated the market price of a company's
securities by dominating and controlling the market for those
securities;
o made improper and unsupported price predictions with regard to
recommended over-the-counter securities; and
o made material misrepresentations and omissions regarding certain
securities and its experience in the securities industry.
Pursuant to an Administrative Order, the Underwriter was censured and the
Stratton Consultant was chosen by the Commission to advise and consult with the
Underwriter and to review and recommend new supervisory and compliance
procedures. The complaint sought:
o to enjoin the Underwriter from violating the Administrative Order;
o an order commanding the Underwriter to comply with the Administrative
Order;
o to have a Special Compliance Monitor appointed to ensure compliance
with the Administrative Order; and
o the Underwriter claimed that the Stratton Consultant exceeded his
authority under the Administrative Order and had violated the terms of
the Administrative Order.
On February 28, 1995, the court granted the Commission's motion for a
permanent injunction (the "Permanent Injunction") and ordered the Underwriter to
comply with the Administrative Order, which required the appointment of an
independent consultant and a separate independent auditor and required that all
recommendations be complied with, including the taping of all telephone
conversations between the Underwriter's brokers and their customers. In granting
the Commission's motion for a Permanent Injunction, the court determined that
the Underwriter's conduct unequivocally demonstrated that there is a substantial
likelihood that it will continue to evade its responsibilities under the
Administrative Order. On April 20, 1995, the Underwriter filed an appeal to the
United States Court of Appeals for the District of Columbia, and on April 24,
1995 filed a motion to stay the Permanent Injunction pending the outcome of the
appeal. The motion to stay was denied. Subsequently, the Underwriter voluntarily
dismissed its appeal. The failure by the Underwriter to comply with the
Administrative Order or Permanent Injunction may adversely affect the
Underwriter's activities in that the court may enter a further
- 43 -
<PAGE>
order restricting the ability of the Underwriter to act as a market maker of the
Company's securities. The effect of such action may prevent the holders of the
Company's securities from selling such securities since the Underwriter may be
restricted from acting as a market maker of the Company's securities and, in
such event, will not be able to execute a sale of such securities. Also, if
other broker dealers fail to make a market in the Company's securities, the
public security holders may not have anyone to purchase their securities when
offered for sale at any price and the security holders may suffer the loss of
their entire investment.
As a result of the Permanent Injunction, the States of Pennsylvania,
Indiana and Illinois have commenced administrative proceedings seeking, among
other things, to revoke the Underwriter's license to do business in such states.
In Indiana, the Commissioner suspended the Underwriter's license for a three
year period. The Underwriter has appealed the decision and has requested a stay
pending appeal. The requested stay would maintain the status quo pending appeal.
In Illinois, the Underwriter intends to file an answer to the administrative
complaint denying the basis for revocation. The District of Columbia suspended
the Underwriter's license pending the outcome of an investigation. The States of
North Carolina and Arkansas also have suspended the Underwriter's license
pending a resolution of the proceedings in those states. The States of
Minnesota, Vermont, and Nevada have served upon the Underwriter notices of
intent to revoke the Underwriter's license in such states. The State of Rhode
Island has served on the Underwriter a Notice of Intent to suspend its license
in that state. The State of Connecticut has served on the Underwriter a notice
of intent to suspend or revoke the Underwriter's registration in that state with
a notice of right to hearing. In the State of Mississippi, the Underwriter has
agreed to a suspension of its license pending resolution of certain claims and
review of its procedures and practices by the state authorities. In addition,
the Underwriter withdrew its registration in the State of New Hampshire (with
the right of reapplication) and in the State of Maryland. There may be further
administrative action against the Underwriter in Maryland. The Underwriter
withdrew its registration in Massachusetts with a right to reapply for
registration after two years, withdrew its registration in Delaware with a right
to reapply in three years and agreed to a temporary cessation of business in
Utah pending an on-site inspection and further administrative proceedings. The
Underwriter's license in the State of New Jersey was revoked by an
administrative judge pursuant to an administrative hearing, which revocation was
affirmed by the New Jersey Bureau of Securities, and an appeal has been filed
with the appellate division of the New Jersey Superior Court. The States of
Georgia, Alabama and South Carolina have lifted their suspensions and have
granted the Underwriter conditional licenses. Such conditional licenses were
granted pursuant to an order, which the Underwriter has proposed to various
states, which provides provisions for: (i) the suspension of revocation, (ii)
compliance with recommendations of the Consultant, (iii) an expedited claims
mediation arbitration process, (iv) resolution of claims seeking compensatory
damages, (v) restrictions on use of operating revenue, (vi) the limitation on
selling group members in offerings underwritten by the Underwriter and the
prohibition of participating as a selling group member in offerings underwritten
by certain other NASD member firms, (vii) the periodic review of the
Underwriter's agents, (viii) the retention of an accounting firm, and (ix)
supervision and training, restrictions on trading, discretionary accounts and
other matters. The State of Oregon, as a result of the Permanent Injunction, has
filed a notice of intent to revoke the Underwriter's license subject to the
holding of a hearing to determine definitively the Underwriter's license status,
and the Underwriter, in this proceeding as well as other proceedings, expects to
be able to demonstrate that the Permanent Injunction is not of a nature as to be
a lawful basis to revoke the Underwriter's license permanently. Finally, the
Underwriter has received an order limiting its license in the State of Nebraska.
Such proceedings, if ultimately successful, may adversely affect the market for
and liquidity of the Company's securities if additional broker-dealers do not
make a market in the Company's securities. Moreover, should investors purchase
any of the securities in this Offering from the Underwriter prior to a
revocation of the Underwriter's license in their state, such investors will not
be able to resell such securities in such state through the Underwriter but will
be required to retain a new broker-dealer firm for such purpose. The Company
cannot ensure that other broker-dealers will make a market in the Company's
securities. In the event that other broker-dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
and liquidity and prices of the Company's securities may not exist. It should be
noted that although the Underwriter may not be the sole market maker in the
Company's securities, it will most likely be the dominant market maker in the
Company's securities. In addition, in the event that the Underwriter's license
to do business is revoked in the states set forth above, the Underwriter has
advised the Company that the members of the selling syndicate in this Offering
may be able to make a market in the Company's securities in such states and that
such an event will not have a materially adverse effect on this Offering,
although no assurance can be made that such an event will not have a materially
adverse effect on this Offering. The Company has applied to register this
Offering for the offer and sale of its securities in the following states:
California, Colorado, Connecticut, Delaware, District of Columbia, Florida,
Georgia, Hawaii, Illinois, Louisiana, New York, Rhode Island and
- 44 -
<PAGE>
Virginia. The offer and sale of the securities of this Offering are not
available in any other state, absent an exemption from registration.
The Company has been advised by the Underwriter that Honorable John E.
Sprizzo, United States Judge for the Southern District of New York on May 6,
1994 denied the class certification motion in Paul Carmichael v. Stratton
Oakmont, Inc., et al., Civ. 0720 (JES), of the plaintiff Paul Carmichael. The
class action complaint alleges manipulation and fraudulent sales practices in
connection with a number of securities. The allegations were substantially
similar and involve much of the same time period as the Commission's civil
complaint (discussed above). The Company has further been informed that counsel
for the class action plaintiff sought to re-argue the motion for class
certification, which motion for re-argument was denied.
DETERMINATION OF INITIAL PUBLIC OFFERING PRICE
Prior to this Offering there has been no public market for the securities
of the Company. The initial public offering price for the securities and the
exercise price of the Class A Warrants have been determined by negotiations
between the Company and the Underwriter. Among the factors considered in the
negotiations were an analysis of the areas of activity in which the Company is
engaged, the present state of the Company's business, the Company's financial
condition, the Company's prospects, an assessment of management, the general
condition of the securities market at the time of this Offering and the demand
for similar securities of comparable companies. The initial public offering
price of the securities and the exercise price of the Class A Warrants do not
necessarily bear any relationship to assets, earnings, book value or other
criteria of value applicable to the Company.
EXPERTS
The Financial Statements as of and for the period ended December 31, 1995
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New
York 10022. Members of that firm own 75,000 shares of Common Stock. Certain
legal matters will be passed upon for the Underwriter by Bernstein & Wasserman,
LLP, 950 Third Avenue, New York, New York 10022.
PATENT COUNSEL
Legal matters in connection with the Company's licensed patents, trademarks
and related other proprietary assets are represented by Anderson, Kill & Olick ,
P.C. incorporating the practices of Toren, McGeady & Associates, 521 Fifth
Avenue, 21st Floor, New York, New York 10175. Such firms also represent RIC and
RILP in connection with such assets.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the securities offered
hereby. This prospectus constitutes a part of the Registration Statement and
does not contain all the information set forth therein. Any statements contained
herein concerning the provisions of any contract or other document are not
necessarily complete and, 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 is qualified in its entirety by such reference.
For further information regarding the Company and the securities offered hereby,
reference is made to the Registration Statement and to the exhibits thereto.
- 45 -
<PAGE>
After consummation of this Offering, the Company will be subject to the
informational requirements of the Exchange Act, and in accordance therewith,
will be required to file reports, proxy statements and other information with
the Commission. These reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024 of the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission, such as the Company. The address of
such site is http://www.sec.gov. The Company intends to furnish holders of its
Units, Common Stock and Class A Warrants with annual reports containing audited
financial statements of the Company after the end of each fiscal year, and make
available such other periodic reports as the Company may deem appropriate or as
may be required by law.
- 46 -
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Accountants' Report.................................................................... F-2
Balance Sheets at June 30, 1996 (unaudited) and December 31, 1995................................ F-3
Statements of Operations for the Six Months Ended June 30, 1996 (unaudited) and
the Period from October 10, 1995 (Inception) through
December 31, 1995............................................................................... F-4
Statement of Changes in Stockholders' Equity (Deficiency) for the Six Months
Ended June 30, 1996 (unaudited) and the Period from
October 10, 1995 (Inception) through December 31, 1995.......................................... F-5
Statements of Cash Flows for the Six Months Ended June 30, 1996 (unaudited) and
the Period from October 10, 1995 (Inception) through
December 31, 1995............................................................................... F-6
Notes to Financial Statements...................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Reseal Food Dispensing Systems, Inc.:
We have audited the accompanying balance sheet of Reseal Food Dispensing
Systems, Inc. (a Delaware corporation in the development stage) as of December
31, 1995, and the related statements of operations, stockholders' equity and
cash flows for the period from October 10, 1995 (date of inception) through
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Reseal Food Dispensing Systems,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the period from October 10, 1995 (date of inception) through December
31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, certain factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Arthur Andersen LLP
June 28, 1996
New York, New York
F-2
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalent $ 5,168 $ 488,379
-------------- --------------
Total current assets: 5,168 488,379
Fixed assets:
Leasehold improvements 4,475 5,872
Office equipment 4,350 7,079
Accumulated depreciation and amortization (882) (1,322)
--------------- ---------------
Net fixed assets 7,943 11,629
Other assets 14,677 63,927
Deferred issuance costs -- 21,763
--------------- ---------------
Total assets: $ 27,788 $ 585,698
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accrued expenses $ 45,806 $ 97,509
Due to affiliate 3,649,739 2,883,883
Convertible promissory notes 150,000 100,000
Promissory Notes -- 300,000
Bridge loans payable, current portion -- 1,050,000
--------------- ---------------
Total current liabilities: 3,845,545 4,431,402
Bridge loans payable 175,000 --
--------------- --------------
Total liabilities: 4,020,545 4,431,402
Commitments and contingencies (Note 11)
Stockholders' Equity (Deficiency):
Preferred Stock, $.001 par value; 2,000,000 shares
authorized; no shares issued or outstanding -- --
Common Stock $.001 par value; 20,000,000
shares authorized: 5,887,500 and 6,325,000
issued and outstanding as of December 31,
1995 and June 30, 1996, respectively 5,888 6,325
Additional paid-in capital 174,912 1,049,475
Deficit accumulated during the development stage (4,173,557) (4,901,504)
---------------- ----------------
Total stockholders' equity (deficiency) (3,992,757) (3,845,704)
--------------- ---------------
Total liabilities and stockholders'
equity (deficiency) $ 27,788 $ 585,698
=============== ===============
</TABLE>
The accompanying notes are an integral part of these balance sheets
F-3
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(October 10, 1995) (October 10, 1995)
through Six Months through
December 31, Ended June 30,
1995 June 30, 1996 1996
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and expenses:
General and administrative 168,530 451,491 620,021
Depreciation and amortization 882 441 1,323
--------------- ------------- -------------
Total costs and expenses 169,412 451,932 621,344
Loss from operations 169,412 451,932 621,344
Interest expense 4,145 26,015 30,160
--------------- ------------- -------------
Net loss before extraordinary loss $ 173,557 $ 477,947 $ 651,504
--------------- ------------- -------------
Extraordinary loss on retirement
of debt $ -- $ 250,000 $ 250,000
Net Loss $ 173,557 $ 727,947 $ 901,504
=============== ============= =============
Net loss per share before
extraordinary item $ (.02) $ (.06)
Extraordinary loss per share $ __ $ (.03)
Net loss per share $ (.02) $ (.09)
Weighted average shares outstanding 7,900,000 7,900,000
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Common Stock Paid in Development Stockholders'
Shares Amount Capital Stage Deficit
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 10, 1995 -- $ -- $ -- $ -- $ --
Issuance of common
stock pursuant to
License Agreement 2,900,000 2,900 -- -- 2,900
Issuance of common
stock pursuant to
Settlement Agreement 1,950,000 1,950 -- -- 1,950
Issuance of common
stock to management 950,000 950 -- -- 950
Purchase of License from
affiliate -- -- -- (4,000,000) (4,000,000)
Issuance of common
stock in private
placement 87,500 88 43,662 -- 43,750
Issuance of common stock
rights in private placement -- -- 131,250 -- 131,250
Net loss -- -- -- (173,557) (173,557)
-------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 5,887,500 5,888 174,912 (4,173,557) (3,992,757)
Issuance of common
stock in private
placement 437,500 437 218,313 -- 218,750
Issuance of common stock
rights in private placement -- -- 656,250 -- 656,250
Net loss -- -- -- (727,947) (727,947)
------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 6,325,000 $6,325 $1,049,475 $ (4,901,504) $ (3,845,704)
(UNAUDITED)
====================================================================================
The accompanying notes are an integral part of this statement
</TABLE>
F-5
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Period
from October 10, from October 10,
1995 (Inception) 1995 (Inception)
through Six Months through
December 31, Ended June 30,
1995 June 30, 1996 1996
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (173,557) $ (727,947) $ (901,504)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 882 441 1,323
Loss on retirement of debt -- 250,000 250,000
Changes in operating assets and
liabilities:
Increase in other assets (8,877) (71,013) (79,890)
Increase/(decrease) in accrued expenses 45,806 51,703 97,509
------------ ------------ -----------
Net cash used in operating activities (135,746) (496,816) (632,562)
------------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (8,825) (4,127) (12,952)
Purchase of license (350,261) (765,846) (1,116,107)
------------ ------------ -----------
Net cash used in investing activities (359,086) (769,973) (1,129,059)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement 350,000 1,750,000 2,100,000
Proceeds from issuance of convertible debt 150,000 -- 150,000
------------ ------------ ------------
Net cash provided from financing activities 500,000 1,750,000 2,250,000
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,168 483,211 488,379
Cash and cash equivalents, beginning of
period 0 5,168 0
------------ ------------ ------------
Cash and cash equivalents, end of period $ 5,168 $ 488,379 $ 488,379
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest -- -- --
Cash paid for income taxes -- -- --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock $ 5,800 __ $ 5,800
Purchase of license from affiliate $ 4,000,000 __ $ 4,000,000
The accompanying notes are an integral part of these statements
</TABLE>
F-6
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (INFORMATION AS OF AND FOR THE PERIOD
ENDED JUNE 30, 1996 IS UNAUDITED)
1. THE COMPANY AND ORGANIZATION
ReSeal Food Dispensing Systems, Inc. (the "Company") was incorporated in
the State of Delaware in October 1995. The Company was formed primarily for the
purpose of commercializing and marketing certain proprietary and patented
delivery and dispensing technologies (the "Reseal Technologies") licensed from
ReSeal International Corporation ("RIC"). The Reseal Technologies are designed
to dispense a flowable product while maintaining the product's sterility, purity
and freshness without employing preservatives.
The Company is subject to a number of risks including the Company's lack of
prior operating history. The Company is also subject to the availability of
sufficient financing to meet its future cash requirements and the uncertainty of
future product development and regulatory approval and market acceptance of
existing and proposed products. In the event of bankruptcy of RIC, the status of
the continuing obligations of the various parties to and under the License
Agreement (Note 4) is unclear since a court in a bankruptcy proceeding may not
enforce such continuing obligations. Additionally, other risk factors such as
loss of key personnel, lack of manufacturing capabilities, difficulty in
establishing new intellectual property rights and preserving and enforcing
existing intellectual property rights as well as product obsolescence due to the
development of competing technologies could impact the future results of the
Company.
The Board of Directors of the Company has authorized the Company to file a
registration statement with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended, and to sell Units consisting of two
shares of common stock and two redeemable class A warrants of the Company ("IPO
Units"). Each warrant entities the holder to purchase one share of common stock
at a proposed price of $6.30 per share.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks, as well as highly
liquid investments with original maturities of less than three months.
Fixed Assets
Furniture and equipment are recorded at cost and are depreciated on a
straight line basis over their estimated useful lives, generally five years.
Leasehold improvements are recorded at cost and amortized over the term of the
lease or life of the asset, whichever is shorter.
Patents
Costs to develop patents are expensed when incurred.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes are determined based on differences between the tax bases
of assets and liabilities and their financial reporting amounts at each year end
and are measured based on enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
Net Loss Per Share
Net loss per common share calculations are based on the weighted average
number of shares of common stock outstanding. Pursuant to the Securities and
Exchange Commission ("SEC") Staff Accounting Bulletin No. 83, stock and stock
rights issued during the twelve months preceding the initial filing of this
offering at prices below
F-7
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
1996 IS UNAUDITED)
(CONTINUED)
the expected initial public offering price have been included in the Company's
loss per share computations for all periods presented even though they are
antidilutive.
Supplementary net loss per share was computed as if all the outstanding
bridge notes (Note 5) and convertible promissory notes (Note 7) had been paid at
the date of issuance, and assuming that 288,127 shares of common stock were
issued to pay such notes and $3,489 and $35,000 of interest expense was
eliminated for the periods ended December 31, 1995 and June 30, 1996,
respectively, as a result of such payments. Such supplementary net loss per
share for the period ended December 31, 1995 was $.02 and for the six months
ended June 30, 1996 was $.08.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
Interim Financial Information
The unaudited financial statements for the period ended June 30, 1996
include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for the fair presentation of such
financial statements.
3. GOING CONCERN
As reflected in the financial statements, the Company has experienced net
losses and negative cash flows from operations and maintains negative working
capital and negative equity. The Company's continuing existence is dependent on
its ability to raise additional capital and achieve and maintain profitable
operations. The Company continues to be in the development stage and does not
foresee operating revenue until fiscal year 1997. Management plans to finance
the Company by obtaining additional financing, through either the proposed IPO
or additional private placements of equity, until operations commence in 1996.
4. LICENSE AGREEMENT
In October 1995, the Company entered into a License Agreement (the
"Agreement") with RIC, which was amended on June 17, 1996, pursuant to which the
Company obtained the right to commercialize and market the Reseal Technologies
to third parties for its implementation in the food and beverage industries. The
Reseal Technologies are licensed by RIC from its parent, Reseal International
Limited Partnership ("RILP"). The Agreement is royalty free and allows the
Company to grant sublicenses to third parties. Pursuant to the Agreement, the
Company issued 2,900,000 shares of its common stock to RIC and is committed to
make a payment to RIC of $750,000 on the earlier of April 10, 1996 or the
completion of a private placement (Note 5) and another payment of $3,250,000 on
the earlier of December 31, 1996 or the completion of the proposed initial
public offering. The cash paid and payable to RIC and the common stock issued
for this acquisition was charged directly to stockholders' equity and therefore
not reflected as an asset on the Company's Balance Sheet. The Company has
reflected such obligation as a current liability. The Agreement terminates at
the end of the Reseal Technologies useful economic life.
5. PRIVATE PLACEMENT
The Company has been involved in a private placement ("Bridge Financing").
The Bridge Financing consists of promissory notes, common shares, and rights
("Bridge Options") to acquire Units identical in form to the IPO Units upon
consummation of the IPO. The promissory notes bear interest at 8% per annum and
are due
F-8
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
1996 IS UNAUDITED)
(CONTINUED)
on the earlier of consummation of a public offering or January 1, 1997. As of
December 31, 1995, the Company had received gross proceeds of $350,000 in
connection with the Bridge Financing, which consisted of $175,000 of promissory
notes, 87,500 shares of common stock and rights to obtain 131,250 Units. As of
June 30, 1996, the Company had received additional gross proceeds of $1,750,000,
which consisted of $875,000 of promissory notes, 437,500 shares of common stock
and rights to obtain 656,250 Units. Upon completion of the Bridge Financing, the
Company had received an aggregate of $2,100,000 in consideration for $1,050,000
in promissory notes, 525,000 common shares and rights to obtain 787,500 Units.
The Company is in the process of amending the Bridge Financing agreements so
that the 787,500 Units underlying the Bridge Options will be outstanding prior
to the completion of the IPO, and of such Units, 300,000 would be registered in
the proposed registration statement and 487,500 would not be registered pursuant
to such registration statement.
6. SETTLEMENT AGREEMENT
In October 1995, in connection with a settlement of actions and claims
against certain affiliates of RIC, the licensor of the RESEAL(TM) Technology,
the Company agreed to issue (i) 2,900,000 shares of common stock to RIC, as
partial compensation under the License Agreement, (ii) an aggregate of 1,500,000
shares of common stock (the "Investor Shares") to certain investors in RILP, and
(iii) an aggregate of 450,000 shares of common stock to certain individuals for
services rendered equal to the par value of such shares. Of the 1,500,000 shares
issued, 552,000 were issued to individuals who are now members of the board of
directors and of the 450,000 shares issued, 161,000 were issued to current
members of management and the board of directors.
Pursuant to such settlement, the holders of the Investor Shares may require
the Company to file a Registration Statement under the Securities Act with
respect to 25% of such shares of common stock, commencing one year from the
effective date of the Company's proposed IPO, subject to certain conditions and
limitation. Further, if the Company proposes to register any shares of common
stock under the Securities Act, other than pursuant to an initial public
offering or the previous sentence, then the holders of the Investor Shares are
entitled to include an additional 25% of their shares of common stock in such
registration.
7. CONVERTIBLE PROMISSORY NOTES
During 1995, two convertible promissory notes were issued for $100,000 and
$50,000 (the "Convertible Notes") and are due on April 15, 1996 and December 20,
1996, respectively. These notes bear interest at 8% and each is convertible at
any time prior to the maturity date of the notes into 1,200,000 common shares,
subject to adjustments. The $100,000 note (the "Portenoy Note") converts at a
price of $.084 per common share, subject to adjustments, and the $50,000 note
(the "ATG Note") converts at a price of $.042 per common share, subject to
adjustments.
On April 15, 1996, the Portenoy Note came due. On June 28, 1996, in
accordance with an agreement with the Company, the holder of the ATG Note, which
comes due on December 20, 1996 and contained the right to convert into 1.2
million shares of Common Stock, agreed to transfer such note to the Company for
cancellation in return for the Company agreeing to pay it $300,000. The amounts
owed by the Company to the holders of the Convertible Notes shall be paid out of
the proceeds of the proposed IPO. The Company has recorded an extraordinary loss
on retirement of debt of $250,000 in its June 30, 1996 unaudited financial
statements.
8. MANAGEMENT SHARES
In 1995, the Company issued an aggregate of 950,000 shares to management at
par as compensation for services rendered in incorporating the Company. In the
opinion of management, such shares were issued at fair market value. The
statement of operations reflects $950 of compensation expense related to such
shares.
F-9
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
1996 IS UNAUDITED)
(CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company shares office space with certain affiliated companies,
including RIC and RILP. The Company also pays certain operating expenses,
including compensation of key personnel, on behalf of RIC and RILP. At December
31, 1995 and June 30, 1996, the Company had paid 85,261 and 332,794,
respectively, on behalf of RIC. The Company is entitled to be reimbursed for
these expenses and has offset such against the current liability related to the
License Agreement (Note 4) in the Company's balance sheet.
For both the period ended December 31, 1995 and the three months ended June
30, 1996, the Company paid consulting fees to members of management in the
aggregate amount of $168,000.
10. INCOME TAXES
As a result of losses incurred during the year, there is no provision for
income taxes in the accompanying financial statements. The Company has
established a full valuation allowance against its net deferred tax assets as
realizability of such assets is predicated upon the Company achieving
profitability.
11. COMMITMENT AND CONTINGENCIES
The Company leases office space under a noncancellable operating lease,
expiring on November 30, 1997. Rental expense for the period ending December
31,1995 was $8,259. Future minimum lease payments under this lease agreement is
as follows:
Year Ending December 31
1996 $90,292
1997 84,571
--------
$174,863
12. SETTLEMENT OF PENDING LAWSUIT
In May 1996, in connection with the settlement of a lawsuit brought by
Banco Inversion, S.A. and Administratadora General de Patrimonios, S.A.
(collectively, "Banco") against certain affiliates of RIC, RIC entered into an
agreement pursuant to which it agreed, among other things, (i) to transfer an
aggregate of 300,000 of its shares of common stock (the "Settlement Shares") to
Banco, (ii) to pay Banco $50,000 at the closing of such settlement and $150,000
out of the licensing fees RIC receives from the proceeds of this Offering and
(iii) to exchange mutual releases with the parties of such lawsuit.
The number of Settlement Shares, subject to certain anti-dilution
adjustments, may be increased up to 600,000 shares in the event that 30 months
after the effective date of the registration statement the market value of the
300,000 Settlement Shares is less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the right
to register such shares along with shares registered by the Company in a public
offering, whether on behalf of the Company or other holders of common stock,
subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act.
F-10
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
1996 IS UNAUDITED)
(CONTINUED)
13. EMPLOYMENT AGREEMENTS
It is anticipated that the Company will enter into a three-year employment
agreement with Jon Silverman upon the closing of the proposed initial public
offering. Pursuant to such proposed employment agreement, Mr. Silverman will
receive a monthly salary of $15,000. In addition, the Company will be obligated
to pay the premium on his $1,000,000 life insurance policy, to which his estate
is the beneficiary. This insurance policy is in addition to the $1,000,000
key-man life insurance policy maintained by the Company on the life of Mr.
Silverman. He will also be entitled to customary benefits and perquisites.
F-11
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER.THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH SUCH OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATES AS OF WHICH SUCH INFORMATION IS GIVEN. -----------------
TABLE OF CONTENTS
Page
Prospectus Summary ........................................................
Risk Factors ..............................................................
Use of Proceeds ...........................................................
Dividend Policy ...........................................................
Dilution ..................................................................
Capitalization ............................................................
Management's Discussion and Analysis of
Results of Operations and Financial
Condition ....................................................
Business ..................................................................
Management ................................................................
Certain Relationships and
Related Transactions ..................................................
Principal Stockholders ....................................................
Description of Capital Stock ..............................................
Shares Eligible for Future Sale ...........................................
Selling Securityholders ...................................................
Underwriting ..............................................................
Experts ...................................................................
Legal Matters .............................................................
Patent Counsel ............................................................
Available Information .....................................................
Index to Financial Statements ............................................. F-1
-----------------
UNTIL _____, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
1,696,591 UNITS
RESEAL FOOD DISPENSING
SYSTEMS, INC.
PROSPECTUS
STRATTON OAKMONT, INC.
_______________, 1996
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions), or
(iv) for any transaction from which a director derived an improper personal
benefit.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such director, officer, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal actions or
proceedings, had no reasonable cause to believe that his or her conduct was
unlawful. A Delaware corporation may indemnify directors and/or officers in an
action or suit by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
director or officer is adjudged to be liable to the corporation. Where a
director or officer is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him or her against
the expenses which such director or officer actually and reasonably incurred.
The Registrant's Restated Certificate of Incorporation, filed as Exhibit
3.1 to this Registration Statement, provides indemnification of directors and
officers of the Registrant to the fullest extent permitted by the DGCL.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriter has agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the Offering, including
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement (other
than the underwriting discounts and commission) will be as follows:
<TABLE>
<CAPTION>
Total*
<S> <C>
SEC registration fee ......................................................... $ 15,027.77
NASD filing fee .............................................................. $ 4,858.00
Nasdaq listing fee ........................................................... $ 1,000.00
Blue Sky fees and expenses (including counsel fees)........................... $
Accounting fees and expenses.................................................. $
Legal fees and expenses....................................................... $
Printing and engraving expenses............................................... $
Transfer Agent, Warrant Agent and Registrar fees
and expenses................................................................ $
Miscellaneous................................................................. $
Total..................................................................... $
* All expenses are estimated, except for filing fees.
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In October 1995, in connection with a settlement of actions and claims
against certain affiliates of RIC, the licensor of the RESEAL(TM) Technology,
and RIC's officers and directors, the Company agreed to issue (i) 2,900,000
shares of Common Stock to RIC, as partial compensation under the Company License
Agreement, (ii) an aggregate of 1,500,000 shares of Common Stock (the "Investor
Shares") to certain investors in RILP, and (iii) an aggregate of 450,000 shares
of Common Stock to certain individuals for services rendered. Pursuant to such
settlement, the holders of the Investor Shares may require the Company to file a
Registration Statement under the Securities Act with respect to 25% of such
shares of Common Stock, commencing one year from the date of the prospectus (the
"Effective Date"), subject to certain conditions and limitations. Further, if
the Company proposes to register any shares of Common Stock under the Securities
Act, other than pursuant to an initial public offering or the previous sentence,
then the holders of the Investor Shares are entitled to include an additional
25% of their shares of Common Stock in such registration. See "Certain
Relationships and Related Transactions."
Between October 1995 and April 1996, the Company (i) sold an aggregate of
525,000 shares of Common Stock to the Selling Securityholders for a total of
$1,050,000 (the "Private Placement") and (ii) entered into the Bridge Loan with
the Selling Securityholders in the aggregate amount of $1,050,000. Each Selling
Securityholder participated in both the Private Placement and the Bridge Loan.
The Bridge Loan bears interest at the rate of eight (8%) percent per annum and
will be repaid out of the proceeds of this Offering. As further consideration
for the Bridge Loan, the Selling Securityholders were given the right to
acquire, commencing on the Effective Date, the 787,500 Bridge Units which are
comprised of 1,575,000 shares of Common Stock and 1,575,000 Class A Warrants.
The Class A Warrants included in the Bridge Units are identical to the Class A
Warrants included in the Company Units. The Company and the Selling
Securityholders are in the process of amending the Bridge Loan agreements to
reflect that all of the 787,500 Bridge Units will be outstanding prior to this
Offering and all of the Bridge Units and their underlying securities shall be
registered under this Registration Statement. The Company will not receive any
of the proceeds from the sale of the securities being offered by the Selling
Securityholders. The Class A Warrants are redeemable upon certain conditions.
See "Certain Relationships and Related Transactions."
In November and December 1995, the Company issued to each of Ross Portenoy
and ATG Group, Inc. a convertible promissory note in the principal amount of
$100,000 and $50,000, respectively. The notes bear interest at an annual rate of
8%. The $100,000 note came due on April 15, 1996 and the $50,000 note comes due
on December 20, 1996. On June 28, 1996, in accordance with an agreement with the
Company, the holder of the $50,000 note, which contained the right to convert
into 1.2 million shares of Common Stock, agreed to transfer such note to the
Company for cancellation in return for the Company agreeing to pay it $300,000.
The amounts owed by the Company to the holders of these notes shall be paid out
of the proceeds of this Offering received by the Company. See "Certain
Relationships and Related Transactions."
In May 1996, in connection with the settlement of a lawsuit brought by
Banco Inversion, S.A. and Administratadora General de Patrimonios, S.A.
(collectively, "Banco") against certain affiliates of RIC, RIC entered into an
agreement pursuant to which it agreed, among other things, (i) to transfer an
aggregate of 300,000 of its shares of Common Stock (the "Settlement Shares") to
Banco, (ii) to pay Banco $50,000 at the closing of such settlement and $150,000
out of the licensing fees RIC receives from the proceeds of this Offering and
(iii) to exchange mutual releases with the parties of such lawsuit. The number
of Settlement Shares, subject to certain anti-dilution adjustments, may be
increased up to 600,000 shares in the event that 30 months after the Effective
Date the market value of the 300,000 Settlement Shares is less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the right to
register such shares along with shares registered by the Company in a public
offering, whether on behalf of the Company or other holders of Common Stock,
subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act. See "Certain Relationships and
Related Transactions."
Transactions by the Registrant involving the sales of these securities set
forth above were issued pursuant to the "private placement" exemption under
Section 4(2) of the Securities Act of 1933, as amended, as transactions by an
issuer not involving any public offering. The Registrant has been informed that
each person is able to bear the economic risk of his investment and is aware
that the securities were not registered under the Securities Act of 1933, as
amended, and cannot be re-offered or re-sold until they have been so registered
or until the availability of an exemption therefrom. The transfer agent and
registrar of the Registrant will be instructed to mark "stop transfer" on its
ledgers to assure that these securities will not be transferred absent
registration or until the availability of an exemption therefrom is determined.
II-2
<PAGE>
ITEM 27. EXHIBITS.
(a) Exhibits:
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
3.1 Restated Certificate of Incorporation of the Registrant,as amended.*
3.2 By-laws of the Registrant.*
4.1 Specimen Common Stock Certificate.*
4.2 Form of Class A Warrant Agreement.
4.3 Form of Underwriter's Unit Purchase Option.
4.4 Escrow Agreement by and among the Registrant, the Underwriter and
Continental Stock Transfer & Trust Company, as escrow agent.
5.1 Opinion of Kramer, Levin, Naftalis & Frankel.**
10.1 License Agreement by and between the Registrant and ReSeal
International Corporation, dated as of October 10, 1995, as amended.*
10.2 Form of Subscription Agreement.*
10.3 Form of Bridge Loan Agreement and Promissory Note.*
10.4 Form of Amendment to Bridge Loan Agreement.
10.5 Agreement by and between the Registrant and Nologies, Inc., dated as
of March 5, 1996. *
10.6 Settlement Agreement, dated as of October 10, 1995, by and among
Hardee Capital Partners, L.P., Louis Simpson, Gregory Abbott, George
Kriste, David Brenman, Gerald Gottlieb, Marc Gottlieb, Joseph Koster,
Greg Pardes, Linda Poit, ReSeal Food Dispensing Systems, Inc., ReSeal
International Limited Partnership, ReSeal Technologies & Advancements,
Inc., ReSeal International Corporation, ReSeal Pharmaceutical Systems,
Ltd., Milton Stanson, Hilda Brown, Ann Hoopes, Townsend Hoopes, Robin
Smith and Eugene Sumner. *
10.7 Settlement Agreement, dated as of May 8, 1996, by and among Banco
Inversion, S.A., Administratadora General de Patrimonios, S.A., ReSeal
Pharmaceutical Systems, Ltd., ReSeal International Corporation, ReSeal
International Limited Partnership, Greg P. Pardes, Lawrence B.
Pentoney, Joseph D. Blau, Bernard Gerber, George DeBush, Michael
Secondo, Linda Poit, Samuel Tucker, Chungliang Al Huang and Rainer
Greeven.*
11.1 Calculation of Earnings Per Share.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the
opinion to be filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.
- -----------------
* Previously Filed
** To be filed by amendment.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) 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 this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose 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.
(c) The undersigned registrant hereby further undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required
by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any
facts or events arising after the
effective date of the Registration
Statement (or the most recent
post-effective amendment thereof)
which, individually or in the
aggregate, represent a fundamental
change in the information set forth
in the Registration Statement; and
(iii) To include any additional or
changed material information with
respect to the plan of distribution
not previously disclosed in the
Registration Statement or any
material change to such information
in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York, on August 30, 1996.
RESEAL FOOD DISPENSING SYSTEMS, INC.
By: /s/ David W. Brenman
------------------------
David W. Brenman
(President)
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 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/ David W. Brenman President, Treasurer August 30, 1996
- ------------------------------------
David W. Brenman and Director
(Principal Executive Officer
and Principal Accounting
Officer)
/s/ Joseph F. Koster, Jr. Secretary and Director August 30, 1996
- ------------------------------------
Joseph F. Koster, Jr.
* Director August 30, 1996
- ------------------------------------
Gregory B. Abbott
* Director August 30, 1996
- ------------------------------------
George V. Kriste
*David W. Brenman, as attorney-in-fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description of Document Number
- ------ ----------------------- ------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
3.1 Restated Certificate of Incorporation of the Registrant, as amended.*
3.2 By-laws of the Registrant.*
4.1 Specimen Common Stock Certificate.*
4.2 Form of Class A Warrant Agreement.
4.3 Form of Underwriter's Unit Purchase Option.
4.4 Escrow Agreement by and among the Registrant, the Underwriter and
Continental Stock Transfer & Trust Company, as escrow agent.
5.1 Opinion of Kramer, Levin, Naftalis & Frankel.**
10.1 License Agreement by and between the Registrant and ReSeal
International Corporation, dated as of October 10, 1995, as amended.*
10.2 Form of Subscription Agreement.*
10.3 Form of Bridge Loan Agreement and Promissory Note.*
10.4 Form of Amendment to Bridge Loan Agreement.
10.5 Agreement by and between the Registrant and Nologies, Inc., dated as of
March 5, 1996. *
10.6 Settlement Agreement, dated as of October 10, 1995, by and among Hardee
Capital Partners, L.P., Louis Simpson, Gregory Abbott, George Kriste,
David Brenman, Gerald Gottlieb, Marc Gottlieb, Joseph Koster, Greg
Pardes, Linda Poit, ReSeal Food Dispensing Systems, Inc., ReSeal
International Limited Partnership, ReSeal Technologies & Advancements,
Inc., ReSeal International Corporation, ReSeal Pharmaceutical Systems,
Ltd., Milton Stanson, Hilda Brown, Ann Hoopes, Townsend Hoopes, Robin
Smith and Eugene Sumner.*
10.7 Settlement Agreement, dated as of May 8, 1996, by and among Banco
Inversion, S.A., Administratadora General de Patrimonios, S.A., ReSeal
Pharmaceutical Systems, Ltd., ReSeal International Corporation, ReSeal
International Limited Partnership, Greg P. Pardes, Lawrence B.
Pentoney, Joseph D. Blau, Bernard Gerber, George DeBush, Michael
Secondo, Linda Poit, Samuel Tucker, Chungliang Al Huang and Rainer
Greeven.*
11.1 Calculation of Earnings Per Share.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the
opinion to be filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.
</TABLE>
- -----------------
** Previously filed
* To be filed by amendment.
909,091 Units
(Each Unit consisting of two shares of Common Stock, par value $.001
per share and two Class A Redeemable Common Stock Purchase Warrants,
each to purchase one share of Common Stock.)
RESEAL FOOD DISPENSING SYSTEMS, INC.
UNDERWRITING AGREEMENT
New York, New York
____________, 1996
Stratton Oakmont, Inc.
1979 Marcus Avenue
Lake Success, New York 11042
Reseal Food Dispensing Systems, Inc., a Delaware corporation (the
"Company"), proposes to sell an aggregate of 909,091 Units, on a "best efforts"
all-or-none basis, to the public through you (the "Underwriter"). Each Unit
consists of two (2) shares of Common Stock, par value $.001 per share ("Common
Stock") and two (2) Class A Redeemable Common Stock Purchase Warrants ("Class A
Warrants"), each to purchase one share of Common Stock at $6.30 per share from
_____________, 1997 until _____________, 2001, subject to redemption, in certain
instances.
Unless the context otherwise requires, the aggregate of 909,091 Units
to be sold by the Company and the shares of Common Stock and the Warrants
comprising such Units, are herein called the "Units." The Common Stock to be
outstanding after giving effect to the sale of the Units are herein called the
"Shares." The Shares and Warrants included in the Units are herein collectively
called the "Securities."
You have advised the Company that you desire to sell the Units. The
Company confirms the agreements made by it with respect to the sale of the Units
by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-7915) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules and
1
<PAGE>
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial statements and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement, the terms
"Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
Closing Date (as hereinafter defined)(i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and the
Rules and Regulations; and (ii) neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or
2
<PAGE>
on behalf of the Underwriter specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus on page 2 with
respect to stabilization, the paragraph under the heading "Underwriting"
relating to concessions to certain dealers, the two legends on page __ of the
Prospectus, all descriptions involving litigation of the Underwriter, the
"Underwriting" Section of the Prospectus and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute for purposes of this
Section and Section 6(b) the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own its properties and
conduct its business as described in the Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
other jurisdiction in which the nature of its business or the character or
location of its properties requires such qualification, except where the failure
to so qualify will not materially adversely affect the Company's business,
properties, results of operations or condition (financial or otherwise).
(d) The authorized, issued and outstanding capital stock of
the Company, as of ____________, 1996 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and nonassessable; except as set forth in the Prospectus, no options,
warrants, or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company;
and the capital stock conforms to all statements relating thereto contained in
the Registration Statement and Prospectus.
(e) The Units, and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock,
except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right
3
<PAGE>
of creditors generally or by general equitable principles, and entitled to the
benefits provided by the warrant agreement pursuant to which such Warrants are
to be issued (the "Warrant Agreement"), which will be substantially in the form
filed as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable, and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles. The Warrants and Warrant Agreement conform to the
respective descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants and Common Stock contained in the
Purchase Option (as defined as the Underwriters' Purchase Option in the
Registration Statement) have been duly authorized and, when duly issued and
delivered, such Warrants will constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms(except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally or by general equitable principles and the
indemnification contained in paragraph 7 of the Purchase Option may be
unenforceable) and entitled to the benefits provided by the Purchase Option. The
shares of Common Stock included in the Purchase Option (and the shares of Common
Stock issuable upon exercise of the Warrants included therein) when issued and
sold, will be duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement and the Purchase Option have been duly and
validly authorized, executed, and delivered by the Company. The Company has full
power and authority to authorize, issue, and sell the Units to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or in connection
with the authorization, issuance, and sale of the Units or the Purchase Option,
except such as may be required under the Act or state securities laws or rules
of the National Association of Securities Dealers, Inc. (the "NASD").
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company taken as a whole (a
"Material Adverse
4
<PAGE>
Effect"), the Company is not in material violation, breach, or default of or
under, and consummation of the transactions herein contemplated and the
fulfillment of the terms of this Agreement will not conflict with, or result in
a material breach or violation of, any of the terms or provisions of, or
constitute a material default under, or result in the creation or imposition of
any material lien, charge, or encumbrance upon any of the property or assets of
the Company pursuant to the terms of any material indenture, mortgage, deed of
trust, loan agreement, or other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company is subject, nor will such action result in any
violation of the provisions of the certificate of incorporation or the by-laws
of the Company, as amended, or any statute or any order, rule or regulation
applicable to the Company of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company.
(h) Subject to the qualifications stated in the Prospectus,
the Company has good and marketable title to all properties and assets described
in the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to their business; subject to the qualifications stated in
the Prospectus, all of the material leases and subleases under which the Company
is the lessor or sublessor of properties or assets or under which the Company
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus, the
Company is not in default in any material respect with respect to any of the
terms or provisions of any of such leases or subleases, and, to the best
knowledge of the Company, no claim has been asserted by anyone adverse to rights
of the Company as lessor, sublessor, lessee, or sublessee under any of the
leases or subleases mentioned above, or affecting or questioning the right of
the Company to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company owns or leases all such properties described in
the Prospectus as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) Arthur Andersen LLP, who has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements, together with related notes, set
forth in the Prospectus or the Registration Statement present fairly the
financial position, results of operations and changes in cash flow position of
the Company on the basis stated in the Registration Statement, at the respective
dates and for the
5
<PAGE>
respective periods to which they apply. Said statements and related notes have
been prepared in accordance with generally accepted accounting principles
applied on a basis which is consistent during the periods involved except as
disclosed in the Prospectus and Registration Statement. The information set
forth under the caption "Selected Financial Data" in the Prospectus fairly
present, on the basis stated in the Prospectus, the information included
therein.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, (i) the Company has not incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, or entered into any transaction not in the ordinary course of
business, which would have a Material Adverse Effect, and (ii) there has not
been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any Material Adverse
Effect or any development involving, so far as the Company can now reasonably
foresee a prospective Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any Material Adverse Effect,
nor are there any actions, suits or proceedings related to environmental matters
or related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company exist or to the knowledge
of the Company, are threatened which might be reasonably expected to have a
Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company has
filed all necessary federal, state, and foreign income and franchise tax returns
required to be filed as of the date hereof and have paid all taxes shown as due
thereon; and there is no tax deficiency which has been asserted against the
Company.
(n) Except as disclosed in the Registration Statement, the
Company has sufficient licenses, permits, and other governmental authorizations
currently necessary for the conduct of its business or the ownership of its
properties as described in the Prospectus and is in all material respects
complying therewith and owns or possesses adequate rights to use all material
patents, patent applications, trademarks, service marks, trade-names, trademark
registrations, service mark registrations, copyrights, and licenses necessary
for the conduct of such business and has not received any notice of conflict
with the asserted rights of others in respect thereof. To the best knowledge of
the Company, none of the activities or business of the Company is in violation
of, or cause the Company to violate, any law, rule, regulation, or order of the
United States, any state, county, or locality, or of any
6
<PAGE>
agency or body of the United States or of any state, county or locality, the
violation of which would have a Material Adverse Effect.
(o) The Company has not, directly or indirectly, at any time
(i) made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Date (as hereinafter defined) all transfer
or other similar taxes, including franchise, capital stock or other tax, other
than income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the Units hereunder will have
been fully paid or provided for by the Company and all laws imposing such taxes
will have been complied with in all material respects.
(q) All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no subsidiaries.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
(t) Except as disclosed in the Prospectus, no officer,
director, or stockholder of the Company has any NASD affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Employment of the Underwriter; Payment and Delivery.
On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth:
(a) The Company hereby employs the Underwriter as its
exclusive agent to sell for its account 909,091 Units, on a "best efforts,
all-or-none" basis, at a price of $11.00 per Unit. The Underwriter agrees to use
its best efforts as agent, promptly after receipt of written notice of the
Effective Date to sell the 909,091 Units subject to the terms, provisions and
conditions hereinafter
7
<PAGE>
mentioned, for a period of not less than ninety (90) calendar days, which may be
extended up to an additional thirty (30) calendar days with the consent of the
Company and the Underwriter. The period during which the Units are offered shall
hereinafter be referred to as the "Offering Period." In the event that less than
909,091 Units are sold during the Offering Period, this offering will not be
completed, will be withdrawn, none of the Units will be sold during the Offering
Period (as such may be extended) and all proceeds will be promptly returned in
full by the Escrow Agent (as defined below), without interest or deduction to
subscribers, not more than ten (10) business days following the expiration of
said Offering Period.
(b) All proceeds from subscriptions shall be deposited
promptly into a non-interest bearing escrow account to be maintained with Bank
which account is operated by Continental Stock Transfer & Trust Company ("Escrow
Agent"). All subscriber's checks shall be made payable to "Continental Stock
Transfer & Trust Company as Escrow Agent for ReSeal Food Dispensing Systems,
Inc. All subscription proceeds will be transmitted to the Escrow Agent no later
than noon of the next business day following receipt for deposit into the escrow
account.
(c) If 909,091 Units are sold, the Company agrees to issue or have the
Units issued in such names and denominations as may be specified by the
Underwriter and to deliver the Units on the Closing Date against payment to the
Company at 10.06 per Unit, less the non-accountable expense allowance as set
forth below.
(d) If 909,091 Units are sold, the Underwriter shall be entitled to
receive as compensation (i) a commission of $.94 per Unit, which compensation
the Underwriter shall be entitled to receive and retain from the proceeds of the
sale of the Units prior to transmittal of payment to the Company by the Escrow
Agent as indicated in paragraph (c) above; and (ii) $.33 per Unit with respect
to all Units sold as a non-accountable expense allowance, which compensation the
Underwriter shall be entitled to receive and have retained from the proceeds of
the sale of the Units prior to the transmittal of payment to the Company by the
Escrow Agent.
(e) You shall use your best efforts to require that payments made by
purchasers of Units to broker/dealers for Units sold shall be made payable, in
cash or by certified or official bank check, to "Continental Stock Transfer &
Trust Company as Escrow Agent for ReSeal Food Dispensing Systems, Inc. and will
thereafter be delivered to the escrow agent, by twelve o'clock noon of the next
business day following receipt at the full public offering price of $11.00 per
Unit, together with the name, social security or employer identification number
of, and number of Units purchased by, each subscriber.
(f) Upon closing of the offering, the release of funds in the Escrow
Account shall be made by wire transfers or certified or official bank checks
against delivery of the Units and the
8
<PAGE>
Underwriter's Purchase Option to the Underwriter. Such payment and delivery
shall be made at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue,
New York, NY 10022 (or at such other place as may be designated by agreement
between the Underwriter and the Company) at the earlier of (a) a mutually agreed
upon date and time following collection by the Escrow Agent of $10,000,000 in
offering proceeds or (b) ten (10) business days after the expiration of the
Offering Period, such date and time as fixed hereunder for such payment and
delivery being herein called the "Closing Date". Certificates for the Units,
Common Stock, Warrants and Underwriter's Purchase Option so to be delivered will
be in such denominations and registered in such names as you request not less
than five (5) full business days prior to the Closing Date, and will be made
available to you for inspection, checking and packaging at your offices, not
less than one (1) full business day prior to the Closing Date.
3. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise the Underwriter and will not at any time,
whether before or after the effective date, file any amendment to the
Registration Statement or supplement to the Prospectus of which the Underwriter
shall not previously have been advised and furnished with a copy or to which the
Underwriter or its counsel shall have reasonably objected in writing or which is
not in compliance with the Act and the Rules and Regulations. At any time prior
to the later of (A) the completion by the Underwriter of the distribution of the
Units contemplated hereby (but in no event more than nine months after the date
on which the Registration Statement shall have become or been declared
effective) and (B) 25 days after the date on which the Registration Statement
shall have become or been declared effective, the Company will prepare and file
with the Commission, promptly upon the Underwriter's request, any amendments or
supplements to the Registration Statement or Prospectus which, in the opinion of
counsel to the Company and the Underwriter, may be reasonably necessary or
advisable in connection with the distribution of the Units.
As soon as the Company is advised thereof, the Company will
advise the Underwriter, and provide the Underwriter copies of any written
advice, of the receipt of any comments of the Commission, of the effectiveness
of any post-effective amendment to the Registration Statement, of the filing of
any supplement to the Prospectus or any amended Prospectus, of any request made
by the Commission for an amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with
9
<PAGE>
respect thereto, of the issuance by the Commission or any state or regulatory
body of any stop order or other order or threat thereof suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Units for offering in any jurisdiction, or of the
institution of any proceedings for any of such purposes, and will use its best
efforts to prevent the issuance of any such order, and, if issued, to obtain as
soon as possible the lifting thereof.
The Company has caused to be delivered to the Underwriter
copies of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Units for such period as in the opinion of
counsel to the Underwriter and the Company the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriter or
dealer of any event of which the Company has knowledge and which has a Material
Adverse Effect on the Company or the securities of the Company, or which in the
opinion of counsel for the Company and counsel for the Underwriter should be set
forth in an amendment of the Registration Statement or a supplement to the
Prospectus in order to make the statements therein not then misleading, in light
of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units or in case it shall be necessary to amend
or supplement the Prospectus to comply with the law or with the Rules and
Regulations, the Company will notify the Underwriter promptly and forthwith
prepare and furnish to the Underwriter copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as the
Underwriter may reasonably request, in order that the Prospectus, as so amended
or supplemented, will not contain any untrue statement of a material fact or
omit to state any material facts necessary in order to make the statements in
the Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be attached
to the Prospectus shall be without expense to the Underwriter, except that in
case the Underwriter is required, in connection with the sale of the Units to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense of
the Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 (the "Exchange
10
<PAGE>
Act") and the rules and regulations thereunder in connection with the offering
and issuance of the Units.
(b) The Company will furnish such information as may be
required and to otherwise cooperate and use its best efforts to qualify to
register the Units for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may designate and will make such applications
and furnish such information as may be required for that purpose and to comply
with such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Units. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the counsel to the
Company and the Underwriter deem reasonably necessary.
(c) If the sale of the Units provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the accountable out of pocket
expenses of the Underwriter up to $300,000 (including the reasonable fees and
expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify the
Underwriter in writing immediately upon the effectiveness of such registration
statement, and (ii) obtain and keep current a listing in the Standard & Poors or
Moody's OTC Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to the Underwriter during the period ending five
(5) years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, but no earlier than the filing of such information with the
Commission, a balance sheet of the Company at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company for
such fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, but no earlier than the filing of such information with the
Commission, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly available, a
copy of all reports (financial or other) mailed to security holders; (iv) as
11
<PAGE>
soon as they are available, a copy of all non-confidential reports and financial
statements furnished to or filed with the Commission or any securities exchange
or automated quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time reasonably
request. Notwithstanding the above, reports provided by the Company to the
Commission shall be deemed satisfactory for the foregoing purposes.
(f) INTENTIONALLY OMITTED
(g) The Company will deliver to the Underwriter at or before
the Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to the
Underwriter as soon as it is practicable to do so but in no event later than 90
days after the end of twelve months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the effective date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Units substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus, and will file such reports with the Commission with respect to
the sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Units, and will use its best efforts to cause the same to become effective as
promptly as possible.
12
<PAGE>
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Warrants and Purchase Option and Warrants thereunder outstanding
from time to time.
(l) (1) For a period of twenty four (24) months from the
Closing Date, no shareholder prior to the offering will, directly or indirectly,
offer, sell (including any short sale), grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any shares of Common
Stock (other than with respect to the Selling Securities) without the prior
written consent of the Underwriter, other than as set forth in the Registration
Statement. In order to enforce this covenant, the Company shall impose
stop-transfer instructions with respect to the shares owned by every shareholder
prior to the offering (other than with respect to the Selling Securities) until
the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to comply
with any applicable Blue- sky Law, the shares held by such shareholders will be
escrowed with counsel for the Company or otherwise as required. This section
shall not apply to the sale of the Selling Securities.
(2) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of twenty four (24)
months following the Closing Date, directly or indirectly, offer, sell, issue or
transfer any shares of its capital stock, or any security exchangeable or
exercisable for, or convertible into, shares of the capital stock, without the
prior written consent of the Underwriter.
(m) Upon completion of this offering, the Company will make
all filings required, including registration under the Exchange Act, to obtain
the listing of the Units, Common Stock, and Warrants on the NASD OTC Bulletin
Board, and will use its best efforts to effect and maintain such listing or a
listing on a national securities exchange for at least five years from the date
of this Agreement to the extent that the Company has at least 300 record holders
of Common Stock.
(n) Except for the transactions contemplated by this Agreement
or as otherwise permitted by law, the Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of the Units, Shares,
or the Warrants or to facilitate the sale or resale of the Securities.
(o) On the Closing Date and simultaneously with the delivery
of the Units, the Company shall execute and deliver to you
13
<PAGE>
the Purchase Option. The Purchase Option will be substantially in the form filed
as an Exhibit to the Registration Statement.
(p) Intentionally Omitted
(q) Upon the Closing Date, the Company will have in force key
person life insurance on the life of Mr. Silverman in an amount of not less than
$1,000,000.00, payable to the Company, and will use its best efforts to maintain
such insurance for a three year period.
(r) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter and each
dealer as many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. The Company shall not call for redemption any of the
Warrants unless a registration statement covering the securities underlying the
Warrants has been declared effective by the Commission and remains current at
least until the date fixed for redemption.
(s) For a period of one (1) year from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders,
provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission.
(t) For the three (3) year period commencing on the Closing
Date, the Underwriter shall have the right to appoint an observer who will be
able to attend all meetings of the Board of Directors. However, if the Board of
Directors determines that confidential information is to be discussed during any
part of any meeting attended by such observer, it shall have the right to
exclude the observer from the meeting during such discussion. The Underwriter
shall also have the right to obtain copies of the minutes, if requested, from
all Board of Directors meetings for three (3) years following the Effective Date
of the Registration Statement, whether or not a nominee of the Underwriter
attends or participates in any such Board meeting. The Company agrees to
reimburse the Underwriter immediately upon the Underwriter's request therefor of
any reasonable travel and lodging expenses directly incurred by the Underwriter
in connection with its representative attending Company Board meetings on the
same basis as other Board members.
14
<PAGE>
(u) The Company agrees to pay to the Underwriter a finder's
fee of 5.0% of the first $3,000,000.00, 4.0% of the next $3,000,000.00, 3.0% of
the next $2,000,000.00, 2% of next $2,000,000.00 and 1% of the excess, if any,
over $10,000,000.00, of the aggregate consideration received by the Company with
respect to any transaction (including, but not limited to, mergers,
acquisitions, joint ventures, and any other capital business transaction for the
Company) introduced to the Company by the Underwriter and consummated by the
Company (an "Introduced Consummated Transaction") during the five (5) year
period commencing on the Closing Date. The entire amount of any such finder's
fee due and payable to the Underwriter shall be paid in full by certified funds
or cashier's check payable to the order of the Underwriter or in cash, in each
case in the discretion of the Company, at the first closing of the Introduced
Consummated Transaction for which the finder's fee is due. For the purposes
hereof, a party shall not be deemed to be introduced by the Underwriter unless
and until (a) a written disclosure of the identity of such prospective party
shall have been given by the Underwriter and received by the Company during the
period; (b) such party was not previously known to the Company; and (c) such
party shall have commenced substantive negotiations with the Company relating to
a Introduced Consummated Transaction during such five (5) year period.
(v) The Company agrees to pay the Underwriter a warrant
solicitation fee of 4.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Underwriter
and the Underwriter was designated by the holder of the Warrant in writing as
having solicited the exercise of the Warrant, (c) the Warrant is not held in a
discretionary account, (d) disclosure of the compensation arrangement is made
upon the sale and exercise of the Warrants, (e) soliciting the exercise is not
in violation of Rule 10b-6 under the Exchange Act, and (f) solicitation of the
exercise is in compliance with the NASD Notice to Members 81-38 (September 22,
1981).
4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to perform its obligations hereunder, are subject to the accuracy
(as of the date hereof, and as of the Closing Date) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 a.m., New York time,
on the day following the date of this Agreement, or at such later time or on
such later date as to which the Underwriter may agree in writing; on or prior to
the Closing Date no stop order suspending the effectiveness of the Registration
15
<PAGE>
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or to the knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission; and no stop
order shall be in effect denying or suspending effectiveness of such
qualification nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened. If required, the Prospectus shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act.
(b) At the Closing Date, you shall have received the legal
opinions, dated as of the Closing Date, of (i) patent counsel to the Company, in
form and substance satisfactory to counsel for the Company, and (ii) Kramer,
Levin, Naftalis & Frankel, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, substantially to the effect that:
(i) the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own its properties and conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each other jurisdiction in which
the ownership or leasing of its properties or conduct of its business requires
such qualification except where the failure to qualify or be licensed will not
have a Material Adverse Effect;
(ii) the authorized capitalization of the Company
as of __________, 1996 is as set forth under "Capitalization" in the Prospectus;
all shares of the Company's outstanding Common Stock requiring authorization for
issuance by directors have been duly authorized and upon payment of
consideration therefor, will be validly issued, fully paid and non-assessable
and conform in all material respects to the description thereof contained in the
Prospectus; to such counsel's knowledge the outstanding shares of Common Stock
of the Company have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any preemptive
rights or other rights to subscribe for or to purchase, nor are there any
restrictions upon the voting or transfer of any of the Common Stock except as
provided in the Prospectus; the Common Stock, the Warrants, the Purchase Option,
and the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the Shares have been, and the
shares of Common Stock to be issued upon exercise of the Warrants and the
Purchase Option, upon issuance in accordance with the terms of such Warrants,
the Warrant Agreement and Purchase Option will have been duly authorized and,
when issued and delivered in accordance with their respective terms, will be
duly and validly issued, fully paid, non-assessable, free of preemptive rights
and no personal liability will attach to the ownership thereof; all prior sales
by the
16
<PAGE>
Company of the Company's securities have been made in compliance with or under
an exemption from registration under the Act and applicable state securities
laws; a sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and Purchase Option and to the best of
such counsel's knowledge, neither the filing of the Registration Statement nor
the offering or sale of the Units as contemplated by this Agreement gives rise
to any registration rights other than those which have been waived or satisfied
for or relating to the registration of any shares of Common Stock or as
otherwise being exercised in connection with the concurrent offering;
(iii) this Agreement, the Purchase Option, and the
Warrant Agreement have been duly and validly authorized, executed, and delivered
by the Company;
(iv) the certificates evidencing the shares of
Common Stock comply with the Delaware General Corporation Law; the Warrants will
be exercisable for shares of Common Stock in accordance with the terms of the
Warrants and Warrant Agreement and at the prices therein provided for;
(v) except as otherwise disclosed in the
Registration Statement, such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which would materially
adversely affect the business, property, financial condition, or operations of
the Company or which question the validity of the Securities, this Agreement,
the Warrant Agreement, or the Purchase Option, or of
any action taken or to be taken by the Company pursuant to this Agreement, the
Warrant Agreement, or the Purchase Option; to such counsel's knowledge there are
no governmental proceedings or regulations required to be described or referred
to in the Registration Statement which are not so described or referred to;
(vi) the execution and delivery of this Agreement,
the Purchase Option, or the Warrant Agreement and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a breach or
violation of, or constitute a default under the certificate of incorporation or
by-laws of the Company, or to the best knowledge of counsel after due inquiry,
in the performance or observance of any material obligations, agreement,
covenant, or condition contained in any bond, debenture, note, or other evidence
of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture, or other agreement or instrument to which the
Company is a party or by which it or any of its properties is bound or in
violation of any order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, or court, domestic or foreign, the
result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective
under the Act, and to the best of such counsel's
17
<PAGE>
knowledge, no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for that purpose have been instituted
or are pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and other
financial data contained therein, or omitted therefrom, as to which such counsel
need express no opinion) as of the Effective Date comply as to form in all
material respects with the applicable requirements of the Act and the Rules and
Regulations;
(viii) in the course of preparation of the
Registration Statement and the Prospectus such counsel has participated in
conferences with the President of the Company with respect to the Registration
Statement and Prospectus and such discussions did not disclose to such counsel
any information which gives such counsel reason to believe that the Registration
Statement or any amendment thereto at the time it became effective contained any
untrue statement of a material fact required to be stated therein or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto, and other
financial information (including without limitation, the pro forma financial
information) and schedules contained therein, as to which such counsel need
express no opinion);
(ix) all descriptions in the Registration
Statement and the Prospectus, and any amendment or supplement thereto, of
contracts and other agreements to which the Company is a party are accurate and
fairly present in all material respects the information required to be shown,
and such counsel is familiar with all contracts and other agreements referred to
in the Registration Statement and the Prospectus and any such amendment or
supplement or filed as exhibits to the Registration Statement, and such counsel
does not know of any contracts or agreements to which the Company is a party of
a character required to be summarized or described therein or to be filed as
exhibits thereto which are not so summarized, described, or filed;
(x) to the best of such counsel's knowledge
no authorization, approval, consent, or license of any governmental or
regulatory authority or agency is necessary in connection with the
authorization, issuance, transfer, sale, or delivery of the Units by the
Company, in connection with the execution, delivery, and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or qualifications of
the Units
18
<PAGE>
under applicable state or foreign securities or Blue Sky laws and registration
under the Act; and
(xi) the Units, Common Stock and Warrants have
been duly authorized for quotation on the NASD OTC Bulletin Board.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the laws of
the United States or of the States of Delaware and New York upon opinions of
counsel satisfactory to the Underwriter, in which case the opinion shall state
that they have no reason to believe that the Underwriter and they are not
entitled to so rely.
(c) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(d) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the Closing
Date from Arthur Andersen LLP, independent public accountants for the Company,
substantially in the form reasonably acceptable to the Underwriter.
(e) At the Closing Date, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of the
Closing Date and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given, no Material
Adverse Effect, or to the Company's knowledge, any development involving a
prospective Material Adverse Effect from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and Prospectus indicate might occur after the effective date of the Registration
Statement, and the Company shall not have incurred any material liabilities or
entered into any material agreement not in the ordinary course of business other
than as referred to in the Registration Statement and Prospectus; (iv) except as
set forth in the Prospectus, no action, suit, or
19
<PAGE>
proceeding at law or in equity shall be pending or threatened against the
Company which would be required to be set forth in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board, or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling, or finding would have a
Material Adverse Effect, (v) the Underwriter shall have received, at the Closing
Date, a certificate signed by the President of the Company, dated as of the
Closing Date, evidencing compliance with the provisions of this subsection (e)
and (vi) the Underwriter shall have received, at the Closing Date, such
opinions, certificates, letters and other documents as it reasonably requests.
(f) Intentially Omitted.
(g) All proceedings taken at or prior to the Closing Date in
connection with the sale and issuance of the Units shall be reasonably
satisfactory in form and substance to the Underwriter, and the Underwriter and
Bernstein & Wasserman, LLP, counsel to the Underwriter, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties, or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to either of
the Closing Date, for members of the NASD to execute transactions (as principal
or agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD.
(i) If any of the conditions herein provided for in this
Section shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriter under this
Agreement may be cancelled at, or at any time prior to, the Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the Closing Date. Any such cancellation shall be without
liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation
of the Company to sell and deliver the Units is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 a.m. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree in
writing.
20
<PAGE>
(b) At the Closing Date, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages, or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages, or liabilities; insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the omission
or alleged omission to state in the Registration Statement, any Preliminary
Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the Company
will not be required to indemnify the Underwriter and any controlling person or
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto, provided, further
that the indemnity with respect to any Preliminary Prospectus shall not be
applicable on account of any losses, claims, damages, liabilities, or litigation
arising from the sale of Units to any person if a copy of the Prospectus was not
delivered to such person at or prior to the written confirmation of
21
<PAGE>
the sale to such person. This indemnity will be in addition to any liability
which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages, or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer, or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Units of any applicable state or federal law or
any rule, regulation or instruction thereunder relating to violations based on
unauthorized statements by Underwriter or its representative, provided that such
violation is not based upon any violation of such law, rule, or regulation or
instruction by the party claiming indemnification or inaccurate or misleading
information furnished by the Company or its representatives, including
information furnished to the Underwriter as contemplated herein. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to
22
<PAGE>
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the reasonable fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and in the reasonable judgment of
the counsel to the indemnified party, it is advisable for the indemnified party
to be represented by separate counsel (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the indemnified party,
which firm shall be designated in writing by the indemnified party). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnifying party. If it is
ultimately determined that indemnification is not permitted, then an indemnified
party will return all monies advanced to the indemnifying party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which the indemnification provided in
Section 6 hereof is requested but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case,
then the Company and the Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages,
or liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon and the Company shall be responsible for the remaining
portion,
23
<PAGE>
provided, however, that if such allocation is not permitted by applicable law,
then allocated in such proportion as is appropriate to reflect relative benefits
but also the relative fault of the Company and the Underwriter, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission relates to information
supplied by the Company or the Underwriter and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriter agree that it
would not be just and equitable if the respective obligations of the Company and
the Underwriter to contribute pursuant to this Section 7 were to be determined
by pro rata or per capita allocation of the aggregate damages or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section 7. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 1(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. If the full amount of the contribution specified in this
paragraph is not permitted by law, then the Underwriter and each person who
controls the Underwriter shall be entitled to contribution from the Company and
the Company, its officers, directors, and controlling persons shall be entitled
to contribution from the Underwriter to the full extent permitted by law. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriter. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Units by the Underwriter is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing, and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus, and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Units contemplated hereby;
all expenses, including reasonable fees (which does not include blue sky filing
fees) and disbursements of counsel to the Underwriter, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Underwriter shall designate; the cost of printing
24
<PAGE>
and furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, and the Blue Sky
Memorandum, any fees relating to the listing of the Units, Common Stock, and
Warrants on The Nasdaq Stock Market or any other securities exchange; the cost
of printing the certificates representing the securities comprising the Units;
fees for bound volumes and prospectus memorabilia; and the fees of the transfer
agent and warrant agent. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock, or other tax imposed by any jurisdiction) on
sales of the Units hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at
the Closing Date pay to the Underwriter a non-accountable expense allowance of
$300,000. In the event the transactions contemplated hereby are not consummated
by reason of any action by the Underwriter (except if such prevention is based
upon a breach by the Company of any covenant, representation, or warranty
contained herein or because any other condition to the Underwriter's obligations
hereunder required to be fulfilled by the Company are not fulfilled) the Company
shall not be liable for any expenses of the Underwriter, including the
Underwriter's legal fees. In the event the transactions contemplated hereby are
not consummated by reason of the Company being unable to perform its obligations
hereunder in all material respects, the Company shall be liable for the actual
accountable out-of-pocket expenses of the Underwriter, including reasonable
legal fees, not to exceed in the aggregate $150,000.00.
(c) Except as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Underwriter or from any other person for services as a finder
in connection with the proposed offering, and the Company agrees to indemnify
and hold harmless the Underwriter, against any losses, claims, damages, or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Underwriter or person may become
subject insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by reason of
such person's or entity's influence or prior contact with the indemnifying
party.
9. Effective Date. The Agreement shall become effective upon its
execution except that the Underwriter may, at its option, delay its
effectiveness until 11:00 a.m., New York time on the first full business day
following the effective date of the
25
<PAGE>
Registration Statement, or at such earlier time on such business day after the
effective date of the Registration Statement as the Underwriter in its
discretion shall first commence the initial public offering of the Units. The
time of the initial public offering shall mean the time of release by the
Underwriter of the first newspaper advertisement with respect to the Units, or
the time when the Units are first generally offered by the Underwriter to
dealers by letter or telegram, whichever shall first occur. This Agreement may
be terminated by the Underwriter at any time before it becomes effective as
provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 shall
remain in effect notwithstanding such termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated
at any time prior to the Closing Date, and the option referred to in Section
2(b) hereof, if exercised, may be cancelled at any time prior to the Option
Closing Date, by the Underwriter if in the Underwriter's judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriter
for the resale of the Units agreed to be purchased hereunder by reason of (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident, or other calamity, or from any labor
dispute or court or government action, order, or decree, which has caused a
Material Adverse Effect, (ii) trading in securities on the New York Stock
Exchange or the American Stock Exchange having been suspended or limited, (iii)
material governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof), (iv) a banking
moratorium having been declared by federal or New York state authorities, (v) an
outbreak of major international hostilities involving the United States or other
substantial national or international calamity having occurred, (vi) a pending
or threatened legal or governmental proceeding or action relating generally to
the Company's business, or a notification having been received by the Company of
the threat of any such proceeding or action, which would have a Material Adverse
Effect;(vii) except as contemplated by the Prospectus, the Company is merged
with or consolidated into or acquired by another company or group or there
exists a binding legal commitment for the foregoing or any other material change
of ownership or control occurs; (viii) the passage by the Congress of the United
States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by the Underwriter to have a
material adverse impact on the business, financial condition, or financial
statements of the Company, (ix) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement, or (x) any Material
26
<PAGE>
Adverse Effect having occurred, since the respective dates of which information
is given in the Registration Statement and Prospectus.
(b) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Company shall be promptly notified by the Underwriter, by telephone or
telegram, confirmed by letter.
11. Purchase Option. At or before the First Closing Date, the Company
will sell the Underwriter or its designees for a consideration of $90.91, and
upon the terms and conditions set forth in the form of Purchase Option annexed
as an exhibit to the Registration Statement, a Purchase Option to purchase an
aggregate of 90,909 Units. In the event of conflict in the terms of this
Agreement and the Purchase Option with respect to language relating to the
Purchase Option, the language of the Purchase Option shall control.
12. Representations and Warranties of the Underwriter. The Underwriter
represents and warrants to the Company that it is registered as a broker-dealer
in all jurisdictions in which it is offering the Units and that it will comply
with all applicable state or federal laws relating to the sale of the Units
including but not limited to, violations based on unauthorized statements by the
Underwriter or its representatives.
13. Intentially Omitted.
14. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect until
three years from the date of this Agreement, regardless of any investigation
made by or on behalf of the Underwriter, the Company, or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
15. Notice. Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Stratton Oakmont, Inc., 1979 Marcus Avenue, Lake
Success, New York 11042, with a copy sent to Bernstein & Wasserman, LLP, 950
Third Avenue, New York, New York 10022, Attention: Hartley T. Bernstein, Esq.,
or if sent to the Company, will be mailed, delivered, or telecopied and
confirmed to it at 342 Madison Avenue, Suite 1034, New York, New York 10173,
Attention: Jon D. Silverman, with a copy sent to Kramer, Levin, Naftalis &
Frankel, 919 Third Avenue, New York, New York 10022, Attention: Scott S.
Rosenblum, Esq. Notice shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication.
27
<PAGE>
16. Parties in Interest. The Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company, any person controlling the
Company or the Underwriter, and directors of the Company, nominees for directors
(if any) named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from the Underwriter of the Units.
17. Applicable Law. This Agreement will be governed by, and construed
in accordance with, of the laws of the State of New York applicable to
agreements made and to be entirely performed within New York.
18. Counterparts. This agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
19. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing, signed by the
Underwriter and the Company.
28
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
RESEAL FOOD DISPENSING SYSTEMS, INC.
By: __________________________
Its
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
STRATTON OAKMONT, INC.
By:__________________________
Its
The Undersigned are executing this Agreement solely
to be bound by the provisions of Section 3(1) and Section 13 hereof.
- ----------------------- ------------------------
Harvey Bibicoff Calvin Caldwell
- ----------------------- ------------------------
Edward Ferree Andre Van Gils
- ----------------------- ------------------------
Daryl Hagler Irving Kraut
- ----------------------- ------------------------
David Landua Steven Madden
- ----------------------- ------------------------
Roger Oppenheimer Douglas Preston
- ----------------------- -------------------------
Raphael Schneiderman Harry Shuster
29
<PAGE>
ROTANES, INC.
_______________________ By:____________________
Lloyd Solomon Its:
ARMSTRONG INDUSTRIES PLUS ONE FINANCE LTD.
By:____________________ By:_______________________
Its: Its:
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
RESEAL FOOD DISPENSING SYSTEMS, INC.
909,091 UNITS
CONSISTING OF
1,818,182 SHARES OF COMMON STOCK
AND
1,818,182 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_____________________, 1996
Dear Sirs:
1. Stratton Oakmont, Inc., named as the Underwriter in the enclosed
Preliminary Prospectus (the "Underwriter"), proposes to offer on a "best efforts
all-or-none basis" subject to the terms and conditions and execution of the
Underwriting Agreement, 909,091 units of Reseal Food Dispensing Systems, Inc.
(the "Company") each consisting of two (2) shares of common stock par value
$.001 per share (the "Common Stock") and two (2) Class A Redeemable Common Stock
Purchase Warrants (the "Warrants"), each to purchase one share of Common Stock.
The Units are more particularly described in the enclosed Preliminary
Prospectus, additional copies of which as well as the Prospectus (after
effective date) will be supplied in reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy Units upon the terms and
conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission (the "Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. (the "NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. Units are to be offered to the public at a price of
$11.00 per Unit. Selected Dealers will be allowed a concession of not less than
_____% of the offering price. You will be notified of the precise amount of such
concession prior to the effective date of the Registration Statement. The offer
is solicited subject to the issuance and delivery of the Units and their
acceptance by the Underwriter to the approval of legal matters by counsel and to
the terms and conditions as herein set forth.
1
<PAGE>
3. Your offer to sell may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Units has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Sell below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Units set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable.
4. You will advise us upon request of the Units to be sold by you
remaining unsold, and we shall have the right to repurchase such Units upon
demand at the public offering price less the concession as set forth in
paragraph 2 above.
5. All payments from customers shall be made payable to "Continental
Stock Transfer & Trust Company as Escrow Agent for ReSeal Food Dispensing
Systems, Inc." and shall be transmitted to the Escrow Agent by noon of the next
business day. Certificates for the securities shall be delivered as soon as
practicable at the offices of Stratton Oakmont, Inc.,
1979 Marcus Avenue, Lake Success, New York, New York 11042.
6. A registration statement covering the offering has been filed with
the Commission in respect to the Units. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or by
the Underwriter to give any information or to make any representations other
than those contained in the Prospectus in connection with the sale of the Units.
Nothing contained herein shall render the Selected Dealers a member of the
underwriting group or partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Units in any state.
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed.
2
<PAGE>
10. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("Association") and registered
as a broker-dealer or are not eligible for membership under Section I of the
By-Laws of the Association who agree to make no sales within the United States,
its territories, or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's interpretation
with respect to free-riding and withholding. Your attention is called to the
following: (a) Rules 2730, 2740, 2420 and 2750 of the NASD Conduct Rules of the
Association and the interpretations of said Section promulgated by the Board of
Governors of such Association including the interpretation with respect to
"Free-Riding and Withholding"; (b) Section 10(b) of the 1934 Act and Rules 10b-6
and 10b-10 of the general rules and regulations promulgated under said Act; (c)
Securities Act Release #3907; (d) Securities Act Release #4150; and (e)
Securities Act Release #4968 requiring the distribution of a Preliminary
Prospectus to all persons reasonably expected to be purchasers of Shares from
you at least 48 hours prior to the time you expect to mail confirmations. You,
if a member of the Association, by signing this Agreement, acknowledge that you
are familiar with the cited law, rules, and releases, and agree that you will
not directly and/or indirectly violate any provisions of applicable law in
connection with your participation in the distribution of the Shares.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Units or its
component securities in the open market or otherwise make a market in such
securities or otherwise attempt to induce others to purchase such securities in
the open market. Nothing contained in this paragraph 11 shall, however, preclude
you from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. Intentionally omitted.
13. Intentionally omitted.
14. You agree that (i) you shall not recommend to a customer the
purchase of Units unless you shall have reasonable grounds to believe that the
recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Units in a discretionary account without the prior specific written approval of
the customer.
15. All communications from you should be directed to us at the office
of the Underwriter, Stratton Oakmont, Inc., 1979 Marcus Avenue, Lake Success,
New York 11042. All communications from us to you shall be directed to the
address to which this letter is mailed.
Very truly yours,
STRATTON OAKMONT, INC.
By: ______________________________
Its
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1996
[Name of Dealer]
By: ______________________________
Its
4
<PAGE>
To: Stratton Oakmont, Inc.
1979 Marcus Avenue
Lake Success, New York 11042
We hereby subscribe to sell _____________ Units of Reseal Food
Dispensing Systems, Inc., each Unit consisting of two (2) shares of common
stock, par value $.001 per share (the "Common Stock") and two (2) Class A
Redeemable Common Stock Purchase Warrants (the "Class A Warrants"), each to
purchase one share of Common Stock, in accordance with the terms and conditions
stated in the foregoing letter. We hereby acknowledge receipt of the Prospectus
referred to in the first paragraph thereof relating to said Units. We further
state that in selling said Units we have relied upon said Prospectus and upon no
other statement whatsoever, whether written or oral. We confirm that we are a
dealer actually engaged in the investment banking or securities business and
that we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. We hereby agree to comply with the
provisions of Rule 2740 of the NASD Conduct Rules, and if we are a foreign
dealer and not a member of the NASD, we also agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
we were a member of the NASD, with the provisions of Rules 2730 and 2750 of the
NASD Conduct Rules.
[Name of Dealer]
------------------------------
By: ______________________________
Address
------------------------------
------------------------------
Dated _____________________, 1996
1
WARRANT AGREEMENT
AGREEMENT, dated as of this _______th day of ________ 1996, by and
between RESEAL FOOD DISPENSING SYSTEMS, INC., a Delaware corporation
("Company"), and Continental Stock Transfer & Trust Company, as Warrant Agent
(the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 909,091 units
("Units"), each unit consisting of two (2) shares of the Company's Common Stock,
$.001 par value ("Common Stock") and two (2) Class A Redeemable Common Stock
Purchase Warrants (the "Warrants") pursuant to an underwriting agreement (the
"Underwriting Agreement") dated ___________, 1996 between the Company and
Stratton Oakmont, Inc. ("Stratton"), and the issuance (i) to Stratton or its
designees of a Purchase Option to purchase 90,909 additional Units, (the
"Purchase Option"), and (ii) to certain bridge lenders 787,500 Bridge Units
consisting of two (2) shares of Common Stock and two (2) Warrants, the Company
will issue up to 3,575,000 Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company
of which at the date hereof consists of 40,000,000 authorized shares, $.001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (i) only shares of such class designated
in the Company's Certificate
1
<PAGE>
of Incorporation as Common Stock on the date of the original issue of the
Warrants, or (ii) in the case of any reclassification, change, consolidation,
merger, sale, or conveyance of the character referred to in Section 9(c) hereof,
the stock, securities, or property provided for in such section, or (iii) in the
case of any reclassification or change in the outstanding shares of Common Stock
issuable upon exercise of the Warrants as a result of a subdivision or
combination or a change in par value, or from par value to no par value, or from
no par value to par value, such shares of Common Stock as so reclassified or
changed.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at Two
Broadway, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean ________, 1997.
(e) "Purchase Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $6.30 per share (except as set forth in paragraph 2(e)hereof), subject
to adjustment from time to time pursuant to the provisions of Section 9 hereof,
and subject to the Company's right, in its sole discretion, upon thirty (30)
days written notice, to reduce the Purchase Price upon notice to all warrant
holders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on ______, 2001 or the Redemption Date as defined
2
<PAGE>
in Section 8, whichever is earlier; provided that if such date shall in the
State of New York be a holiday or a day on which banks are authorized or
required to close, then 5:00 P.M. (New York time) on the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized or required to close. Upon notice to all warrantholders, the Company
shall have the right to extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or a Vice President and by
its Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 3,575,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed, or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Purchase
Option; and (vi) those issued at the option of the Company, in such form as may
be approved by the its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, Stratton may
purchase up to 90,909 Units which include up to
3
<PAGE>
181,818 Class A Warrants. The Class A Warrants underlying the Purchase Option
are exercisable at $10.40 per share.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers, or other marks of
identification or designation and such legends, summaries, or endorsements
printed, lithographed, or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of Section
2(b). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange, or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Warrant Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the
Company by its President, or any Vice President and by its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be counter-signed by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent
4
<PAGE>
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five (5) business days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a certificate for any remaining
unexercised Warrants of the Registered Holder), unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants. Upon the
exercise of any Warrant and clearance of the funds received, the Warrant Agent
shall promptly remit the payment received for the Warrant (the "Warrant
Proceeds") to the Company or as the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will, to the extent the Purchase Price is less than
the Market Price (as hereinafter defined), in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval and will
use its reasonable efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws. With respect to any such securities,
however, Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if the shares of Common
Stock are
<PAGE>
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for
such time as it is acting as such to requisition the Company's Transfer Agent
from time to time for certificates representing shares of Common Stock issuable
upon exercise of the Warrants, and the Company will authorize the Transfer Agent
to comply with all such proper requisitions. The Company will file with the
Warrant Agent a statement setting forth the name and address of the Transfer
Agent of the Company for shares of Common Stock issuable upon exercise of the
Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue, and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed on the Registered Holder
by the Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be
6
<PAGE>
promptly canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement or resignation as Warrant Agent, or
disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement will be
immediately detachable from the Common Stock and transferable separately
therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provisions of paragraph 2(e) hereof, on not
less than thirty (30) days notice given at any time after (1) year from the
Initial Warrant Exercise Date, the Warrants may be redeemed, at the option of
the Company, at a redemption price of $0.05 per Warrant, provided that the
Market Price (defined below) of the Common Stock receivable upon exercise of the
Warrant shall equal or exceed $8.00 (the "Target Price") subject to adjustment
as set forth in Section 8(f) below. Market Price for the purpose of this Section
8 shall mean (i) the average closing bid price for any twenty (20) consecutive
ending within ten (10) days prior to the date of the notice of redemption, which
notice shall be mailed no later than five (5) days thereafter, of the Common
Stock as reported by Nasdaq or (ii) the last reported sale price, for twenty
(20) consecutive trading days ending within ten (10) days of the date of the
notice of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
7
<PAGE>
(b) If the conditions set forth in Section 8(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it shall mail
a notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrants shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the Redemption Date and
upon the deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and become
void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the Redemption Price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, the
Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
8
<PAGE>
9. Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants.
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price of the Common Stock (as defined in Section 8) on the
date of the sale or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision, or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received (determined as
provided in subsection 9(f) below) for the issuance of such additional shares
would purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant
to this Section 9, the total number of shares of Common Stock purchasable upon
the exercise of each Warrant shall (subject to the provisions contained in
Section 9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall,
9
<PAGE>
as promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Section 10 hereof, the number of additional Warrants to
which such Holder shall be entitled as a result of such adjustment or, at the
option of the Company, cause to be distributed to such Holder in substitution
and replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Warrants to which such Holder shall be
entitled after such adjustment.
(c) In case of any reclassification, capital reorganization,
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization, or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage, or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization, or other
change, consolidation, merger, sale, or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d)
10
<PAGE>
hereof, continue to express the Purchase Price per share, the number of shares
purchasable thereunder, and the Redemption Price therefor as the Purchase Price
per share, and the number of shares purchasable and the Redemption Price
therefore were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the Registered Holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to Stratton and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by or for
the account of the Company and the sale or issuance of such treasury shares or
the distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$.10 in such price; provided that any adjustments which by reason of this
subsection (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash
of any rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into or exchangeable for
Common Stock without the
<PAGE>
payment of any further consideration other than cash, if any (such convertible
or exchangeable securities being herein called "Convertible Securities"), or (2)
the issuance by the Company, without the receipt by the Company of any
consideration therefor, of any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities, in
each case, if (and only if) the consideration payable to the Company upon the
exercise of such rights, warrants, or options shall consist of cash, whether or
not such rights, warrants, or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration payable to the
Company upon the exercise of such rights, warrants, or options, plus the
consideration received by the Company for the issuance or sale of such rights,
warrants, or options, plus, in the case of such Convertible Securities, the
minimum aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the exercise of
such rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights, warrants, or
options) is less than the fair market value of the Common Stock on the date of
the issuance or sale of such rights, warrants, or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such rights,
warrants, or options) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of
any Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value of
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
12
<PAGE>
(v) In case the Company shall modify the rights of
conversion, exchange, or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase Price
to be in effect after such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
multiplied by the market price on the date prior to the modification plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities affected by the modification would purchase at
the market price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion, exchange, or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date upon
which such modification shall take effect.
(vi) On the expiration of any such right, warrant,
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (a) had
the adjustments made upon the issuance or sale of such rights, warrants,
options, or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually delivered (and
the total consideration received therefor) upon the exercise of such rights,
warrants, or options or upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis of the Purchase Price
as adjusted under clause (a) for all transactions (which would have affected
such adjusted Purchase Price) made after the issuance or sale of such rights,
warrants, options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants
or to the number of shares of Common Stock purchasable upon the
exercise of each Warrant will be made, however,
13
<PAGE>
(i) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of the Warrants or
Common Stock comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock in
the Company's initial public offering, including, without limitation, shares
sold upon the exercise of any over-allotment option granted to the Underwriters
in connection with such offering; or
(iii) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants, or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities in a private placement unless the issuance or sale price
is less than 85% of the fair market value of the Common Stock on the date of
issuance, in which case the adjustment shall only be for the difference between
85% of the fair market value and the issue or sale price;
(vi) upon the issuance or sale of Common Stock or
Convertible Securities to shareholders of any corporation which merges and/or
consolidates into or is acquired by the Company or from which the Company
acquires assets and some or all of the consideration consists of equity
securities of the Company, in proportion to their stock holdings of such
corporation immediately prior to the acquisition but only if no adjustment is
required pursuant to any other provision of this Section 9;
(vii) upon the issuance or exercise of options
granted to the Company's directors, employees or consultants under a plan or
plans adopted by the Company's Board of Directors and approved by its
stockholders (but only to the extent that the aggregate number of shares
excluded hereby and issued after the date hereof shall not exceed ten percent
(10%) of the Company's Common Stock at the time of issuance);
(viii) upon the issuance of Common Stock to the
Company's directors, employees or consultants under a plan or plans which are
qualified under the Internal Revenue Code; or
14
<PAGE>
(ix) upon the issuance of Common Stock in a bona fide
public offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution, or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue
15
<PAGE>
fractions of shares, upon exercise of the Warrants or otherwise, or to
distribute certificates that evidence fractional shares. In such event, the
Company may at its option elect to round up the number of shares to which the
Registered Holder is entitled to the nearest whole share or to pay cash in
respect of fractional shares in accordance with the following: an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on The Nasdaq Stock Market, the current market value shall
be the last reported sale price of the Common Stock on such exchange or market
on the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange or market; or
(ii) If the Common Stock is not listed or admitted
to unlisted trading privileges, the current market value shall be the mean of
the last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of
16
<PAGE>
shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their mutual discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel the
Warrant Certificate or Warrant Certificates following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer, split up,
combination, or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any Warrant
Certificate or other document or
17
<PAGE>
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order,
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order, or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses, and liabilities, including
judgments, costs, and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses, and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
thirty (30) days prior written notice to the Company. At least fifteen (15) days
prior to the date such resignation is to become effective, the Warrant Agent
shall cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of fifteen (15) days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of competent
jurisdiction in the State of New York for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After
18
<PAGE>
acceptance in writing of such appointment by the new warrant agent is received
by the Company, such new warrant agent shall be vested with the same powers,
rights, duties, and responsibilities as if it had been originally named herein
as the Warrant Agent, without any further assurance, conveyance, act, or deed;
but if for any reason it shall be necessary or expedient to execute and deliver
any further assurance, conveyance, act, or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
19
<PAGE>
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law.
17. Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 342 Madison Avenue, Suite 1034, New York, New York 10173,
Attention: Jon D. Silverman, or at such other address as may have been furnished
to the Warrant Agent in writing by the Company; and if to the Warrant Agent, at
its corporate office.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Warrant Agent, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy, or claim, in equity or at law,
or to impose upon any other person any duty, liability, or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier date
upon which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single
document.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
RESEAL FOOD DISPENSING SYSTEMS, INC.
By: ______________________________
Its
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Its
Authorized Officer
21
<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. W
________Class A Warrants
VOID AFTER ________ __, 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
RESEAL FOOD DISPENSING SYSTEMS, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED ___________________
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as herein-after defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of RESEAL FOOD DISPENSING SYSTEMS,
INC., a Delaware corporation (the "Company"), at any time between the Initial
Warrant Exercise Date (as herein defined) and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of CONTINENTAL STOCK TRANSFER & TRUST COMPANY as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.30
(the "Purchase Price") in lawful money of the United States of America in cash
or by official bank or certified check made payable to RESEAL FOOD DISPENSING
SYSTEMS, INC..
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________ __,
1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean ________ __, 1997.
1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time on
________ __, 2001, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that, to the extent the
Purchase Price is less than the Market Price (as defined in the Warrant
Agreement), it will file a registration statement and will use its best efforts
to cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certifi- cate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant at any time after two (2) years from the
Effective Date, provided the Market Price (as defined in the Warrant Agreement)
for the securities issuable upon exercise of such Warrant shall equal or exceed
$8.00 per share. Notice of redemption shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
2
<PAGE>
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Date: _____________
RESEAL FOOD DISPENSING SYSTEMS, INC.
By ____________________________________
Name:
Title:
[Seal]
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert taxpayer identification or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
1
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, ___________________________hereby sells,
assigns,and transfers unto
--------------------------------------------
(please insert taxpayer identification or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
_____________of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints _________________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of
substitution in the premises.
- -------------------------- --------------------------------
(Date) Signature
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
1
Option to Purchase
90,909 Units
RESEAL FOOD DISPENSING SYSTEMS, INC.
UNIT PURCHASE OPTION
Dated:__________ ,1996
THIS CERTIFIES that STRATTON OAKMONT, INC., 1979 Marcus Avenue, Lake
Success, New York 11042 (hereinafter sometimes referred to as the "Holder" which
shall include any permitted transferee hereunder), is entitled to purchase from
RESEAL FOOD DISPENSING SYSTEMS, INC., a Delaware corporation (hereinafter
referred to as the "Company"), at the prices and during the periods as
hereinafter specified, up to 90,909 Units consisting of the Company's Common
Stock and Warrants to purchase the Company's Common Stock. Each Unit consists of
two (2) shares of the Company's Common Stock, $.001 par value, as now
constituted ("Common Stock") and two (2) Class A Redeemable Common Stock
Purchase Warrants, each to purchase one (1) share of Common Stock at an exercise
price of $10.40 per share (the "Class A Warrants"). The Warrants are exercisable
until __________, 2001.
The Units have been registered under a Registration Statement on Form
SB-2 (File No. 333-7915) declared effective by the Securities and Exchange
Commission on __________, 1996 (the "Registration Statement"). This Option (the
"Option") to purchase 90,909 Units (the "Option Units") was originally issued
pursuant to an underwriting agreement between the Company, certain selling
securityholders (the "Selling Securityholders") and Stratton Oakmont, Inc., (the
"Underwriter"), in connection with a public offering of 909,091 Units (the
"Public Units") through the Underwriter, in consideration of $90.91 received for
the Option.
Except as specifically otherwise provided herein, the Common Stock and
the Warrants issued pursuant to this Option shall bear the same terms and
conditions as described under the caption "Description of Capital Stock" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of __________, 1996, executed in connection with such
public offering (the "Warrant Agreement"), and except that (i) the Holder shall
have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, the Units, the Common Stock and the Warrants included in
the Units, and the shares of Common Stock underlying the Warrants, as more fully
described in paragraph 6 of this Option and (ii) the exercise price of the
Warrants contained in this Option is $10.40. In the event of any reduction of
the exercise price of the Warrants included in the
1
<PAGE>
Public Units, the same changes to the Warrants included in the Option Units
shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between __________, 1997 and __________, 2001, inclusive,
the Holder shall have the option to purchase Units hereunder at a price of
$18.15 per Unit(subject to adjustment pursuant to paragraph 8 hereof) (the
"Exercise Price").
(b) After ____________, 2001 (five (5) years from the
Effective Date), the Holder shall have no right to purchase any Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the applicable Exercise Price then in effect for the number of Units
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s)' designated in the purchase form to the effect
that such person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. This Option shall be
deemed to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the earliest date this Option is
surrendered and payment is made in accordance with the foregoing provisions of
this paragraph 2, and the person or persons in whose name or names the
certificates for shares of Common Stock and Warrants shall be issuable upon such
exercise shall become the Holder or Holders of record of such Common Stock and
Warrants at that time and date. The Common Stock and Warrants and the
certificates for the Common Stock and Warrants so purchased shall be delivered
to the Holder within a reasonable time, not exceeding ten (10) days, after the
rights represented by this Option shall have been so exercised.
3. For a period of one (1) year from the Effective Date, this Option
shall not be transferred, sold, assigned, or hypothecated, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder during such period. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under this
paragraph 3
2
<PAGE>
hereof; whereupon the Company shall issue, in the name or names specified by the
Holder (including the Holder) a new Option or Options of like tenor and
representing in the aggregate rights to purchase the same number of Units as are
purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be issued as part of the Units purchased hereunder and the Common
Stock which may be issued upon exercise of the Warrants will, upon issuance, be
duly and validly issued, fully paid and nonassessable, and no personal liability
will attach to the Holder thereof. The Company further covenants and agrees that
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of its
Common Stock to provide for the exercise of this Option and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants included in the Units.
5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, by written notice at least
thirty (30) days prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of five
years from the effective date of the Registration Statement, upon the request of
the Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Option, all or any of the Units underlying the Option, the Common Stock or
Warrants included in the Units or the Common Stock issuable upon the exercise of
the Warrants (the "Registrable Securities"). The Company shall supply
prospectuses and such other documents as the Holder may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder reasonably designates;
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action; and do any and all other acts and
things which may be reasonably necessary or desirable to enable such Holder to
consummate the public sale or other disposition of the Registrable Securities,
and furnish indemnification in the manner provided in paragraph 7 hereof. The
Holder shall furnish information and indemnification as set forth in paragraph
7, except that the maximum amount which may be recovered from the Holder shall
be limited to the amount of proceeds received by the Holder from the sale of the
Registrable Securities. The Company shall use its best efforts to cause the
managing underwriter or underwriters
3
<PAGE>
of a proposed underwritten offering to permit the Holders of Registrable
Securities requested to be included in the registration to include such
securities in such underwritten offering on the same terms and conditions as any
similar securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering advises
the Holders of Registrable Securities that the total amount of securities which
they intend to include in such offering is such as to materially and adversely
affect the success of such offering, then the amount of securities to be offered
for the accounts of Holders of Registrable Securities shall be eliminated,
reduced, or limited to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount, if any, recommended by
such managing underwriter or underwriters (any such reduction or limitation in
the total amount of Registrable Securities to be included in such offering to be
borne by the Holders of Registrable Securities proposed to be included therein
pro rata). The Holder will pay its own legal fees and expenses and any
underwriting discounts and commissions on the securities sold by such Holder and
shall not be responsible for any other expenses of such registration.
(b) If any 50% Holder (as defined below) shall give notice to
the Company at any time during the period set forth in paragraph l(a) hereof to
the effect that such Holder desires to register under the Act this Option, the
Units, or any of the underlying securities contained in the Units underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved then the Company will
promptly, but no later than sixty (60) days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Option, the
Units, and/or any of the securities underlying the Units may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective for a
period of 120 days (including the taking of such steps as are reasonably
necessary to obtain the removal of any stop order); provided that such Holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% Holder (which for
purposes hereof shall mean any direct or indirect transferee of such Holder)
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act
with respect to the Registrable Securities on only one occasion during the term
of this Option. The Holder may at its option request the registration of the
Option and/or any of the securities underlying the Option in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
Units issuable upon exercise of the Option and even though the Holder has not
given notice of exercise of the Option. The 50% Holder may, at its option,
request such post-effective amendment or new registration
4
<PAGE>
statement during the described period with respect to the Option, the Units as a
Unit, or separately as to the Common Stock and/or Warrants included in the
Units, and/or the Common Stock issuable upon the exercise of the Warrants, and
such registration rights may be exercised by the 50% Holder prior to or
subsequent to the exercise of the Option. Within ten (10) business days after
receiving any such notice pursuant to this subsection (b) of paragraph 6, the
Company shall give notice to the other Holders of the Options, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other Holders. Each Holder electing to include its Registrable Securities
in any such offering shall provide written notice to the Company within twenty
(20) days after receipt of notice from the Company. The failure to provide such
notice to the Company shall be deemed conclusive evidence of such Holder's
election not to include its Registrable Securities in such offering. Each Holder
electing to include its Registrable Securities shall furnish the Company with
such appropriate information (relating to the intentions of such Holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of the first such post-effective amendment or new
registration statement shall be borne by the Company, except that the Holders
shall bear the fees of their own counsel and any underwriting discounts or
commissions applicable to any of the securities sold by them. If the Company
determines to include securities to be sold by it in any registration statement
pursuant to this Section 6(b), such registration shall be deemed to have been a
registration under Section 6(a). In no event shall the demand registration right
granted hereunder extend beyond five years from the effective date of the
Registration Statement. Notwithstanding anything herein to the contrary, there
shall be only one (1) demand registration right granted hereunder.
The Company shall be entitled to postpone the filing
of any registration statement pursuant to this Section 6(b) otherwise required
to be prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the Company's request to waive such lock-up. In the event of such postponement,
the Company shall be required to file the registration statement pursuant to
this Section 6(b), within sixty (60) days of the consummation of the event
requiring such postponement.
5
<PAGE>
The Company will use its best efforts to maintain
such registration statement or post-effective amendment current under the Act
for a period of at least six (6) months (and for up to an additional three (3)
months if requested by the Holder) from the effective date thereof. The Company
shall supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder reasonably
designates, provided that the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or execute a general consent to
service of process in any jurisdiction in any action and furnish indemnification
in the manner provided in paragraph 7 hereof.
(c) The term "50% Holder" as used in this paragraph 6 shall
mean the Holder of at least 50% of the Common Stock and the Warrants underlying
the Option (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated by
determining the number of shares of Common Stock held by such owner or owners as
well as the number of shares then issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each Holder of the securities covered
by such registration statement, amendment, or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse the Distributing Holder and each such
controlling person and underwriter for any legal or other expenses reasonably
incurred by the Distributing Holder or such controlling person or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue
6
<PAGE>
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder, for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer, or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
7
<PAGE>
8. With respect to the Option Units, the Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
this Option shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Notwithstanding anything to the contrary contained in the
Warrant Agreement, in the event an adjustment to the Exercise Price is effected
pursuant to this Subsection (a) (and a corresponding adjustment to the number of
Option Units is made pursuant to Subsection (f) below), the exercise price of
the Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
In such event, there shall be no adjustment to the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all Holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option Unit by
the product of the Exercise Price in effect immediately prior to the date of
such issuance multiplied by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
8
<PAGE>
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Unit by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Subsection (e)
below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (a), (b), or (c), above, the number
of Option Units purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Units initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b)
or (c) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for twenty (20)
consecutive business days before such date. The closing price for each day shall
be the last sale price regular way or, in case no such reported sale takes place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities
9
<PAGE>
exchange on which the Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on such exchange, the average of the highest
reported bid and lowest reported asked prices as reported by The Nasdaq Stock
Market, or other similar organization if The Nasdaq Stock Market is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least ten
cents ($0.10) in such price; provided, however, that any adjustments which by
reason of this Subsection (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything in
this Section 8 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly, but no later than twenty(20) days after
any request for such an adjustment by the Holder, cause a notice setting forth
the adjusted Exercise Price and adjusted number of Option Units issuable upon
exercise of this Option and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the Holder, at the
address set forth herein, and shall cause a certified copy thereof to be mailed
to its transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) to make any computation required by
this Section 8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (f), inclusive above.
9. This Agreement shall be governed by and in accordance
with the laws of the State of New York.
10
<PAGE>
IN WITNESS WHEREOF, Reseal Food Dispensing Systems, Inc. has caused
this Option to be signed by its duly authorized officer under its corporate
seal, and this Option to be dated as of the date first above written.
RESEAL FOOD DISPENSING SYSTEMS, INC.
By: ______________________________
Name:
Title:
(Corporate Seal)
11
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
Units of Reseal Food Dispensing Systems, Inc., each Unit consisting of
two shares of $.001 Par Value Common Stock and two Class A Redeemable Common
Stock Purchase Warrants and herewith makes payment of $______________ therefor,
and requests that the Warrants and certificates for shares of Common Stock be
issued in the name(s) of, and delivered to ________________________ whose
address(es) is (are)_________________________________________.
Dated:
1
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase Units
represented by the foregoing Option to the extent of _______ Units and appoints
_________________________________ attorney to transfer such rights on the books
of Reseal Food Dispensing Systems, Inc. with full power of substitution in the
premises.
Dated:
By: ______________________________
Address:
------------------------------
------------------------------
------------------------------
In the presence of:
1
ESCROW AGREEMENT
AGREEMENT made this ____ day of ______, 1996, by and among ReSeal Food
Dispensing Systems, Inc., a Delaware corporation with its principal offices at
342 Madison Avenue, Suite 1034, New York, NY 10173 (the "Corporation"), and
Stratton Oakmont, Inc., with its principal offices at 1979 Marcus Avenue, Lake
Success, NY 11042 (the "Underwriter") and Continental Stock Transfer & Trust
Company, with offices at 2 Broadway, New York, NY 10004 (the "Escrow Agent").
W I T N E S S E T H
WHEREAS, the Escrow Agent has been advised that the Corporation is
organized under the laws of the State of Delaware.
WHEREAS, the Escrow Agent has been advised that the Corporation is
authorized to issue 40,000,000 shares of common stock, $.001 par value (the
"Common Stock");
WHEREAS, the Escrow Agent has been advised that the Corporation has
filed with the Securities and Exchange Commission (the "SEC") a registration
statement on Form SB-2 (The "Registration Statement") pursuant to the Securities
Act of 1933, as amended (the "Act"), covering a proposed offering (the
"Offering") of up to 909,091 units (the "Units");
WHEREAS, the Escrow Agent has been advised that the Underwriter
proposes to offer 909,091 Units, as agent for the Corporation, for sale to the
public on a "best efforts, all-or-none basis;"
WHEREAS, in compliance with Rule 240-15C2-4 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, the
Corporation and the Underwriter propose to establish an escrow account with the
Escrow Agent; and
WHEREAS, the Escrow Agent is willing to establish an escrow account on
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereby agree as follows:
1. Establishment of Escrow Account. Prior to the date on which the
Registration Statement is declared effective (the "Effective Date") by the SEC,
the parties hereto shall establish, and by execution of the Agreement hereby
agree to establish, a non-interest-bearing escrow account with _________Bank
which escrow account shall be titled the Continental Stock Transfer & Trust
Company Trust Account for ReSeal Food Dispensing Systems, Inc.
1
<PAGE>
2. Deposits Into the Escrow Account. The Underwriter shall deposit all
monies received from prospective purchasers of the Units (the "Fund") in the
Escrow Account by twelve o'clock noon of the next business day following receipt
thereof. Simultaneously with each such deposit, the Underwriter shall inform the
Escrow Agent, by confirmation slip or other writing, of the name and address of
each prospective purchaser. In this regard, the Escrow Agent shall have the
right to rely fully on the confirmation slips or other writings so furnished to
it by the Underwriter. Promptly after the SEC shall declare the Registration
Statement effective, the Corporation shall advise the Escrow Agent in writing of
the Effective Date. Escrowed funds will be invested only in investments
permissible under Rule 15c2-4.
3. Disbursements from the Escrow Account.
(a) In the event that the Escrow Agent does not receive a
minimum of $10,000,000 (the "Minimum") CLEARED FUNDS (which represents the
proceeds from the sale of 909,091 Units) from the Underwriter for deposit in the
Escrow Account within 90 business days from the effective date of the
Registration Statement which may be extended for an additional 30 days by the
mutual consent of the Corporation and the Underwriter, upon the furnishings of
written notice thereof to the Escrow Agent jointly signed by the Corporation and
the Underwriter, (either period to be extended further by an eight-day
collection period), the Escrow Agent shall promptly refund to each prospective
purchaser the amount actually received from such purchaser, without interest
thereon or deduction therefrom (except as provided below), and the Escrow Agent
shall notify the Underwriter and the Corporation of its distribution of the
Fund. Such refunds shall be made by the Escrow Agent promptly following
expiration of the offering period (ninety (90) days or one hundred twenty (120)
days, if extended).
(b) In the event that the Escrow Agent receives the Minimum
from the Underwriter for deposit in the Escrow Account within 90 business days
from the Effective Date (which period may be extended for an additional 30
business days pursuant to (a) above), the Escrow Agent shall notify the
Corporation of such fact in writing within a reasonable time. The Escrow Agent
shall hold such monies in escrow, until given instructions in writing by the
Corporation and the Underwriter as to the disposition of the Fund.
(c) Upon the disbursement of the Fund pursuant to either (a)
or (b) above, the Escrow Agent will be under no further responsibility with
respect to the Agreement. In this regard it expressly is agreed and understood
that in no event shall the aggregate amount of payments made by the Escrow Agent
exceed the amount of the Fund.
4. Rights, Duties and Responsibilities of Escrow Agent. It is
understood and agreed that the duties of the Escrow Agent are purely ministerial
in nature. It is further agreed that:
2
<PAGE>
(a) The Escrow Agent shall not be required to enforce any of
the terms or conditions of the underwriting agreement or any other agreement
between the Underwriter and the Corporation, nor shall the Escrow Agent be
responsible for the performance by the Underwriter or the corporation of their
respective obligations under this Agreement;
(b) The Escrow Agent shall not be required to accept from the
Underwriter any confirmation slips or other writings issued to prospective
purchasers hereunder unless the same are accompanied by cash, checks, drafts or
other instruments for the payment of money, nor shall the Escrow Agent be
required to keep records of any information on checks, drafts or other
instruments received or collected by the Escrow Agent from the Underwriter
within a reasonable time, by wire or otherwise, of any discrepancy between the
amount set forth on any such confirmation slip or other writing and sum, or
sums, delivered to the Escrow Agent by the Underwriter therewith;
(c) The Escrow Agent shall be under no duty or responsibility
to enforce collection of any check, draft or other instrument for the payment of
money delivered to it hereunder, but the Escrow Agent, within a reasonable time,
shall return to the Underwriter any check, draft or other instrument which is
dishonored, together with the confirmation slip of other writing, if any, which
accompanied such check, draft or other instrument;
(d) The Escrow Agent shall be protected in acting upon any
notice, request, certificate, approval, consent, confirmation slip or other
paper believed by it to be genuine and to be signed by the proper party or
parties, it being understood that all notices, requests, certificates,
approvals, consents or other papers (except lists of subscribers or
confirmations issued to subscribers, delivered to the Escrow Agent on behalf of
the Underwriter) shall be signed by the same person who has signed this
instrument on behalf of the Underwriter;
(e) In the event that the Escrow Agent shall receive
instructions with respect to the Fund from the Corporation and the Underwriter
which, in its sole opinion, are in conflict with other instructions received by
it or any provision of the Agreement, it shall be entitled to hold the Fund, or
a portion thereof, in the Escrow Account pending the resolution of such conflict
to the Escrow Agent's sole satisfaction, by final judgement of a court or courts
of competent jurisdiction or otherwise, or the Escrow Agent, at its option, may
deposit the Fund in the registry of a court of competent jurisdiction is a
proceeding to which all parties in interest are joined;
(f) The Escrow Agent shall not be liable for any action taken
or omitted hereunder except is the case of its willful misconduct or gross
negligence nor shall it be liable for the default or misconduct of any employee,
agent or attorney appointed by it. The Escrow Agent shall be entitled to consult
with counsel
3
<PAGE>
of its own choosing by it in accordance with the advice of such
counsel; and
(g) The Escrow Agent shall have no responsibility at any time
to ascertain whether or not any security interest exists in the Fund or any part
thereof or to file any financing statement under the Uniform Commercial Code
with respect to the Fund or any part thereof.
5. Amendment; Resignation. This Agreement may be altered or amended
only with the written consent of the Corporation, the Underwriter and the Escrow
Agent. Should the Corporation and/or the Underwriter attempt to change the
Agreement in a manner which, in the Escrow Agent's sole opinion, is undesirable,
the Escrow Agent may resign as Escrow Agent upon five (5) business days' written
notice to the Corporation and the Underwriter; otherwise, it may resign as
Escrow Agent at any time upon thirty (30 days) written notice to the Corporation
and the Underwriter. In the case of the Escrow Agent's resignation its only duty
shall be to hold and dispose of the Fund in accordance with the original
provisions of this Agreement until a successor Escrow Agent shall be appointed
and written notice of the name and address of such successor Escrow Agent shall
be given to the Escrow Agent by the Corporation and the Underwriter, whereupon
the Escrow Agent's only duty shall be to pay over to the successor Escrow Agent,
the Fund, less any portion thereof previously paid out in accordance with this
agreement.
6. Warranties. The Corporation and the Underwriter warrant to and agree
with the Escrow Agent that, unless otherwise expressly set forth in this
Agreement:
(a) No party other than the parties hereto and the prospective
purchasers have, or shall have ,any lien, claim or security interest in the Fund
or any part thereof;
(b) As of the date of this Agreement, the Registration
Statement has not been declared effective by the SEC; and
(c) No financing statement under the Uniform Commercial Code
is on file in any jurisdiction claiming a security interest in or describing
(whether specially or generally) the Fund or any part thereof.
7. Fees and Expenses. The Escrow Agent shall be entitled to a fee equal
to $1,000 for acting as Escrow Agent.
8. Indemnification and Contribution.
(a) The Corporation and the Underwriter (collectively referred
to as the "Indemnitor") jointly and severally agree to indemnify the Escrow
Agent and its officers, agents, directors and stockholders (jointly and
severally the "Indemnitees") against, and hold them harmless of and from, any
and all loss, liability, cost, damage and expense, including, without
limitation, reasonable
4
<PAGE>
counsel fees, which the Indemnitees may suffer or incur by reason of any action,
claim or proceeding brought against the Indemnitees, arising out of or relating
in any way to this Agreement or any transaction to which this Agreement relates
whether or not any action, claim or proceeding is the result of the negligence
of the Indemnitees. If any person shall assert any claim (whether or not by the
institution of any action, suit or other proceeding), against any of the
Indemnitees arising out of this Agreement or any transaction to which this
Agreement relates, whether or not such claim ultimately is established, the
Indemnitor shall pay all costs and expenses of the defense of such claim,
including, without limitation, reasonable counsel fees. There shall be included
in the loss, liability, cost, damage and expense against which the Indemnitees
are indemnified hereunder all sums which any of the Indemnities may pay in
settlement of any such claim with approval of the Indemnitor.
(b) If the indemnification provided for in this Section 8 is
applicable, but for any reason is held to be unavailable, the Indemnitor shall
contribute such amounts as are just and equitable to pay (or to reimburse the
Indemnities for) the aggregate of any and all losses, liability, costs, damages
and expenses, including reasonable counsel fees, actually incurred by the
Indemnitees as a result of or in connection with, and any amount paid in
settlement of, any action, claim or proceeding arising out of or relating in any
way to any acts or omissions of the Indemnitor.
(c) Any Indemnitee which proposes to assert the right to be
indemnified under this Section 8, promptly after receipt of notice of
commencement of any action, suit or proceeding against the Indemnitor under this
Section 8, will notify the Indemnitor of the commencement of such action, suit
or proceeding, enclosing a copy of all papers served, but the omission so to
notify the Indemnitor of any such action, suit or proceeding shall not relieve
the Indemnitor from any liability which they may have to any Indemnitee
otherwise than under this Section 8. In case any such action, suit or proceeding
shall be brought against any Indemnitee and it shall notify the Indemnitor or
the commencement thereof, the Indemnitor shall be entitles to participate in
and, to the extent that they shall wish, to assume the defense thereof, with
counsel satisfactory to such Indemnitee, and after notice from the Indemnitor to
such Indemnitee of their election so to assume the defense thereof, the
Indemnitor shall not be liable to such Indemnitee for any legal or other
expenses, other than reasonable costs of investigation subsequently incurred by
such Indemnitee in connection with the defense thereof. The Indemnitee shall
have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such Indemnitee unless (i)
the employment of counsel by such Indemnitee has been authorized by the
Indemnitor, (ii) the Indemnitee shall have reasonably concluded that there may
be a conflict of interest among the Indemnitor and the Indemnitee in the conduct
of the defense of such action (in which case the Indemnitor shall not have the
right
5
<PAGE>
to direct the defense of such action on behalf of the Indemnitee) or (iii) the
Indemnitor in fact shall not have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of counsel shall be borne
by the Indemnitor.
9. Governing Law and Assignment. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that any assignment or transfer by any party of its rights
under this Agreement or with respect to the Fund shall be void as against the
Escrow agent unless:
(a) written notice thereof shall be given to the Escrow
Agent, and;
(b) the Escrow Agent shall have consented in writing to
such assignment or transfer.
10. Notices. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, and addressed to: the Corporation at 342 Madison Avenue, Suite 1034,
New York, NY 10173, the Underwriter at 1979 Marcus Avenue, Lake Success, NY
11042, and the Escrow Agent at 2 Broadway, New York, NY 10004.
11. Severability. If any provision of the Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of the Agreement or the application of
such provision to persons or circumstances other than those to which it held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by the law.
12. Execution in Several Counterparts. This agreement may be executed
in several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
13. Pronouns. All pronouns and any variation thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the context may
require.
14. Captions. All captions are for convenience only and shall not limit
or define the text hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By:________________________________
RESEAL FOOD DISPENSING SYSTEMS, INC.
By:________________________________
STRATTON OAKMONT, INC.
By:________________________________
7
[Reseal Food Dispensing Systems, Inc. Letterhead]
August 16, 1996
[Investor]
[Address]
Re: Reseal Food Dispensing Systems, Inc. (the "Company")
Dear ___________:
Reference is made to that certain agreement dated [date of agreement]
regarding the terms and conditions of a bridge loan made by you to the Company
(the "Bridge Loan Agreement"). Reference is also made to that certain letter
agreement dated August 5, 1996 (the "August 5 Letter"). Terms not otherwise
defined herein shall have the meanings given to them in the Bridge Loan
Agreement.
By executing this letter in the space provided below, you hereby agree as
follows:
1. Voiding of August 5 Letter. The August 5 Letter is hereby voided as if
such letter was never executed and deliverered and such letter shall be of no
force and effect.
2. Issuance of Bridgeholder's Units. Anything to the contrary contained in
the Bridge Loan Agreement notwithstanding, the Bridgeholder's Units to which you
were entitled under the Bridge Loan Agreement shall be deemed issued to you as
of the date of this Agreement.
3. Registration of Bridge Units. The Bridgeholder's Units will be
registered by the Company in accordance with the terms of Section 3 of Bridge
Loan Agreement, which terms are hereby reaffirmed.
4. Lock Up Arrangements. Section 3 of the Bridge Loan Agreement is hereby
reaffirmed with respect to the 13 month "lock up" period with respect to sales
of your Bridgeholder's Units.
Very truly yours,
RESEAL FOOD DISPENSING SYSTEMS, INC.
By:_________________________________
Name:
Title:
Agreed to and Acknowledged:
- -------------------------
Name:
EXHIBIT 11.1
RESEAL FOOD DISPENSING SYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Period Ended Six Months
December 31, Ended
1995 June 30,
------------ 1996
----------
<S> <C> <C>
Historical Earnings Per Share
Net Loss $ 173,557 $ 727,947
Weighted average shares
outstanding:
Common Stock(1) 6,325,000 6,325,000
Stock Rights(2) 1,575,000 1,575,000
----------- -----------
7,900,000 7,900,000
----------- -----------
Historical net loss per share $ 0.02 $ 0.09
</TABLE>
(1) 6,325,000 shares were issued within twelve months preceding the initial
filing of the registration statement at prices lower than the expected
initial public offering price of $5.50 per share. Pursuant to Staff
Accounting Bulletin No. 83 ("SAB No. 83") such shares have been
included in the weighted average number of shares outstanding for all
periods presented.
(2) In connection with the private placement of securities, stock rights of
1,575,000 were issued at prices below the expected initial public
offering of $5.50.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement on (File No. 333-7915).
New York, New York
August 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE REGISTRATION STATEMENT ON FORM SB-2
(REGISTRATION NO. 333-7915) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> OCT-10-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 5,168 488,379
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,168 488,379
<PP&E> 4,350 7,079
<DEPRECIATION> (882) (1,322)
<TOTAL-ASSETS> 27,788 585,698
<CURRENT-LIABILITIES> 3,845,545 4,431,402
<BONDS> 0 0
0 0
0 0
<COMMON> 5,888 6,325
<OTHER-SE> (3,998,645) (3,852,029)
<TOTAL-LIABILITY-AND-EQUITY> 27,788 585,698
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 169,412 451,932
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,145 26,015
<INCOME-PRETAX> (173,557) (477,947)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (250,000)
<CHANGES> 0 0
<NET-INCOME> (173,557) (727,947)
<EPS-PRIMARY> (.02) (.09)
<EPS-DILUTED> (.02) (.09)
</TABLE>
