AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996
REGISTRATION NO. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
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>
<CAPTION>
<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>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Securities to be Amount To Be Offering Price Offering Registration
Registered (1) Registered Per Unit (2) 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")............................................ 1,437,500(3) $7.00 $10,062,500.00 $3,469.83
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock included as part of the Units............ 2,875,000 -- -- (4)
- --------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included as part of the Units........ 2,875,000 -- -- (4)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the
Class A Warrants included in the Units................ 2,875,000 $4.00 $11,500,000.00 $3,965.52
- --------------------------------------------------------------------------------------------------------------------------------
Underwriter's Unit Purchase Option.................... 125,000 $.001 $125.00 $.04
- --------------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the Underwriter's
Unit Purchase Option.................................. 125,000 $8.40 $1,050,000.00 $362.07
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock included in the Units issuable
upon exercise of the Underwriter's Unit Purchase
Option................................................ 250,000 -- -- (4)
- --------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the Units issuable
upon exercise of the Underwriter's Unit Purchase
Option................................................ 250,000 -- -- (4)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Class A
Warrants included in the Units issuable upon exercise
of the Underwriter's Unit Purchase Option............. 250,000 $4.00 $1,000,000.00 $344.83
- --------------------------------------------------------------------------------------------------------------------------------
Bridge Units, consisting of two shares of
Common Stock and two Class A Warrants ................ 300,000 -- -- $0
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock included as part of the Bridge
Units ................................................ 600,000 -- -- (4)
- --------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included as part of the Bridge
Units ................................................ 600,000 -- -- (4)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Class A
Warrants included in the Bridge Units issuable upon
exercise of the Bridgeholder Options ................. 600,000 $4.00 $2,400,000.00 $827.59
- --------------------------------------------------------------------------------------------------------------------------------
Total........................................................................................................ $8,969.88
- --------------------------------------------------------------------------------------------------------------------------------
</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) Includes 187,500 Units consisting of 375,000 shares of Common Stock and
375,000 Class A Warrants which the Underwriter has the option to
purchase to cover over-allotments, if any.
(4) No separate registration fee required pursuant to Rule 457(i)
promulgated under the Securities Act.
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.
- 2 -
<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 1,250,000 Units and the Selling
Securityholders are registering 300,000 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"). Such Units are
part of the 787,500 Units (the "Bridge Units") which are currently issuable by
the Company to the Selling Stockholders upon exercise of options (the
"Bridgeholders Options") issued in connection with the Bridge Loans. It is
anticipated that the Amendment will require the Selling Securityholders to sell
an aggregate of 300,000 Bridge Units (the "Registered Bridge Units") to Stratton
Oakmont, Inc. on a firm commitment basis as part of this Offering, with the
remaining 487,500 Bridge Units to be unregistered. Unless otherwise stated,
descriptions herein of the 300,000 Registered Bridge Units and the rights
related thereto, assume that the Amendment has been made.
- 3 -
<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 JULY 10, 1996
PROSPECTUS
RESEAL FOOD DISPENSING SYSTEMS, INC.
1,550,000 UNITS
ReSeal Food Dispensing Systems, Inc. (the "Company") is Offering (the
"Offering") 1,250,000 units (the "Units") at a price of $7.00 per Unit. Each
Unit consists of two shares of common stock, par value $0.001 per share (the
"Common Stock"), and two redeemable class A warrants (the "Class A Warrants").
The Common Stock and Class A Warrants are detachable and may trade separately
immediately upon issuance. This Offering also includes 300,000 Units (the
"Registered Bridge Units") owned and offered by sixteen non-affiliates of the
Company (collectively, the "Selling Securityholders"). The 300,000 Registered
Bridge Units consist of an aggregate of 600,000 shares of Common Stock and
600,000 Class A Warrants. The Company will not receive any of the proceeds from
the sale of the Registered Bridge Units by the Selling Securityholders. See
"Description of Capital Stock," "Selling Securityholders" and "Underwriting."
The Class A Warrants will be exercisable commencing one year after the
date of this Prospectus (the "Effective Date"). Each Class A Warrant entitles
the holder thereof to purchase one share of Common Stock at $4.00 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
principal exchange on which the Common Stock is traded, 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."
Prior to this Offering, there has been no public market for the
securities of the Company. It is currently anticipated that the initial public
offering price will be $7.00 per Unit and $3.50 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 Stratton Oakmont, Inc. (the
"Underwriter"), and do not necessarily bear any relationship to the Company's
assets, book value, net worth or results of operations or any other established
criteria of value. See "Risk Factors--Arbitrary Offering Price" and
"Underwriting."
The Company has applied for inclusion of the Units, Common Stock and
Class A Warrants on The Nasdaq SmallCap Market ("Nasdaq"), although there can be
no assurance that an active trading market will develop, even if the securities
are accepted for quotation. Additionally, even if the Company's securities are
accepted for quotation and an active trading market develops, the Company is
still required to maintain certain minimum criteria established by Nasdaq and
there can be no assurance that the Company will be able to continue to satisfy
such criteria. See "Risk Factors--No Prior Public Market for Securities" and
"--Impact of Potential Nasdaq Delisting and Penny Stock Regulations on
Marketability of Securities; Broker-Dealer Sales of the Units."
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."
<PAGE>
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.
-------------------------
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>
================================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SECURITYHOLDERS(3)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Unit Offered $7.00 $0.70 $6.30 $--
by the Company..........
- --------------------------------------------------------------------------------------------------------------------------------
Per Unit Offered $7.00 $0.70 $-- $6.30
by Selling
Securityholders.........
- --------------------------------------------------------------------------------------------------------------------------------
Total (4)................. $10,850,000 $1,085,000 $7,875,000 $1,890,000
================================================================================================================================
</TABLE>
- ----------------
(1) Does not include additional compensation to be received by the
Underwriter in the form of (i) a 3% non-accountable expense allowance
of $262,500 (or $301,875 if the Underwriter's over-allotment option is
exercised in full), (ii) an option (exercisable for a period of four
years commencing one year after the Effective Date) entitling the
Underwriter to purchase 125,000 Units at $8.40 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, the Selling
Securityholders 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 $________, 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 the
Units offered by the Selling Securityholders. See "Selling
Securityholders" and "Underwriting."
(4) The Company has granted the Underwriter a 30-day option to purchase up
to 187,500 additional Units upon the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If the
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Securityholders will be $12,162,500, $1,216,250,
$9,056,250, and $1,890,000 respectively. See "Underwriting."
The securities are offered by the Underwriter on a "firm commitment"
basis subject to prior sale when, as and if delivered to and accepted by the
Underwriter, and subject to the Underwriter's right to reject orders in whole or
in part and to certain other conditions. It is expected that delivery of
certificates representing the Units, Common Stock and Class A Warrants will be
made on or about ___________, 1996.
-------------------------
STRATTON OAKMONT, INC.
The date of this Prospectus is ________, 1996
- 2 -
<PAGE>
[PICTURES TO COME]
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 TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR
OTHERWISE. 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 THE
DAILY MARKET MAKER. IN THE EVENT THAT 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. Unless otherwise indicated, the
information in this Prospectus assumes no exercise of the Underwriter's
over-allotment option.
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.........................1,250,000 Units, each Unit consisting 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 $4.00 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 be exercised, of
which there is no assurance, the Company
shall receive additional gross proceeds
equal to $10,000,000. See "Description of
Capital Stock."
Securities Offered by the
Selling Securityholders................300,000 Units. Each such Unit is
identical to the Units being offered by
the Company. See "Underwriting."
Public Offering Price..................$7.00 per Unit.
Common Stock Outstanding Prior
to the Offering(1).....................7,900,000 shares.
Common Stock Outstanding After
Completion of the
Offering(1)(2).........................10,400,000 shares.
Class A Warrants Outstanding
after Completion of the
Offering(3)............................3,100,000 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 Nasdaq Symbols(4)
Units..............................
Common Stock.......................
Class A Warrants...................
(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) 2,500,000 shares of Common Stock issuable upon
exercise of the Class A Warrants offered by the Company to investors in
this Offering; (ii) 375,000 shares of Common Stock issuable upon
exercise of the Underwriter's over-allotment option; (iii) 375,000
shares of Common Stock issuable upon exercise of the Class A Warrants
included in the over-allotment option; (iv) 250,000 shares of Common
Stock issuable upon exercise of the Underwriter's Unit Purchase Option;
and (v) 250,000 shares of Common Stock issuable upon exercise of the
Class A Warrants included in the Underwriter's Unit Purchase Option.
(3) Does not include: (i) 375,000 Class A Warrants issuable upon exercise
of the Underwriters' over-allotment option; (ii) 250,000 Class A
Warrants issuable upon the exercise of the Underwriters' Unit Purchase
Option; or (iii) 975,000 Class A Warrants issuable upon the exercise of
the Bridge Units not included in the Registered Bridge Units (the
"Unregistered Bridge Units"). See "Underwriting."
(4) There is currently no market for the Units, Common Stock or Class A
Warrants, and there can be no assurance that a market for any of such
securities will develop after the Offering. The Company anticipates
that, upon completion of the Offering, the Units, Common Stock and
Class A Warrants will be listed on Nasdaq. However, there can be no
assurance that such listings will be maintained. See "Risk Factors--No
Prior Public Market for Securities" and "--Impact of Potential Nasdaq
Delisting and Penny Stock Regulations on Marketability of Securities;
Broker-Dealer Sales of the Units."
- 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) Three Months (October 10, 1995)
through Ended through
December 31, 1995 March 31, 1996 March 31, 1996
----------------- -------------- --------------
(unaudited) (unaudited)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
General and administrative costs 168,530 198,439 366,969
Depreciation and amortization 882 221 1,103
Loss from operations 169,412 198,660 368,072
Interest expense 4,145 10,365 14,510
------------- ------------- -------------
Net loss $ 173,557 $ 209,025 $ 382,582
============= ============= =============
Net loss per share $ (.02) $ (.03)
============ ============
Shares used in computing net loss per
share amounts 7,900,000 7,900,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1996
----------------- -------------------------------------
Actual As Adjusted (1)
------ ---------------
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents $ 5,168 $ 1,113,462 $ 7,163,462
Working capital (3,840,377) (3,401,929) 3,798,071
Total assets 27,788 1,138,609 7,188,609
Current liabilities 3,845,545 4,515,391 3,365,391
Long term liabilities 175,000 -- --
Stockholder's equity (deficit) (3,992,757) (3,376,782) 3,823,218
</TABLE>
- ------------
(1) Adjusted to give effect to (a) the sale of the Units offered hereby, at
an assumed initial public offering price of $7.00 per Unit, (b) the
application of the estimated net proceeds of this Offering, including the
repayment of the $1,050,000 Bridge Loan and certain convertible
promissory notes issued by the Company in an aggregate principal amount
of $150,000 (the "Convertible Notes"), and (c) the issuance, after March
31, 1996, of shares of Common Stock in connection with the private
placement. See "Use of Proceeds."
- 6 -
<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 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 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. 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. PATENT LICENSES AND PROPRIETARY RIGHTS. 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 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
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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. RESEARCH AND MANUFACTURING. 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. 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 June 17, 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. SYSTEMS EFFICACY TESTS. 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 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.
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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. AUTHORIZATION OF PREFERRED STOCK. The Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation") authorizes the
issuance of "blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board of Directors of
the Company. 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.
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.
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<PAGE>
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 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 FreeRiding 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 intend to file answers to the June 1996 Complaint denying all
material allegations and alleged violations.
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 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
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 intend to file answers to the
Complaint and to contest the proceeding.
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:
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o engaged in fraudulent sales practices;
o engaged in and/or permitted unauthorized trading in customer
accounts;
o 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; and
o to have a Special Compliance Monitor appointed to ensure
compliance with the Administrative Order. 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 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 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 firm in Maryland. The
firm withdrew its registration in Massachusetts with a right to reapply for
registration after two years, withdrew its registration in
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<PAGE>
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 and
an appeal has been filed (and such decision is not final). 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 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.
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14. IMMEDIATE AND SUBSTANTIAL DILUTION. An investor in this Offering
will experience immediate and substantial dilution. As of March 31, 1996, the
Company had a negative net tangible book value of $(3,376,782), or approximately
$(.54) per share of Common Stock, based upon 6,300,000 shares outstanding. After
giving effect to the sale of the Units offered hereby at an assumed initial
public offering price of $7.00 per Unit ($3.50 per share) and the receipt and
application of the estimated net proceeds therefrom, pro forma net tangible book
value would have been $3,823,218 or approximately $.43 per share. The result
will be an immediate increase in net tangible book value of $.97 per share to
existing stockholders and an immediate dilution to new investors of $3.07 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. 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."
16. 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 10,400,000 shares of Common Stock issued and
outstanding. This total number of shares of Common Stock issued and outstanding
does not include: (i) 2,500,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants offered to investors in this Offering; (ii)
375,000 shares of Common Stock issuable upon exercise of the Underwriter's
over-allotment option; (iii) 375,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the over-allotment option; (iv)
250,000 shares of Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option; (v) 250,000 shares of Common Stock issuable upon exercise of
the Class A Warrants included in the Underwriter's Unit Purchase Option; and
(vi) 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
24,275,000 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."
17. 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 an aggregate of 125,000
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 $8.40 per Unit, subject to certain adjustments. 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."
18. IMPACT OF POTENTIAL NASDAQ DELISTING AND PENNY STOCK REGULATIONS ON
MARKETABILITY OF SECURITIES; BROKER-DEALER SALES OF THE UNITS. The NASD has
rules which establish criteria for the initial and continued listing of
securities on Nasdaq. Under the rules for initial listing, a company must have
at least $4,000,000 in total assets, at least $2,000,000 in total stockholders'
equity, and a minimum bid price of $3.00 per share. For continued listing on
Nasdaq, a company must maintain at least $2,000,000 in total assets, at least
$1,000,000 in stockholders' equity, and a minimum bid price of $1.00 per share.
At March 31, 1996, after giving effect to the receipt and application of the net
proceeds of this Offering, the Company would have had approximately $7,188,609
in total assets and approximately $3,823,218 in total stockholders' equity.
- 13 -
<PAGE>
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. If the Company were to continue to incur operating
losses, it might be unable to maintain the standards for continued listing and
the listed securities could be subject to delisting from Nasdaq. If the
Company's securities are delisted, trading in the delisted securities could
thereafter be conducted on the NASD Electronic Bulletin Board or in the
over-the-counter market in what is commonly referred to as the "pink sheets." If
this were to occur, an investor would find it more difficult to dispose of the
Company's securities or to obtain accurate quotations as to the price of the
Company's securities and it could have an adverse effect on the coverage of news
concerning the Company. In addition, if the Company's securities were delisted,
they would be subject to a rule that imposes additional sales practice
requirements on broker-dealers who sell such securities 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, delisting, if
it occurred, would 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, and would make subsequent financings
more difficult.
In order for the securities to be included for trading on Nasdaq, there
must exist market makers to support trading in such securities. As of the date
of this Prospectus, several brokerage firms, including the Underwriter,
sufficient to satisfy the requirements of Nasdaq have indicated their intention
to engage in market making activities with respect to the securities. There is
no obligation on the part of 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.
19. NO PRIOR PUBLIC MARKET FOR SECURITIES. Prior to this Offering,
there has been no public market for the Company's securities. The Company has
agreed with the Underwriter to apply for listing of the Units, the Common Stock
and the Class A Warrants. However, there can be no assurance that such listing
will be effected and that an active market will develop for the securities
offered hereby or listed in the future by the Company or that if it should
develop that it will continue. See "Underwriting."
20. 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 a ten (10%) percent underwriting
discount, 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
relating to the Units sold by the Company 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, the amounts available to the Company will be
reduced. On the closing date, the Company will sell to the Underwriter for a
purchase price of $125, the Underwriter's Unit Purchase Option to purchase
125,000 Units at 120% of the initial public offering price. See "Underwriting."
21. 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."
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<PAGE>
22. 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 on Nasdaq (or a national securities exchange) 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."
23. 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 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."
24. 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.
25. 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."
26. 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."
- 15 -
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $7,400,000 (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
securities by the Selling Securityholders.
The Company presently intends that the net proceeds from this Offering
will be applied approximately as follows:
Percentage of
Net
Description Amount Proceeds
----------- ------ --------
Administrative Expenses
Management/Employee Compensation $ 950,000 12.8%
Consultant Compensation 300,000 4.1%
Bridge Loan Repayment(1) 1,130,000 15.3%
Payment of Convertible Notes 400,000 5.4%
Operating Costs and Working Capital
General Overhead 770,000 10.4%
Licensing Fees(2) 2,700,000 36.5%
Product Development/Tooling/Equipment 1,150,000 15.5%
=========== =======
TOTAL $7,400,000 100.0%
- -------------
(1) Approximately $1,130,000 of the proceeds of this Offering 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 Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this Offering,
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 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 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.
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<PAGE>
Proceeds 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
At March 31, 1996 the Company had a net tangible book value (total
tangible assets less total liabilities) of $(3,376,782) or approximately $(.54)
per share of Common Stock. Without taking into account any other changes in the
net tangible book value of the Company after March 31, 1996, except for the sale
by the Company of all the Units offered hereby at an assumed initial public
offering price of $7.00 per Unit ($3.50 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 March 31, 1996 would have been
$3,823,218, or approximately $.43 per share, which represents an immediate
increase in the pro forma net tangible book value of $.97 per share to present
stockholders and an immediate dilution of $3.07 per share to new investors. The
following table illustrates such dilution:
Assumed initial public offering price per share(1)............... $3.50
Net tangible book value before offering........................$ (.54)
Increase attributable to purchase of Units by new investors....$ .97
Pro forma net tangible book value after offering................. $ .43
-----
Dilution of net tangible book value to new investors............. $3.07
=====
- --------------
(1) Represents the initial public offering price per Unit, before deducting
underwriting discounts and offering expenses payable by the Company.
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 300,000 Registered Bridge
Units), the amount and percentage of consideration paid and the average price
paid per share, before deduction of offering expenses and underwriting
discounts:
Shares Owned Consideration Price Per
------------------ ----------------------- ---------
Number Percent Amount Percent Share
------------------ ------ ------- -----
Present Stockholders... 7,900,000 76.0% $ 1,050,000 10.7% $0.13
New Investors.......... 2,500,000 24.0% 8,750,000 89.3% 3.50
--------- ----- ---------- -----
Total.........10,400,000 100.0% $ 9,800,000 100.0%
========== ====== ============ ======
The foregoing computations do not include the (i) 1,575,000 shares of
Common Stock issuable upon the exercise of the Class A Warrants contained in the
Bridge Units; (ii) 2,500,000 shares of Common Stock issuable upon exercise of
the Class A Warrants offered by the Company to investors in this Offering; (iii)
375,000 shares of Common Stock issuable upon exercise of the Underwriter's
over-allotment option; (iv) 375,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the over-allotment option; (v)
250,000 shares of Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option; and (vi) 250,000 shares of Common Stock issuable upon exercise
of the Class A Warrants included in the Underwriter's Unit Purchase Option.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as
of March 31, 1996, and (ii) as adjusted to reflect the sale of the 1,250,000
Units offered by the Company hereby at an assumed initial public offering price
of $7.00 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 offered hereby.
March 31, 1996
------------------------------
Actual As Adjusted(1)
------ --------------
Short-term debt, including current portion
of long-term debt:............................$1,150,000 $ --
- -----
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, 6,300,000
shares issued and outstanding; 8,825,000
shares issued and outstanding as adjusted(2).. 6,300 8,825
Additional paid-in capital....................... 999,500 8,446,975
Accumulated deficit..............................(4,382,582) (4,632,582)
Total stockholders' equity.................... (3,376,782) 3,823,218
Total capitalization..................... (2,226,782) 4,223,218
- ------------
(1) Adjusted to give effect to (a) the sale of the Units offered hereby, at
an assumed initial public offering price of $7.00 per Unit, (b) the
application of the estimated net proceeds of this Offering, including
the repayment of the $1,050,000 Bridge Loan and the Convertible Notes
and (c) the issuance, after March 31, 1996, of shares of Common Stock
in connection with the private placement. See "Use of Proceeds."
(2) Does not include the (i) 1,575,000 shares of Common Stock issuable upon
the exercise of the Class A Warrants contained in the Bridge Units;
(ii) 2,500,000 shares of Common Stock issuable upon exercise of the
Class A Warrants offered by the Company to investors in this Offering;
(iii) 375,000 shares of Common Stock issuable upon exercise of the
Underwriter's over-allotment option; (iv) 375,000 shares of Common
Stock issuable upon exercise of the Class A Warrants included in the
over-allotment option; (v) 250,000 shares of Common Stock issuable upon
exercise of the Underwriter's Unit Purchase Option; and (vi) 250,000
shares of Common Stock issuable upon exercise of the Class A Warrants
included in the Underwriter's Unit Purchase Option.
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<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 reported a net loss from operations of $382,582 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 March 31, 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
May 31, 1996, the Company had liquid assets of $677,838.
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<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."
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<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
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<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
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<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
It is anticipated that the Company will 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 received notices of
allowances for various patents and trademarks covering the RESEAL(TM) Systems,
associated technologies, many of their component parts, and associated
technologies relating to the design and manufacturing processes. RILP has
applied for patent protection for various designs of the system and has several
patent applications pending.
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<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
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<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 June 30, 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 and Gordon Beguhn
have been hired as consultants. 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 includes the dismissal with prejudice of the lawsuit. See
"Certain Relationships and Related Transactions--Settlements of Legal
Proceedings --Banco Settlement."
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<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
Gordon H. Beguhn 61 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.
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<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.
Gordon H. Beguhn has served as a consultant to the Company since May
1996. Since January 1992, Mr. Beguhn has been the general partner of Eastgate
Group, a marketing and consulting company ("Eastgate"). Through Eastgate, he (i)
assisted Curwood Inc., a division of Bemis Company, in its strategic planning
and entry into the medical packaging field, (ii) served as the Vice President,
Market Development, Environmental Products for ADM Tronics Inc., a manufacturer
of aqueous based coatings for paperboard and packaging industry films, (iii)
served as Vice President and Director of Picadilly Plastics USA, a manufacturer
of plastic thermoformed products for the food service and consumer industries,
and (iv) was hired for consulting assignments, including by International Paper
Co., Danaher Corp., and James River Corp. From 1981 through 1991, he held
various positions, including President, at Sanford Redmond Inc., a manufacturer
and lessor of high speed packaging equipment and licensor of patented packaging
technology.
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>
David Brenman 1995 $18,000 -- -- -- -- --
President
</TABLE>
-----------------
(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.
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 keyman 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.
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<PAGE>
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
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.
Gordon H. Beguhn
The Company has entered into a Confidentiality and Non-Compete
Agreement with Eastgate, dated May 9, 1996, pursuant to which Eastgate agrees
that during its association with the Company, and for a period of one year
thereafter, Eastgate will not (i) represent, consult, serve, or be employed by
any enterprise competing directly with the RESEAL(TM) Technology, and (ii)
compete with the Company and/or its affiliated companies. Eastgate also agrees
never to divulge any confidential information to any third party nor make
available to any third party any trade secrets, details of closed or impending
contractual relationships, designs, plans, samples, cost data, sales prices and
policy decisions, past or future. The Company will pay Eastgate $5,000 per month
and reimburse it for reasonable documented expenses.
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.
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<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 $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 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. 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 Units being offered in this Offering by the Company.
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 that an aggregate of 300,000 of the
Bridge Units are to be sold to the Underwriter to be included in this Offering
on a firm commitment basis. 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. 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 $1,200,000.
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."
- 29 -
<PAGE>
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. 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 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 "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-
- 30 -
<PAGE>
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.
The Company has entered into a Confidentiality and Non-Compete
Agreement with Eastgate, dated May 9, 1996, pursuant to which Eastgate agrees
that during its association with the Company, and for a period of one year
thereafter, Eastgate will not (i) represent, consult, serve, or be employed by
any enterprise competing directly with the RESEAL(TM) Technology, and (ii)
compete with the Company and/or its affiliated companies. Eastgate also agrees
never to divulge any confidential information to any third party nor make
available to any third party any trade secrets, details of closed or impending
contractual relationships, designs, plans, samples, cost data, sales prices and
policy decisions, past or future. The Company will pay Eastgate $5,000 per month
and reimburse it for reasonable documented expenses. Gordon H. Beguhn is the
general partner of Eastgate.
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.
- 31 -
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of June 30, 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.
Percent Owned(2)
-------------------------
Name and Address Number Before After
of Beneficial Owner(1) of Shares Offering(3) Offering(4)
- ---------------------- --------- ----------- -----------
ReSeal International Corporation 2,525,000(5) 32.0% 24.3%
342 Madison Avenue, Suite 1034
New York, New York 10173
Jon Silverman 500,000 6.3% 4.8%
c/o ReSeal Food Dispensing Systems, Inc.
342 Madison Avenue, Suite 1034
New York, New York 10173
Gregory Abbott 422,000 5.3% 4.1%
c/o ReSeal Food Dispensing Systems, Inc.
342 Madison Avenue, Suite 1034
New York, New York 10173
David Brenman 253,000(6) 3.2% 2.4%
Joseph Koster 158,000 2.0% 1.5%
George Kriste 130,000 1.6% 1.3%
All directors and executive officers
as a group (5 persons)............. 1,463,000 18.5% 14.1%
- ------------
(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 the (i) 1,575,000 shares of Common Stock issuable upon
the exercise of the Class A Warrants contained in the Bridge Units;
(ii) 2,500,000 shares of Common Stock issuable upon exercise of the
Class A Warrants offered by the Company to investors in this Offering;
(iii) 375,000 shares of Common Stock issuable upon exercise of the
Underwriter's over-allotment option; (iv) 375,000 shares of Common
Stock issuable upon exercise of the Class A Warrants included in the
over-allotment option; (v) 250,000 shares of Common Stock issuable upon
exercise of the Underwriter's Unit Purchase Option; and (vi) 250,000
shares of Common Stock issuable upon exercise of the Class A Warrants
included in the Underwriter's Unit Purchase Option.
- 32 -
<PAGE>
(5) This number may be reduced by 300,000 shares in the near future, since
RIC anticipates transferring such number of shares to Thomas Beach and
Robert Weir in exchange for shares of RIC that such individuals own.
(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.
- 33 -
<PAGE>
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 June 30, 1996, there were approximately 40
record holders of the Common Stock.
UNITS
Each of the 1,550,000 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.
Each Class A Warrant represents the right of the registered holder to
purchase one share of Common Stock at an exercise price equal to $4.00, 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
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<PAGE>
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 (if then traded on Nasdaq or on a national securities
exchange) 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.
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.
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 offered by the Company in this Offering. The Bridge Units and
the shares of Common Stock and Class A Warrants included in the Bridge Units
were originally not to be issued prior to the Effective Date. 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 and that an aggregate of 300,000 of the Bridge Units are
to be sold to the Underwriter to be included in this Offering on a firm
commitment basis. The securities underlying the Bridge Units may trade
separately immediately upon issuance.
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
"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
- 35 -
<PAGE>
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, the Underwriter's Unit Purchase Option to acquire up to
125,000 Units which contain certain registration rights under the Securities Act
relating to the 250,000 shares of Common Stock constituting a portion of such
Units and the 250,000 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
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.
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<PAGE>
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."
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<PAGE>
SELLING SECURITYHOLDERS
This Offering includes the 300,000 Registered Bridge Units, consisting
of 600,000 shares of Common Stock and 600,000 Class A Warrants. The Class A
Warrants included in the Bridge Units are identical to the Class A Warrants
offered by the Company in this Offering. The Company will not receive any of the
proceeds from the sale of the Registered Bridge Units by the Selling
Securityholders. See "Underwriting."
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF NUMBER OF
COMMON CLASS A COMMON STOCK OWNED NUMBER OF
STOCK WARRANTS PRIOR TO SHARES COMMON STOCK OWNED
BRIDGE UNDERLYING UNDERLYING OFFERING(1) TO BE AFTER OFFERING(1)(2)
---------------------- --------------------
UNITS BRIDGE UNITS BRIDGE UNITS NUMBER PERCENT OFFERED NUMBER PERCENT
----- ------------ ------------ ------ ------- ------- ------ -------
NAME OF INVESTOR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Armstrong Industries 131,250 262,500 262,500 612,500 7.5% 100,000 512,500 4.8%
Harvey Bibicoff 37,500 75,000 75,000 175,000 2.2 28,571 146,429 1.4
Calvin Caldwell 46,875 93,750 93,750 218,750 2.7 35,715 183,035 1.7
Edward Ferree 18,750 37,500 37,500 87,500 1.1 14,286 73,214 *
Andre Van Gils 37,500 75,000 75,000 175,000 2.2 28,571 146,429 1.4
Daryl Hagler 18,750 37,500 37,500 87,500 1.1 14,286 73,214 *
Irving Kraut 93,750 187,500 187,500 437,500 5.4 71,429 366,071 3.5
David Landua 37,500 75,000 75,000 175,000 2.2 28,571 146,429 1.4
Steven Madden 75,000 150,000 150,000 350,000 4.3 57,143 292,857 2.8
Roger Oppenheimer 9,375 18,750 18,750 43,750 * 7,143 36,607 *
Plus One Finance Ltd. 56,250 112,500 112,500 262,500 3.3 42,857 219,643 2.1
Douglas Preston 37,500 75,000 75,000 175,000 2.2 28,571 146,429 1.4
Rotanes Inc. 18,750 37,500 37,500 87,500 1.1 14,286 73,214 *
Raphael Schneiderman 93,750 187,500 187,500 437,500 5.4 71,429 366,071 3.5
Harry Shuster 37,500 75,000 75,000 175,000 2.2 28,571 146,429 1.4
Lloyd Solomon 37,500 75,000 75,000 175,000 2.2 28,571 146,429 1.4
-------- ----------- ----------- --------- ------- ---------
Total.......... 787,500 1,575,000 1,575,000 3,675,000 600,000 3,075,000
======= ========= ========= ========= ======= =========
</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) Assumes the sale of all Units registered in this Offering.
- 38 -
<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 purchase 1,250,000 Units
from the Company and an aggregate of 300,000 Units from the Selling
Securityholders on a "firm commitment" basis. The Underwriter has advised the
Company and the Selling Securityholders that it proposes to offer the Units to
the public at $7.00 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 and $[____] per share of Common Stock. After the initial
public offering, the public offering price, concession and allowance may be
changed by the Underwriter. The Underwriter has informed the Company and the
Selling Securityholders that it does not intend to confirm sales to any accounts
over which it exercises discretionary authority.
The Company has granted an over-allotment option to the Underwriter,
exercisable during the 30-day period from the Effective Date, to purchase up to
a maximum of 187,500 additional Units at the initial public offering price, less
the underwriting discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Selling Securityholders, on the one hand, and the
Underwriter, on the other hand, 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 or the
Selling Securityholders, the Company and the Selling Securityholders have 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 to the Underwriter, in addition to
underwriting discounts and commissions of ten (10%) percent of the entire
offering, a non-accountable expense allowance of three (3%) percent of the
aggregate offering price of the Units offered hereby by the Company, including
any Units purchased pursuant to the over-allotment option. 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.
The Company has agreed to sell to the Underwriter, or its designees,
for an aggregate purchase price of $125, the Underwriter's Unit Purchase Option
to purchase up to an aggregate of 125,000 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 120% of the initial public offering price of the Units.
The exercise price of the Underwriter's Unit Purchase Option and the number of
shares covered thereby are subject to adjustment 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.
- 39 -
<PAGE>
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.
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.
- 40 -
<PAGE>
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 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 FreeRiding 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 intend to file answers to the June 1996 Complaint denying all
material allegations and alleged violations.
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 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
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 intend to file answers to the
Complaint and to contest the proceeding.
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 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; and
o to have a Special Compliance Monitor appointed to ensure
compliance with the Administrative Order. the Underwriter claimed
that the Stratton Consultant exceeded his authority under the
Administrative Order and had violated the terms of the
Administrative Order.
- 41 -
<PAGE>
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.
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 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 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 firm in Maryland. The
firm 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 and an appeal has
been filed (and such decision is not final). 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
- 42 -
<PAGE>
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 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 & Oshinsky, 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
- 43 -
<PAGE>
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.
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.
- 44 -
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Accountants' Report................................... F-2
Balance Sheets at March 31, 1996
(unaudited) and December 31, 1995............................ F-3
Statements of Operations for the Three
Months Ended March 31, 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 Three
Months Ended March 31, 1996
(unaudited) and the Period from
October 10, 1995 (Inception)
through December 31, 1995.................................... F-5
Statements of Cash Flows for the Three
Months Ended March 31, 1996
(unaudited) and the Period from
October 10, 1995 (Inception)
through December 31, 1995.................................... F-6
Notes to Financial Statements..................................... F-7
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>
<TABLE>
<CAPTION>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, March 31,
1995 1996
------------ ---------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalent $ 5,168 $ 1,113,462
-------------- --------------
Total current assets: 5,168 1,113,462
Fixed assets:
Leasehold improvements 4,475 5,872
Office equipment 4,350 4,350
Accumulated depreciation and amortization (882) (1,102)
--------------- ---------------
Net fixed assets 7,943 9,120
Other assets 14,677 16,027
--------------- ---------------
Total assets: $ 27,788 $ 1,138,609
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accrued expenses $ 45,806 $ 75,509
Due to affiliate 3,649,739 3,289,882
Convertible promissory notes 150,000 150,000
Bridge loans payable, current portion -- 1,000,000
--------------- ---------------
Total current liabilities: 3,845,545 4,515,391
Bridge loans payable 175,000 --
--------------- --------------
Total liabilities: 4,020,545 4,515,391
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 6,300,000
issued and outstanding as of December 31,
1995 and March 31, 1996, respectively 5,888 6,300
Additional paid-in capital 174,912 999,500
Deficit accumulated during the development stage (4,173,557) (4,382,582)
---------------- ----------------
Total stockholders' equity (deficiency) (3,992,757) (3,376,782)
--------------- ---------------
Total liabilities and stockholders'
equity (deficiency) $ 27,788 $ 1,138,609
=============== ===============
</TABLE>
The accompanying notes are an integral part of these balance sheets
F-3
<PAGE>
<TABLE>
<CAPTION>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Period For the Period
from Inception from Inception
(October 10, 1995) (October 10, 1995)
through Three Months through
December 31, Ended March 31,
1995 March 31, 1996 1996
------------------ --------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and expenses:
General and administrative 168,530 198,439 366,969
Depreciation and amortization 882 221 1,103
--------------- ------------- -------------
Total costs and expenses 169,412 198,660 368,072
Loss from operations 169,412 198,660 368,072
Interest expense 4,145 10,365 14,510
--------------- ------------- -------------
Net loss $ 173,557 $ 209,025 $ 382,582
=============== ============= =============
Net loss per share $ (.02) $ (.03)
Weighted average shares outstanding 7,900,000 7,900,000
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
<TABLE>
<CAPTION>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Deficit
Accumulated
Additional During the Total
Common Stock Paid in Development Stockholders'
' ------------
Shares Amount Capital Stage Deficit
------------------------------------------------------------------------------------------
<S> <C> <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 412,500 412 205,838 -- 206,250
Issuance of common stock
rights in private placement -- -- 618,750 -- 618,750
Net loss -- -- -- (209,025) (209,025)
------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 6,300,000 $6,300 $999,500 $ (4,382,582) $(3,376,782)
(UNAUDITED)
==========================================================================================
</TABLE>
The accompanying notes are an integral part of this statement
F-5
<PAGE>
<TABLE>
<CAPTION>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Period For the Period
from October 10, from October 10,
1995 (Inception) Three Months 1995 (Inception)
through Ended through
December 31, 1995 March 31, 1996 March 31, 1996
----------------- -------------- --------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (173,557) $ (209,025) $ (382,582)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 882 221 1,103
Changes in operating assets and
liabilities:
Increase in other assets (8,877) (1,350) (10,227)
Increase/(decrease) in accrued expenses 45,806 29,703 75,509
------------ ------------ ------------
Net cash used in operating activities (135,746) (180,451) (316,197)
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (8,825) (1,398) (10,223)
Purchase of license (350,261) (359,857) (710,118)
------------ ------------ ------------
Net cash used in investing activities (359,086) (361,255) (720,341)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement 350,000 1,650,000 2,000,000
Proceeds from issuance of convertible debt 150,000 -- 150,000
------------ ------------ ------------
Net cash provided from financing activities 500,000 1,650,000 2,150,000
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,168 1,108,294 1,113,462
Cash and cash equivalents, beginning of
period 0 5,168 0
------------ ------------ ------------
Cash and cash equivalents, end of period $ 5,168 $ 1,113,462 $ 1,113,462
============ ============ ============
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
</TABLE>
The accompanying notes are an integral part of these statements
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 MARCH 31, 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 1,250,000
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 $4.00 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.
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 MARCH 31, 1996 IS UNAUDITED)
(CONTINUED)
83, stock and stock rights issued during the twelve months preceding the initial
filing of this offering at prices below 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) had been paid at the date of issuance, and assuming that
371,250 shares of common stock were issued to pay the bridge notes and $3,489
and $5,983 of interest expense was eliminated for the periods ended December 31,
1995 and March 31, 1996, respectively, as a result of such payments. Such
supplementary net loss per share for both periods was $.02.
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 March 31, 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 on the earlier of consummation of a public offering or January
1, 1997. As of December 31, 1995, the Company
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 MARCH 31, 1996 IS UNAUDITED)
(CONTINUED)
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 March 31, 1996, the Company had
received additional gross proceeds of $1,650,000, which consisted of $825,000 of
promissory notes, 412,500 shares of common stock and rights to obtain 618,750
Units. Subsequent to March 31, 1996, the Company completed the balance of its
Bridge Financing. 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.
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.
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 March 31, 1996, the Company had paid 85,261 and 226,805,
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.
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 MARCH 31, 1996 IS UNAUDITED)
(CONTINUED)
For both the period ended December 31, 1995 and the three months ended
March 31, 1996, the Company paid consulting fees to members of management in the
aggregate amount of $84,000.
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. SUBSEQUENT EVENTS
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.
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-10
<PAGE>
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED MARCH 31, 1996 IS UNAUDITED)
(CONTINUED)
Convertible Promissory Notes
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.
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, 1,550,000 Units
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 RESEAL FOOD DISPENSING
NOT CONSTITUTE AN OFFER TO SELL OR SYSTEMS, INC.
A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY TO ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER 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 PROSPECTUS
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 STRATTON OAKMONT, INC.
Sale......................
Selling Securityholders.......
Underwriting .................
Experts ......................
Legal Matters ................
Patent Counsel ...............
Available Information.........
Index to Financial Statements. F-1
-----------------
UNTIL ____________, 1996 (90 _______________, 1996
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.
- ----------------------------------- -----------------------------------
<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:
Total*
------
SEC registration fee ..................................... $ 8,969.88
NASD filing fee .......................................... $ 3,101.00
Nasdaq listing fee ....................................... $ 10,000.00
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.
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 Units being offered in this Offering by the Company.
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 that an aggregate of 300,000 of the
Bridge Units are to be sold to the Underwriter to be included in this Offering
on a firm commitment basis. 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.
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. 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
II-2
<PAGE>
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.
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.
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 Amendment to Bridge Loan Agreement.*
10.5 Agreement by and between the Registrant and Nologies, Inc., dated as
of March 5, 1996.
10.6 Confidentiality and Non-Compete Agreement by and between the
Registrant and Eastgate Group, dated May 9, 1996.
10.7 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.
10.8 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 (included on signature page).
- -----------------
* 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.
(d) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
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 registration
statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York, on July 10, 1996.
RESEAL FOOD DISPENSING SYSTEMS, INC.
By: /s/ David W. Brenman
--------------------
David W. Brenman
(President)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes
and appoints David W. Brenman and Joseph F. Koster, Jr. his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this registration statement and all amendments thereto
(including post-effective amendments), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents and each of
them full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ David W. Brenman President, Treasurer July 10, 1996
- ------------------------- and Director
David W. Brenman (Principal Executive Officer
and Principal Accounting
Officer)
/s/ Joseph F. Koster, Jr. Secretary and Director July 10, 1996
- -------------------------
Joseph F. Koster, Jr.
/s/ Gregory B. Abbott Director July 10, 1996
- -------------------------
Gregory B. Abbott
/s/ George V. Kriste Director July 10, 1996
- -------------------------
George V. Kriste
II-5
<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description of Document Number
- ------ ----------------------- ------
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.
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 Amendment to Bridge Loan Agreement.*
10.5 Agreement by and between the Registrant and Nologies,
Inc., dated as of March 5, 1996.
10.6 Confidentiality and Non-Compete Agreement by and
between the Registrant and Eastgate Group, dated May 9,
1996.
10.7 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.
10.8 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 (included on signature page).
- -----------------
* To be filed by amendment.
1,550,000 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 issue and sell to you (the "Underwriter") an aggregate
of 1,250,000 Units, each Unit consisting 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 $4.00 per share from _____________, 1997 until _____________,
2001, subject to redemption, in certain instances. In addition, the Company
proposes to grant to the Underwriter the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 187,500 additional Units. In
addition, certain selling securityholders (the "Selling Securityholders")
propose to sell to you an aggregate of 300,000 Units (the "Selling Securities"),
each Unit consisting of two (2) shares of Common Stock, par value $.001 per
share and two (2) Class A Redeemable Common Stock Purchase Warrants, each to
purchase one share of Common Stock at $4.00 per share from _____________, 1997
until _____________, 2001, subject to redemption, in certain instances.
Unless the context otherwise requires, the aggregate of 1,250,000 Units
to be sold by the Company, together with all or any part of the 187,500 Units
which the Underwriter has the option to purchase, and the shares of Common Stock
and the Warrants comprising such Units, are herein called the "Units."
Additionally, unless the context otherwise requires, the aggregate of 300,000
Units to be sold by the Selling Securityholders and the shares of Common Stock
and the Warrants comprising such Units, are
<PAGE>
herein called the "Selling Securities." 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 Selling Securities and the Units (including
the Units which the Underwriter has the option to purchase pursuant to paragraph
2(b)), are herein collectively called the "Securities."
You have advised the Company and the Selling Securityholders that you
desire to purchase the Units and the Selling Securities. The Company and Selling
Securityholders confirm the agreements made by it with respect to the purchase
of the Units and Selling Securities by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-_______) on Form SB-2
relating to the public offering of the Units and Selling Securities, including a
form of prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act and as have been
provided to and approved by you prior to the execution of this Agreement, or
(ii) if such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by you prior to the execution of
this Agreement. As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial 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
2
<PAGE>
first filed with the Commission pursuant to Rule 424(b) under the Act, or, if no
prospectus is required to be filed pursuant to said Rule 424(b), such term means
the prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the prospectus
as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
First Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or agreements as
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriter specifically for use
in the preparation thereof. It is understood that the statements set forth in
the Prospectus on page 2 with respect to stabilization, the paragraph under the
heading "Underwriting" relating to concessions to certain dealers, the three
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).
3
<PAGE>
(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 including the Selling Securities, 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, Selling Securities and 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 and Selling
Securities 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 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.
4
<PAGE>
The Shares, 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 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.
5
<PAGE>
(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 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 prior to the First
Closing Date (and if later, the Option Closing Date), 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
6
<PAGE>
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 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
7
<PAGE>
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Dates (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 and Selling
Securities to the Underwriter hereunder will have been fully paid or provided
for by the Company and the Selling Securityholders 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. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained,(i) the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to buy from the Company at $6.30 per Unit, at the place and
time hereinafter specified, 1,250,000 Units (the "First Units")and (ii) the
Selling Securityholders agree to issue and sell to the Underwriter, and the
Underwriter agrees to buy from the Selling Securityholders at $6.30 per Unit, at
the place and time hereinafter specified, 300,000 Units (the "Selling
Securities").
Delivery of the First Units and Selling Securities against payment
therefor shall take place at the offices of Bernstein & Wasserman, LLP, 950
Third Avenue, New York, New York (or at such other place as may be designated by
agreement between the Underwriter and the Company) at 10:00 a.m., New York time,
on
8
<PAGE>
___________, 1996, or at such later time and date as the Underwriter may
designate in writing to the Company at least two business days prior to such
purchase, but not later than ____________, 1996, such time and date of payment
and delivery for the First Units and Selling Securities being herein called the
"First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 187,500 Units at the
same price per Unit as the Underwriter shall pay for the First Units being sold
pursuant to the provisions of subsection (a) of this Section 2 (such additional
Units being referred to herein as the "Option Units"). This option may be
exercised within 30 days after the effective date of the Registration Statement
upon written notice by the Underwriter to the Company advising as to the amount
of Option Units as to which the option is being exercised, the names and
denominations in which the certificates for such Option Units are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four nor later than ten full business days after the exercise of
said option (but in no event more than 40 days after the First Closing Date),
nor in any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option Units
against payment therefor shall take place at the offices of Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York (or at such other place as
may be designated by agreement between the Underwriter and the Company). The
Option granted hereunder may be exercised only to cover over-allotments in the
sale by the Underwriter of First Units referred to in subsection (a) above. No
Option Units shall be delivered unless all First Units and Selling Securities
shall have been delivered to the Underwriter as provided herein.
(c) The Company and Selling Securityholders will make the
certificates for the securities comprising the Units and Selling Securities to
be purchased by the Underwriter hereunder available to the Underwriter for
checking at least two full business days prior to the First Closing Date or the
Option Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as the
Underwriter may request, at least three full business days prior to the Closing
Dates. Delivery of the certificates at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Units and
Selling Securities to be purchased by the Underwriter hereunder
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will be delivered by the Company and Selling Securityholders to the Underwriter
for the account of the Underwriter against payment of the respective purchase
prices by the Underwriter, by wire transfer in immediately available funds,
payable to the Company and Selling Securityholders.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Units shall be made to or
upon the order of the Company by wire transfer payable in immediately available
funds at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New York,
New York (or at such other place as may be designated by agreement between the
Underwriter and the Company), at the time and date of delivery of such Units as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Units by the Underwriter registered in such names and in
such denominations as the Underwriter may reasonably request.
It is understood that the Underwriter proposes to offer the Units
and Selling Securities to be purchased hereunder to the public upon the terms
and conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(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 and Selling Securities 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
10
<PAGE>
reasonably necessary or advisable in connection with the distribution of the
Units and Selling Securities.
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 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 and Selling Securites 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
11
<PAGE>
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 and Selling Securities to deliver a Prospectus nine months or more
after the effective date of the Registration Statement, the Company will upon
request of and at the expense of the Underwriter, amend or supplement the
Registration Statement and Prospectus and furnish the Underwriter with
reasonable quantities of prospectuses complying with Section 10(a)(3) of the
Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the Units
and Selling Securities.
(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 and Selling Securities 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 and Selling
Securities. 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 and Selling Securities 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 $262,500.00
(including the reasonable fees and expenses of counsel to the Underwriter), or
$301,875 if the Underwriter's over-allotment option is exercised in full.
(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.
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<PAGE>
(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 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
First Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon 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
13
<PAGE>
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
Selling Securities, and will use its best efforts to cause the same to become
effective as promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) (1) For a period of twenty four (24) months from the First
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
14
<PAGE>
not, for a period of twenty four (24) months following the First Closing Date,
directly or indirectly, offer, sell, issue or transfer any shares of its capital
stock, or any security exchangeable or exercisable for, or convertible into,
shares of the capital stock, 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 Nasdaq Stock Market, 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, the
Warrants or Selling Securities or to facilitate the sale or resale of the
Securities.
(o) On the First Closing Date and simultaneously with the delivery
of the Units and Selling Securities, the Company shall execute and deliver to
you the Purchase Option. The Purchase Option will be substantially in the form
filed as an Exhibit to the Registration Statement.
(p) Intentionally Omitted
(q) Upon the Closing Dates, 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
15
<PAGE>
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 First 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.
(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 First 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
16
<PAGE>
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 purchase and pay for the Units and Selling Securities which it
has agreed to purchase hereunder, are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 a.m., New York time, on
the day following the date of this Agreement, or at such later time or on such
later date as to which the Underwriter may agree in writing; on or prior to the
Closing Dates no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or to the knowledge of the Company or Selling Securityholders, 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 First Closing Date, you shall have received the legal
opinions, dated as of the First Closing Date, of (i)
17
<PAGE>
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 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 or Selling Securities as contemplated by
this Agreement gives rise to any registration rights other than those which have
been waived or satisfied for or relating to the
18
<PAGE>
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 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
19
<PAGE>
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 under applicable state or foreign
securities or Blue Sky laws and registration under the Act; and
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(xi) the Units, Common Stock and Warrants have been duly
authorized for quotation on the Nasdaq Stock Market.
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 First
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 Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing Dates
taking into account for the Option Closing Date the effect of the transactions
contemplated hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given, no Material
Adverse 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
21
<PAGE>
Registration Statement and Prospectus; (iv) except as set forth in the
Prospectus, no action, suit, or proceeding at law or in equity shall be pending
or threatened against the Company which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company before or by any commission, board, or administrative agency
in the United States or elsewhere, wherein an unfavorable decision, ruling, or
finding would have a Material Adverse Effect, (v) the Underwriter shall have
received, at the First Closing Date, a certificate signed by the President of
the Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (e) and (vi) the Underwriter shall have received,
at the First Closing Date, such opinions, certificates, letters and other
documents as it reasonably requests.
(f) Upon exercise of the option provided for in Section 2(b)
hereof, the obligations of the Underwriter to purchase and pay for the Option
Units referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the Underwriter's knowledge or the
knowledge of the Company, shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been
delivered to the Underwriter the signed opinion of Kramer, Levin, Neftalis &
Frankel, counsel to the Company, dated as of the Option Closing Date, in form
and substance reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to
the Underwriter, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date pursuant to
Sections 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Units.
(iii) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate of the President of the Company and
such other opinions, certificates, letters and other documents as it reasonably
requests, dated the Option Closing Date, in form and substance reasonably
satisfactory to Bernstein & Wasserman, LLP, counsel to the Underwriter,
substantially the same in scope and substance as the certificate or certificates
furnished to you at the First Closing Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date there shall have been
delivered to the Underwriter a letter in form and substance
22
<PAGE>
satisfactory to the Underwriter from Arthur Andersen LLP, dated the Option
Closing Date and addressed to the Underwriter confirming the information in
their letter referred to in Section 4(d) hereof and stating that nothing has
come to their attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days prior to
the Option Closing Date, which would require any change in said letter if it
were required to be dated the Option Closing Date.
(g) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units shall be reasonably
satisfactory in form and substance to 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 Dates, for members of the NASD to execute transactions (as principal or
agent) in the Units, Selling Securities, 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, either of the Closing Dates by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the applicable Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company and Selling
Securityholders. The obligation of the Company and Selling Securityholders to
sell and deliver the Units and Selling Securities 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.
23
<PAGE>
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company and Selling
Securityholders provided for in this Section have been fulfilled on the First
Closing Date but are not fulfilled after the First Closing Date and prior to the
Option Closing Date, then only the obligation of the Company to sell and deliver
the Option Units on exercise of the option provided for in Section 2(b) hereof
shall be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages, or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages, or liabilities; insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units and Selling Securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim, 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
24
<PAGE>
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 or Selling Securities to any person if a copy of the Prospectus was not
delivered to such person at or prior to the written confirmation of the sale to
such person. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages, or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer, or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Units or Selling Securities of any applicable
state or federal law or any rule, regulation or instruction thereunder relating
to violations based on unauthorized statements by Underwriter or its
representative, provided that such violation is not based upon any violation of
such law, rule, or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the Company
or its representatives, including information furnished to the Underwriter as
contemplated herein. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
25
<PAGE>
(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 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.
26
<PAGE>
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, 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
27
<PAGE>
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 and Selling Securities to the Underwriter is consummated, the Company
will pay all costs and expenses incident to the performance of this Agreement by
the Company including, but not limited to, the fees and expenses of counsel to
the Company and of the Company's accountants; the costs and expenses incident to
the preparation, printing, filing, and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus, and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Units and Selling
Securities 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 and Selling
Securities under the state securities or blue sky laws which the Underwriter
shall designate; the cost of printing and furnishing to the Underwriter copies
of the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, and the Blue Sky Memorandum, any fees relating to the listing of the
Units, Common Stock, and Warrants on 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 to the Underwriter hereunder.
The Company will also pay all costs and expenses incident to the furnishing of
any amended Prospectus or of any supplement to be attached to the Prospectus as
called for in Section 3(a) of this Agreement except as otherwise set forth in
said Section.
(b) In addition to the foregoing expenses the Company shall at the
First Closing Date pay to the Underwriter a non-accountable expense allowance of
$262,500. In the event the over-allotment option is exercised, the Company shall
pay to the Underwriter at the Option Closing Date an additional amount in the
aggregate equal to 3.0% of the gross proceeds received upon exercise of the
over-allotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company or Selling Securityholders of
any covenant, representation, or warranty contained herein or because any other
condition to the Underwriter's obligations hereunder
28
<PAGE>
required to be fulfilled by the Company or Selling Securityholders are not
fulfilled) the Company and the Selling Securityholders 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 or the Selling Securityholders being unable to perform their respective
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 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 and Selling Securities. 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 and Selling Securities, or the
time when the Units and Selling Securities 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.
29
<PAGE>
10. Termination.
(a) After this Agreement becomes effective, this Agreement, except
for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated at any
time prior to the First Closing Date, 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 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
30
<PAGE>
consideration of $125.00, and upon the terms and conditions set forth in the
form of Purchase Option annexed as an exhibit to the Registration Statement, a
Purchase Option to purchase an aggregate of 125,000 Units. In the event of
conflict in the terms of this Agreement and the Purchase Option with respect to
language relating to the Purchase Option, the language of the Purchase Option
shall control.
12. Representations and Warranties of the Underwriter. The Underwriter
represents and warrants to the Company and Selling Securityholders that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Units and Selling Securities and that it will comply with all applicable state
or federal laws relating to the sale of the Units and Selling Securities
including but not limited to, violations based on unauthorized statements by the
Underwriter or its representatives.
13. Representations and Warranties of the Selling Securityholders.
(a) The Selling Securityholders warrant and represent that they
have the full legal title, right, power and all authority and approval required
to enter into, execute and deliver this Agreement and to fully perform their
obligations hereunder.
(b) The Selling Securityholders warrant and represent that the
Selling Securityholders holds the Selling Securities free and clear of all
liens, pledges, hypothecations, options, contracts and other encumbrances
("Encumbrances"), and upon transfer to the Underwriter, the Selling Securities
will remain free and clear of all Encumbrances.
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 Selling Securityholders, the
Company, or any of its officers or directors or any controlling person and will
survive delivery of and payment of the Units and Selling Securities 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
31
<PAGE>
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.
16. Parties in Interest. The Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company, the Selling Securityholders,
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 or Selling Securities.
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 and the Selling Securityholders.
32
<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
Selling Securityholders:
- ----------------------- ------------------------
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
ROTANES, INC.
_______________________ By:____________________
Lloyd Solomon Its:
33
<PAGE>
ARMSTRONG INDUSTRIES PLUS ONE FINANCE LTD.
By:____________________ By:_______________________
Its: 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
ROTANES, INC.
_______________________ By:____________________
Lloyd Solomon Its:
34
<PAGE>
ARMSTRONG INDUSTRIES PLUS ONE FINANCE LTD.
By:____________________ By:_______________________
Its: Its:
35
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.
1,550,000 UNITS
CONSISTING OF
3,100,000 SHARES OF COMMON STOCK
AND
3,100,000 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 firm
commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, 1,550,000 units (including any additional units offered
pursuant to an over-allotment option, the "Firm 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 Firm Units are more particularly described in the
enclosed Preliminary Prospectus, additional copies of which as well as the
Prospectus (after effective date) will be supplied in reasonable quantities upon
request.
2. The Underwriter is soliciting offers to buy Units upon the terms and
conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission (the "Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. (the "NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and 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
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the public at a price of $7.00 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.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Units has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Purchase below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Units set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Units, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of the Units assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in re-offering the Units, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Units purchased by you remaining unsold,
and we shall have the right to repurchase such Units upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of the
Units purchased by you pursuant to this Agreement are to be re-offered by you to
the public at the public offering price, subject to the terms hereof and shall
not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Units which you purchase hereunder shall be made by you
on such date as we may determine by certified or bank cashier's check payable in
New York Clearinghouse funds to Stratton Oakmont, Inc. 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.
Unless specifically authorized by us, payment by you may not be deferred until
delivery of certificates to you.
6. A registration statement covering the offering has been filed with
the Commission in respect to the Units. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any
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applicable rules and regulations issued under said Acts. No person is authorized
by the Company or by the Underwriter to give any information or to make any
representations other than those contained in the Prospectus in connection with
the sale of the Units. Nothing contained herein shall render the Selected
Dealers a member of the underwriting group or partners with the Underwriter or
with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Units in any state.
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Units; such contractual commitment can only be made in
accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("Association") and registered
as a broker-dealer or are not eligible for membership under Section I of the
By-Laws of the Association who agree to make no sales within the United States,
its territories, or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's interpretation
with respect to free-riding and withholding. Your attention is called to the
following: (a) Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of
Fair Practice 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.
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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. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any Units
sold to you hereunder and not effectively placed by you, the Underwriter may
charge you the Selected Dealer's concession originally allowed you on the Units
so purchased, and you agree to pay such amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your net
capital is such that you may, in accordance with Rule 15c3-1 adopted under the
1934 Act, agree to purchase the number of Units you may become obligated to
purchase under the provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer the
purchase of Firm Units unless you shall have reasonable grounds to believe that
the recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Firm Units in a discretionary account without the prior specific written
approval of the customer.
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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
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To: Stratton Oakmont, Inc.
1979 Marcus Avenue
Lake Success, New York 11042
We hereby subscribe for _____________ 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 purchasing
said Units we have relied upon said Prospectus and upon no other statement
whatsoever, whether written or oral. We confirm that we are a dealer actually
engaged in the investment banking or securities business and that we are either
(i) a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD") or (ii) a dealer with its principal place of business located
outside the United States, its territories and its possessions and not
registered as a broker or dealer under the Securities Exchange Act of 1934, as
amended, who hereby agrees not to make any sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein. We hereby agree to comply with the provisions of Section 24
of Article III of the Rules of Fair Practice of the NASD, 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 Sections 8 and 36 of
Article III thereof as that Section applies to non-member foreign dealers.
[Name of Dealer]
______________________________
By: ______________________________
Address
______________________________
______________________________
Dated _____________________, 1996
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RESEAL FOOD DISPENSING SYSTEMS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is ReSeal Food Dispensing Systems, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
by striking out the first paragraph in Article Fourth thereof and by
substituting in lieu of said paragraph the following new first
paragraph:
"FOURTH: The total number of shares of all classes of stock
which the corporation shall have authority to issue is forty-two
million (42,000,000) shares, consisting of
(a) two million (2,000,000) shares of Preferred
Stock, par value $.001 per share (hereinafter referred to as
"Preferred Stock");
(b) forty million (40,000,000) shares of Common
Stock, par value $.001 per share (herein- after referred to as
"Common Stock")."
3. The amendment to the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and
242 of the General Corporation Law of the State of Delaware.
Signed and attested to on May 2, 1996.
/s/David Brenman
-------------------------
David Brenman,
President
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
RESEAL FOOD DISPENSING SYSTEMS, INC.
ReSeal Food Dispensing Systems, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The present name of the Corporation is ReSeal Food Dispensing
Systems, Inc. and the original Certificate of Incor- poration of the Corporation
(the "Certificate of Incorporation") was filed with the State of Delaware on
October 10, 1995.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation, and such amendments
have been duly adopted in accordance with the above-referenced Sections.
3. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as set forth in Exhibit A, attached hereto.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed this 9th day of February, 1996.
RESEAL FOOD DISPENSING
SYSTEMS, INC.
By:/s/David Brenman
----------------
David Brenman
President
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
RESEAL FOOD DISPENSING SYSTEMS, INC.
FIRST: The name of the Corporation is ReSeal Food Dispensing Systems,
Inc. (the "Corporation").
SECOND: The address of the registered office of the Corporation in
Delaware is Three Christina Centre, 201 N. Walnut Street, Wilmington, DE 19801,
County of New Castle, and the name of the registered agent of the Corporation at
such address is The Company Corporation.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is twenty two million (22,000,000)
shares, consisting of
(a) two million (2,000,000) shares of Preferred Stock, par
value $.001 per share, (hereinafter referred to as "Preferred Stock");
(b) twenty million (20,000,000) shares of Common Stock, par
value $.001 per share (hereinafter referred to as "Common Stock").
A. PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or
more series, as may from time to time be determined by the Board of Directors,
each of said series to be distinctly designated. All shares of any one series of
Preferred Stock shall be alike in every particular, except that there may be
different dates from which dividends, if any, thereon shall be cumulative, if
made cumulative. The voting powers and the preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and, subject to the
provisions of subparagraph 2 of Paragraph C of this Article Fourth, the Board of
Directors of the corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Preferred Stock, the voting powers and the designa-
<PAGE>
tions, preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(a) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which number may
be increased (except where otherwise provided by the Board of
Directors) or decreased (but not below the number of shares thereof
then outstanding) from time to time by like action of the Board of
Directors;
(b) The rate and times at which, and the terms and conditions
on which, dividends, if any, on Preferred Stock of such series shall be
paid, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes, or
series of the same or other classes of stock and whether such dividends
shall be cumulative or non-cumulative;
(c) The right, if any, of the holders of Preferred Stock of
such series to convert the same into, or exchange the same for, shares
of any other class or classes or of any series of the same or any other
class or classes of stock of the corporation and the terms and
conditions of such conversion or exchange;
(d) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices and the time
or times at which, and the terms and conditions on which, Preferred
Stock of such series may be redeemed;
(e) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or wind-up,
of the corporation;
(f) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of such series;
and
(g) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the generality of the
foregoing, include the right, voting as a series by itself or together
with other series of Preferred Stock or all series of Preferred Stock
as a class, to elect one or more directors of the corporation if there
shall have been a default in the payment of dividends on any one or
more series of Preferred Stock or under such other circumstances and on
such conditions as the Board of Directors may determine.
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B. COMMON STOCK:
1. After the requirements with respect to preferential dividends on the
Preferred Stock (fixed in accordance with the provisions of Paragraph A of this
Article Fourth), if any, shall have been met and after the corporation shall
have complied with all the requirements, if any, with respect to the setting
aside of sums as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of Paragraph A of this Article Fourth), and
subject further to any other conditions which may be fixed in accordance with
the provisions of Paragraph A of this Article Fourth, then and not otherwise the
holders of Common Stock shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors.
2. After distribution in full of the preferential amount (fixed in
accordance with the provisions of Paragraph A of this Article Fourth), if any,
to be distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or
winding-up, of the corporation, the holders of the Common Stock shall be
entitled to receive all the remaining assets of the corporation, tangible and
intangible, of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively.
3. Except as may otherwise be required by law or by the provisions of
such resolution or resolutions as may be adopted by the Board of Directors
pursuant to Paragraph A of this Article Fourth, each holder of Common Stock
shall have one vote in respect of each share of Common Stock held by him on all
matters voted upon by the stockholders.
C. OTHER PROVISIONS:
1. No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations,
whether such holders or others, and upon such terms
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as may be deemed advisable by the Board of Directors in the exer- cise of its
sole discretion.
2. The relative powers, preferences and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to
authority granted in Paragraph A of this Article Fourth and the consent, by
class or series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them; provided
however, that the Board of Directors may provide in the resolution or
resolutions as to any series of Preferred Stock adopted pursuant to Paragraph A
of this Article Fourth that the consent of the holders of a majority (or such
greater proportion as shall be therein fixed) of the outstanding shares of such
series voting thereon shall be required for the issuance of any or all other
series of Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph C,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors of the corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
4. Shares of Common Stock may be issued from time to time as the Board
of Directors of the corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
5. The authorized amount of shares of Common Stock and Preferred Stock
may, without a class or series vote, be increased or decreased from time to time
by the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
FIFTH: Except as required in the by-laws, no election of directors need
be by written ballot.
SIXTH: In furtherance and not in limitation of the power conferred upon
the Board of Directors by law, the Board of Directors shall have the power to
make, alter or repeal by-laws subject to the power of the stockholders to alter
or repeal the by-laws made or altered by the Board of Directors.
SEVENTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director,
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except for liability (i) for any breach of the director's 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) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived any improper personal benefit. If the Delaware
General Corporation Law is amended after this Certificate of Incorporation
becomes effective to authorize corporate action eliminating or further limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. No amendment or repeal of
this Article Seventh shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH: The Corporation shall, to the maximum extent permitted from
time to time under the law of the State of Delaware, indemnify, and upon request
shall advance expenses to, its directors and officers to the extent that such
indemnification and advancement of expenses is permitted under such law, as such
law may from time to time be in effect; provided, however, that the foregoing
shall not require the Corporation to indemnify or advance expenses to any person
in connection with any action, suit, proceeding, claim or counterclaim initiated
by or on behalf of such person. Such indemnification shall not be exclusive of
other indemnification rights arising under any by-law, agreement, vote of
directors or stockholders or otherwise and shall inure to the benefit of the
heirs and legal representatives of such persons. To the extent permitted by
applicable law, any person seeking indemnification under this Article Eighth
shall be deemed to have met the standard of conduct required for such
indemnification unless the contrary shall be established. Any repeal or
modification of the foregoing provisions of this Article Eighth shall not
adversely affect any right or protection of a director or officer of this
corporation with respect to any acts or omissions of such director or officer
occurring prior to such repeal or modification.
NINTH: The books of this corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by the
Board of Directors or in the by-laws of the Corporation.
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BY-LAWS
OF
RESEAL FOOD DISPENSING SYSTEMS, INC.
(A Delaware Corporation)
ARTICLE I
Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall be held at
such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held on such date of each year and at such time as shall be designated from time
to time by the Board of Directors. At each annual meeting the stockholders shall
elect a Board of Directors by plurality vote and transact such other business as
may be properly brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders may
be called by the Board of Directors.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating the place, date and hour of the meeting shall be given by
or at the direction of the Board of Directors to each stockholder entitled to
vote at the meeting at least ten, but not more than sixty, days prior to the
meeting. Notice of any special meeting shall state in general terms the purpose
or purposes for which the meeting is called.
<PAGE>
Section 5. Quorum; Adjournments of Meetings. The holders of a majority
of the issued and outstanding shares of the capital stock of the corporation
entitled to vote at a meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at such meeting; but, if
there be less than a quorum, the holders of a majority of the stock so present
or represented may adjourn the meeting to another time or place, from time to
time, until a quorum shall be present, whereupon the meeting may be held, as
adjourned, without further notice, except as required by law, and any business
may be transacted thereat which might have been transacted at the meeting as
originally called.
Section 6. Voting. At any meeting of the stockholders every registered
owner of shares entitled to vote may vote in person or by proxy and, except as
otherwise provided by statute, in the Certificate of Incorporation or these
By-Laws, shall have one vote for each such share standing in his name on the
books of the corporation. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, all matters, other than the
election of directors, brought before any meeting of the stockholders shall be
decided by a vote of a majority in interest of the stockholders of the
corporation present in person or by proxy at such meeting and voting thereon, a
quorum being present.
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Section 7. Inspectors of Election. The Board of Directors, or, if the
Board of Directors shall not have made the appointment, the chair presiding at
any meeting of stockholders, shall have the power to appoint one or more persons
to act as inspectors of election at the meeting or any adjournment thereof, but
no candidate for the office of director shall be appointed as an inspector at
any meeting for the election of directors.
Section 8. Chair of Meetings. The Chair of the Board or, in the Chair's
absence, the President shall preside at all meetings of the stockholders. In the
absence of both the Chair of the Board and the President, a majority of the
members of the Board of Directors present in person at such meeting may appoint
any other officer or director to act as chair of the meeting.
Section 9. Secretary of Meetings. The Secretary of the corporation
shall act as secretary of all meetings of the stockholders. In the absence of
the Secretary, the chair of the meeting shall appoint any other person to act as
secretary of the meeting.
Section 10. Stockholder's Action Without Meetings. Any action required
or permitted to be taken at any meeting of the stockholders may be taken without
a meeting, without prior notice and without a vote, if a written consent thereto
is signed by stockholders having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present
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<PAGE>
and voted, and such written consent is delivered to the corporation.
ARTICLE II
Board of Directors
Section 1. Number of Directors. The Board of Directors shall consist of
two (2) members; provided, however, that such number may from time to time be
increased or decreased by the Board of Directors or by the stockholders.
Section 2. Vacancies. Whenever any vacancy shall occur in the Board of
Directors by reason of death, resignation, removal, increase in the number of
directors or otherwise, it may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director, for the
balance of the term, or, if the Board of Directors has not filled such vacancy,
it may be filled by the stockholders.
Section 3. First Meeting. The first meeting of each newly elected Board
of Directors, of which no notice shall be necessary, shall be held immediately
following the annual meeting of stockholders or any adjournment thereof at the
place the annual meeting of stockholders was held at which such directors were
elected, or at such other place as a majority of the members of the newly
elected Board of Directors who are then present shall determine, for the
election or appointment of officers for the ensuing year and the transaction of
such other business as may be brought before such meeting.
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Section 4. Regular Meetings. Regular meetings of the Board of
Directors, other than the first meeting, may be held without notice at such
times and places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by order of the Chair of the Board or the President. Notice of the
time and place of each special meeting shall be given by or at the direction of
the person or persons calling the meeting by mailing the same at least three
days before the meeting or by telephoning, telegraphing or delivering personally
the same at least twenty-four hours before the meeting to each director. Except
as otherwise specified in the notice thereof, or as required by statute, the
Certificate of Incorporation or these By-Laws, any and all business may be
transacted at any special meeting.
Section 6. Participation By Telephone. Any director, or member of a
committee, may participate in a meeting of the Board of Directors, or such
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participating in a meeting in this manner shall constitute presence in
person at the meeting.
Section 7. Place of Conference Call Meeting. Any meeting at which one
or more of the members of the Board of Directors or of a committee designated by
the Board of Directors shall participate by means of conference telephone or
similar
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communications equipment shall be deemed to have been held at the place
designated for such meeting, provided that at least one member is at such place
while participating in the meeting.
Section 8. Organization. Every meeting of the Board of Directors shall
be presided over by the Chair of the Board, or, in the Chair's absence, the
President. In the absence of the Chair of the Board and the President, a
presiding officer shall be chosen by a majority of the directors present. The
Secretary of the corporation shall act as secretary of the meeting, but, in the
Secretary's absence, the presiding officer may appoint any person to act as
secretary of the meeting.
Section 9. Quorum; Vote. A majority of the directors then in office
(but in no event less than one-third of the total number of directors) shall
constitute a quorum, for the transaction of business, but less than a quorum may
adjourn any meeting to another time or place from time to time until a quorum
shall be present, whereupon the meeting may be held, as adjourned, without
further notice. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all matters coming before any meeting of the
Board of Directors shall be decided by the vote of a majority of the directors
present at the meeting, a quorum being present.
Section 10. Removal of Directors. Any one or more of the directors
shall be subject to removal with or without cause at any time by the
stockholders.
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Section 11. Committees. The Board of Directors may, by resolution
adopted by a majority of the entire Board of Directors, designate from among its
members one or more committees, each consisting of three or more directors,
having, to the extent permitted by statute and provided in the resolution, all
of the authority of the Board of Directors.
Section 12. Directors' Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if all members of the Board of Directors
or the committee consent in writing to the adoption of a resolution authorizing
the action, and such written consent is filed with the minutes of the
proceedings of the Board of Directors or committee.
ARTICLE III
Officers
Section 1. General. The Board of Directors shall elect the officers of
the corporation, which shall include a President, a Secretary and a Treasurer
and such other or additional officers (including, without limitation, a Chair of
the Board, one or more Vice-Chairs of the Board, Vice-Presidents, Assistant
Vice-Presidents, Assistant Secretaries and Assistant Treasurers) as the Board of
Directors may designate.
Section 2. Term of Office; Removal and Vacancy. Each officer shall hold
his or her office until his or her successor is elected and qualified or until
his or her earlier
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<PAGE>
resignation or removal. Any officer shall be subject to removal with or without
cause at any time by the Board of Directors. Vacancies in any office, whether
occurring by death, resignation, removal or otherwise, may be filled by the
Board of Directors.
Section 3. Powers and Duties. Each of the officers of the corporation
shall, unless otherwise ordered by the Board of Directors, have such powers and
duties as generally pertain to his or her respective office as well as such
powers and duties as from time to time may be conferred upon him or her by the
Board of Directors. Unless otherwise ordered by the Board of Directors after the
adoption of these By-Laws, the President shall be the chief executive officer of
the corporation.
Section 4. Power to Vote Stock. Unless otherwise ordered by the Board
of Directors, the Chair of the Board and the President each shall have full
power and authority on behalf of the corporation to attend and to vote at any
meeting of stockholders of any corporation in which this corporation may hold
stock, and may exercise on behalf of this corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting and shall
have power and authority to execute and deliver proxies, waivers and consents on
behalf of the corporation in connection with the exercise by the corporation of
the rights and powers incident to the ownership of such stock. The Board of
Directors, from time to time, may confer like powers upon any other person or
persons.
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ARTICLE IV
Capital Stock
Section 1. Certificates of Stock. Certificates for stock of the
corporation shall be in such form as the Board of Directors may from time to
time prescribe and shall be signed by the Chair of the Board or a Vice Chair of
the Board or the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the
corporation shall be transferable on the books of the corporation only by the
holder of record thereof, in person or by duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares, with an
assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the corporation or
its agents may require.
Section 3. Ownership of Stock. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
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ARTICLE V
Miscellaneous
Section 1. Corporate Seal. The seal of the corporation shall be
circular in form and shall contain the name of the corporation and the year and
state of incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to fix,
and from time to time to change, the fiscal year of the corporation.
ARTICLE VI
Amendment
The Board of Directors shall have the power to make, alter or repeal
the By-Laws of the corporation subject to the power of the stockholders to alter
or repeal the By-Laws made or altered by the Board of Directors.
ARTICLE VII
Indemnification
The corporation shall indemnify any director, officer, employee or
agent of the corporation for acts which such person reasonably believes are not
in violation of the corporate purposes, as set forth in the Certificate of
Incorporation, to the full extent permitted by law.
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SHARES NUMBER
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
RESEAL FOOD DISPENSING
SYSTEMS, INC.
Common Stock
This is to Certify that __________________________________ is the owner
of ___________________________________ fully paid and non-assessable shares of
the above Corproatin transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
_____________________________ ______________________________
Secretary/Treasurer President
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 1,737,500 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 125,000 additional Units, (the
"Purchase Option"), and (ii)of 487,500 remaining Bridge Units consisting of two
(2) shares of Common Stock and two (2) Warrants, the Company will issue up to
4,700,000 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,
<PAGE>
dissolution, or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (1) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Warrants or (ii), in the case of any
reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or property
provided for in such section or (iii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or 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 $4.00 per share, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right, in its sole
discretion, 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.
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<PAGE>
(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 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 4,700,000 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
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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 125,000 Units which include up to 250,000 Class A Warrants.
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 countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
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<PAGE>
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 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
5
<PAGE>
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 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.
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(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered 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.
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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 the Market
Price 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.
(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
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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.
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
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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, 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
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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) 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
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each registered holder of Warrants at his last address as it shall appear on the
registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further 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
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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.
(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
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of shares of Common Stock which the aggregate consideration receivable by the
Company for the securities affected by the modification would purchase at the
market price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion, exchange, or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date upon
which such modification shall take effect.
(vi) On the expiration of any such right, warrant, or option
or the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants 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
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(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
(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
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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 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
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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 shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
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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
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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
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court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties, and responsibilities as if it
had been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act, or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act, or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
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
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change in the number or nature of the securities purchasable upon the exercise
of any Warrant, or the Purchase Price therefor, or the acceleration of the
Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement as originally
executed or are made in compliance with applicable law.
17. Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 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.
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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
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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 hereinafter 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
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 $4.00 (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.
<PAGE>
The term "Separation Date" shall mean ________ __, 1997.
The term "Initial Exercise 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 Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.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.
2
<PAGE>
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of 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:
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)
<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.
2
Option to Purchase
125,000 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 125,000 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 $4.00 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. ____________) declared effective by the Securities and Exchange
Commission on ____________, 1996 (the "Registration Statement"). This Option
(the "Option") to purchase 125,000 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 1,550,000
Units (the "Public Units") through the Underwriter, in consideration of $125.00
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 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
<PAGE>
paragraph 6 of this Option. In the event of any reduction of the exercise price
of the Warrants included in the 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 $8.40 per
Unit(subject to adjustment pursuant to paragraph 8 hereof) (the "Exercise
Price").
(b) Prior to ______, 1997 and after _______, 2001, 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 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
2
<PAGE>
for cancellation at the office or agency of the Company referred to in paragraph
2 hereof, accompanied by a certificate (signed by an officer of the Holder if
the Holder is a corporation), stating that each transferee is a permitted
transferee under this paragraph 3 hereof; whereupon the Company shall issue, in
the name or names specified by the Holder (including the Holder) a new Option or
Options of like tenor and representing in the aggregate rights to purchase the
same number of 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, whether the Holder holds the
Option or has exercised the Option and holds Units or any of the securities
underlying the Units, 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
3
<PAGE>
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 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
4
<PAGE>
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
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
5
<PAGE>
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.
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
6
<PAGE>
underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder 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
7
<PAGE>
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.
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
8
<PAGE>
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
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
9
<PAGE>
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 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
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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.
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)
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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:
<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:
================================================================================
RESEAL INTERNATIONAL CORPORATION
AND
RESEAL FOOD DISPENSING SYSTEMS, INC.
--------------------------------------
AMENDED AND RESTATED LICENSE AGREEMENT
================================================================================
<PAGE>
AMENDED AND RESTATED LICENSE AGREEMENT
This AMENDED AND RESTATED LICENSE AGREEMENT (the "Agreement") has been
entered into by and between ReSeal International Corporation, a Florida
corporation, with its principal place of business at 342 Madison Avenue, Suite
1034, New York, N.Y. 10173 ("RIC") and ReSeal Food Dispensing Systems, Inc., a
Delaware corporation, with its principal place of business at 342 Madison
Avenue, Suite 1034, New York, N.Y. 10173 ("Licensee").
WHEREAS pursuant to the RIC License Agreement (as hereinafter defined)
RILP (as hereinafter defined) granted to RIC an exclusive worldwide license with
respect to the ReSeal Technology (as hereinafter defined) as such relates to the
Field of Use (as hereinafter defined).
WHEREAS in consideration for the issue to RIC of 2,900,000 fully paid
non-assessable common shares par value $0.001 of Licensee and the payment of
licensing fees set forth in Section 2.5 below, RIC has agreed to grant to
Licensee an exclusive worldwide sub-license of RIC's rights in the ReSeal
Technology as relates to the Field of Use.
In consideration of the mutual promises, covenants, agreements,
representations and warranties contained herein, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
have the meanings set forth below:
1.1 "Bankruptcy Law" shall mean Title 11, United States Code or any
similar federal or state law, now or hereafter in effect, which provides for the
relief of debtors.
1.2 "Dispensing Equipment" shall mean (i) any articles, goods,
merchandise, products, or other dispensers for dispensing any foodstuff,
including but not limited to dispensers that dispense any foodstuff for
consumption as such or that dispense any foodstuff for admixture with any liquid
or solid concentrates, such as juice and soup concentrates, or with any
infusible substance, such as coffees and teas, and (ii) any packages, cartons,
boxes, bags, reservoirs or other containers adapted to be filled or filled with
such foodstuff for use as or with such dispensers. Without limitation, such
foodstuff includes food and beverage products, including milk products, juices,
coffee, wine, tea, baby foods, salad dressings, edible oils, soups, and food and
beverage concentrates.
<PAGE>
1.3 "Field of Use" shall mean the use of the ReSeal Technology to make,
use, lease, sell or distribute
(a) 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, including but not limited to those who
solicit by mail order, door-to-door or multi-level marketing;
(b) any food or beverage Product intended for use in an industrial or
commercial place of business in the preparation of food or beverage at such
place of business; or
(c) 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.
1.4 "Patents" shall mean each of the patents set forth on Schedule 1.4
annexed hereto, and all other patents owned by RILP and licensed to RIC that
relate to the Field of Use, including with respect thereto, (i) all
continuations, continuations-in-part, divisionals and renewals thereof; (ii) all
United States letters patent that may be granted thereon, and all reissues and
extensions thereof; and (iii) all foreign counterpart applications, including
continuations, continuationsin-part, divisionals and renewals thereof, and all
foreign letters patent that may be granted thereon, and all reissues and
extensions thereof.
1.5 "Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof or any other entity.
1.6 "Product" shall mean any Dispensing Equipment that embodies, in
whole or in part, the ReSeal Technology, or the manufacture, use, lease, sale or
distribution of which uses, the ReSeal Technology. Without limitation, Product
shall include pouch systems, canister systems, bag-in-box systems, and
tetrapac-type-systems.
1.7 "Reimbursement Obligation" shall mean the obligation of Licensee to
reimburse RIC pursuant to Section 4; it being understood that payment of the
Reimbursement Obligation by Licensee is intended to reimburse RIC for the
expenses referred to above and that such payments are not intended, nor are such
payments to be deemed for any purposes, to be royalty payments in respect of the
license granted by this Agreement.
1.8 "ReSeal Technology" shall mean the delivery and dispensing
technologies developed by RILP for purposes of maintaining the sterility,
purity, freshness and integrity of flowable products through means of
self-adjusted reservoir bodies
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and certain patented one-way valves, and such other inventions, technology and
know-how from time to time hereafter developed, owned or licensed as licensee by
RILP, and shall include (i) the Patents used, employed and applied by RILP in
connection therewith; (ii) the Trademarks related to the sales, marketing,
distribution or other use of the Patents or the delivery and dispensing
technologies referred to in this definition; (iii) any and all know-how,
proprietary information, copyrights, trade secrets, test results, working
agreements and other intangible and intellectual property rights associated with
the foregoing technologies, Patents or Trademarks; and (iv) all modifications,
improvements, enhancements, developments and variations of the foregoing,
including all modifications and combinations with current or new technology. The
ReSeal Technology shall also include any and all modifications, improvements,
developments, enhancements or variations resulting from (a) RILP's performance
of its obligations under Section 6.2.2 of the RIC License Agreement, and (b)
RIC's and Licensee's performance of their obligations under Sections 6.2.2 and
6.1.5, respectively, under this Agreement, all of which shall become subject to
the license granted pursuant to Section 2 without any further action on the part
of RIC or Licensee and without payment of any additional fees or other amounts
other than those fees contemplated by Section 4, even though legal title thereto
remains in RILP.
1.9 "RIC" shall mean ReSeal International Corporation, a Florida
corporation.
1.10 "RIC License Agreement" shall mean that certain license agreement,
dated as of November 16, 1992 between RILP and RIC, pursuant to which RILP
granted RIC an exclusive worldwide license to exploit the ReSeal Technology.
1.11 "RILP" shall mean ReSeal International Limited Partnership, a
Delaware limited partnership.
1.12 "RPS" shall mean ReSeal Pharmaceutical Systems, Ltd., a Hong Kong
corporation.
1.13 "RPS License Agreement" shall mean that certain license agreement,
dated as of December 3, 1991, between RILP and RPS, pursuant to which RILP
licensed RPS to exploit the ReSeal Technology in the pharmaceuticals, cosmetics,
beauty-aids and health care fields (collectively, the "Pharmaceutical
Applications"), as the same may be amended from time to time.
1.14 "Term" shall have the meaning assigned thereto in Section 9.1.
1.15 "Trademarks" shall mean all of the trademarks and trade names set
forth on Schedule 1.15 annexed hereto, together with any additional trademarks
hereafter developed or created by RILP and RIC, and any designs, legends, logos
or markings associated therewith.
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1.16 "Valve" shall mean any one-way valve owned by, patented by, whose
patent has been applied for by, assigned to, or under development by, RILP.
2. GRANT OF LICENSE.
2.1 Subject to the terms and conditions of this Agreement, including
without limitation to the generality of the foregoing the performance by
Licensee of its obligation under Section 2.5, RIC hereby grants to Licensee a
fully paid-up exclusive worldwide license, and Licensee hereby accepts such
fully paid-up exclusive worldwide license, to (i) directly or indirectly make
(or subcontract to make), use, sell and otherwise commercially exploit the
ReSeal Technology solely in the Field of Use, and (ii) grant sublicenses in
respect of the ReSeal Technology solely in the Field of Use to affiliated and
non-affiliated third parties, provided, however, Licensee shall not be permitted
to sublicense the right to manufacture the Valves.
2.2 Licensee undertakes and agrees with RIC that Licensee has not been
licensed and has no right to use and exploit the ReSeal Technology in any field
other than the Field of Use.
2.3 Prior to the date of this Agreement, RILP has granted to RPS,
pursuant to the RPS License Agreement, an exclusive worldwide license to market
through sublicense the ReSeal Technology for Pharmaceutical Applications, and
the RIC License Agreement, and the license granted to Licensee hereunder, is
subject in all respects to the terms of such RPS License Agreement.
2.4 Licensee shall issue to RIC 2,900,000 fully paid non-assessable
shares of Common Stock, par value $0.001 per share, of Licensee (the "Common
Stock") and shall deliver to RIC a stock certificate for the said shares. In the
event Licensee does not become a public company by May 31, 1998, RIC (or its
transferees) shall have the right to cause Licensee to publicly register the
shares of Licensee which are then owned by RIC (or its transferees); provided
that RIC (or its requesting transferees) owns not less than 50% of the shares of
Licensee originally issued to RIC pursuant to the previous sentence.
Notwithstanding the immediately preceding sentence, in the event the Board of
Directors of Licensee, in its reasonable business judgment consistent with its
fiduciary obligations, determines that registering such stock would not be in
the best interest of Licensee, then such registration may be postponed to a
later date, as determined by such Board. If RIC disputes such determination, RIC
shall so notify Licensee, in which event the matter shall be referred to
arbitration for a final determination in accordance with Section 15.5 of this
Agreement.
2.5 On the earlier of (a) 180 days from the date hereof and (b) the
completion of a private placement of
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Licensee's Common Stock, Licensee shall pay to RIC a sum of $750,000, and on the
earlier of (x) December 31, 1996 and (y) the completion of a public offering of
Licensee's Common Stock, Licensee shall pay to RIC an additional sum of
$3,250,000 (less (i) any payments made by Licensee to third parties on behalf of
RIC or which, subsequent to the date hereof are paid at the direction of RIC or
(ii) any amounts forwarded by Licensee to RIC, up to the date of such payment).
2.6 Licensee may manufacture Valves for its own use or subcontract to
have Valves manufactured for it, provided such Valves comply with Section 7.
3. INTENTIONALLY LEFT BLANK.
4. REIMBURSEMENT OBLIGATIONS; NEW PATENTS AND TRADEMARKS.
4.1 (a) RIC shall promptly notify Licensee of any filing made by RIC in
connection with a Patent or Trademark. Licensee may use all Patents and
Trademarks which have been filed, whether prior to the effective date of this
Agreement ("existing patents and trademarks") or after such date ("future
patents and trademarks"), and will pay 50% of all reasonable costs directly
related to the disclosure statements, applications and prosecution of
applications ("Costs") in the United States of such patents and trademarks;
provided, however, that if Licensee notifies RIC that it elects not to use (i) a
particular future patent or trademark in the United States or (ii) a particular
patent or trademark (existing or future) in a certain jurisdiction outside of
the United States (a "foreign jurisdiction"), then Licensee would not be
obligated to pay any of the Costs related to such patent or trademark in such
jurisdiction (other than for existing patents and trademarks in the United
States).
(b) For a period of twelve (12) months following the date of allowance
of a particular patent or trademark in the United States, Licensee may reverse
its decision not to use a particular patent or trademark in a certain
jurisdiction by paying 100% of the Costs incurred by RIC in the relevant
jurisdiction from the date Licensee elected not to use such patent or trademark
in such jurisdiction up until the date of such payment.
(c) Following such twelve-month period, if Licensee wishes to reverse
its decision not to use a particular patent or trademark in a certain
jurisdiction, Licensee and RIC shall negotiate in good faith a fee for such use.
(d) Following payment of such Costs or fee for use, Licensee shall have
all rights granted to it pursuant to this Agreement in connection with the
selected Patents and Trademarks in the selected jurisdictions, and shall
continue to
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<PAGE>
have such rights notwithstanding Licensee's decision not to pay for Costs
associated with other jurisdictions.
4.2 Following notification by Licensee to RIC of Licensee's intent to
use a certain Patent or Trademark in a certain jurisdiction, RIC shall deliver
to Licensee not later than fifteen (15) business days after the end of each
calendar month a reasonably detailed, itemized invoice (the "Monthly Invoice")
that sets forth the Costs incurred by RIC in connection with such Patent or
Trademark in such jurisdiction, which Costs Licensee shall reimburse to RIC as
the Reimbursement Obligation for the calendar month just ended.
4.3 Licensee shall pay to RIC, within thirty (30) business days after
receipt of the Monthly Invoice (the "Payment Period"), an amount equal to the
Reimbursement Obligation for such calendar month.
4.4 In the event Licensee shall fail to pay in full its Reimbursement
Obligation for any calendar month during the Payment Period, Licensee shall have
thirty (30) business days after receipt of written notice of such failure from
RIC (the "Late Notice") to cure such failure to pay. If the Reimbursement
Obligation is not paid in full by the end of such cure period, and until such
failure is cured, RIC shall no longer be required to fulfill any of its
affirmative covenants under Sections 6.2 and 11. The parties hereto expressly
agree, however, that any such failure by Licensee to pay in full its
Reimbursement Obligation shall not cause a termination of this Agreement.
Licensee shall retain all the rights to the ReSeal Technology granted to
Licensee by this Agreement notwithstanding any such failure by Licensee to pay
in full its Reimbursement Obligation; provided, however, that in the event
Licensee shall fail to pay in full its Reimbursement Obligation and shall fail
to cure such failure within thirty (30) business days after receipt of the Late
Notice from RIC, Licensee shall grant to RIC a security interest in all of
Licensee's assets, other than the ReSeal Technology, to secure payment of the
Reimbursement Obligation, and Licensee agrees to execute and deliver such
further documents and instruments as may be reasonably necessary to further
evidence and perfect such security interest. In the event a dispute arises with
respect to the amount of the Reimbursement Obligation and either party requests
arbitration pursuant to Section 15.5, then the security interest granted in the
preceding sentence shall not take effect, if at all, until after such
arbitration is settled.
4.5 Licensee shall pay all costs in connection with any patent and
trademark application which Licensee initiates and which does not infringe upon
and is in no way directly related to the ReSeal Technology, and all
continuations, divisionals, renewals or extensions thereof ("New Patents and
Trademarks"). Licensee, RIC and RILP hereby acknowledge that Licensee shall be
the owner of all trademarks, patents, and technology developed by
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<PAGE>
Licensee that does not infringe upon and is in no way directly related to the
ReSeal Technology.
4.6 Following the payment by Licensee to RIC of all amounts set forth
in Section 2.5 above, if Licensee elects to make a filing in connection with a
patent or trademark directly relating to the ReSeal Technology (or an extension
or renewal of a currently existing Patent or Trademark), Licensee shall promptly
notify RIC and request that RILP make such filing. If RIC notifies Licensee that
RIC is willing and able to share the Costs of such patent or trademark, then RIC
shall pay 50% of such Costs and the subject patent or trademark shall be deemed
to be, for purposes of this Agreement, a Patent or Trademark, as applicable. If
RIC notifies Licensee that RIC is unwilling or unable to pay its 50% share of
the Costs of such patent or trademark, then RIC shall not, in any way, either
directly or indirectly, use such patent or trademark; provided, however, that
(a) for a period of twelve months following the date of allowance of such patent
or trademark, RIC may reverse its decision not to share the Costs of such patent
or trademark by paying to Licensee 100% of the Costs incurred by Licensee in
connection with such patent or trademark, and (b) following such twelve-month
period, if RIC wishes to reverse its decision not to share the Costs of such
patent or trademark, RIC and Licensee shall negotiate in good faith a fee for
such use. Licensee and RIC hereby acknowledge that RILP shall be the owner of
all patents and trademarks filed pursuant to this Section 4.6.
4.7 All payments under this Agreement shall be in United States
dollars.
5. REPRESENTATIONS AND WARRANTIES.
5.1 RIC. RIC represents and warrants to Licensee as follows:
5.1.1 RIC is a corporation duly organized and validly existing under
the laws of the State of Florida.
5.1.2 RIC has all requisite power and authority to execute, deliver and
perform its obligations under this Agreement.
5.1.3 The execution and delivery of this Agreement and the performance
by RIC of its obligations hereunder have been duly authorized by all necessary
corporate action and do not (i) require the approval or consent of any third
party; (ii) violate (a) any provision of any law, rule, regulation, order, writ,
judgment, injunction or court decree applicable to it, or (b) any provision of
its charter or by-laws; or (iii) result in a breach of or constitute a default
under any mortgage or material agreement, license, permit or other instrument or
obligation to which it is a party or by which it may be bound.
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5.1.4 This Agreement constitutes the legal, valid and binding
obligation of RIC, enforceable against RIC in accordance with its terms.
5.1.5 No authorization, consent, approval, license, exemption of, or
filing or registration with, any court, governmental authority or regulatory
body is required for the due execution and delivery of this Agreement by RIC and
the performance by RIC of its obligations hereunder.
5.1.6 Except with respect to the rights being granted hereunder, (a)
RIC is the sole licensee of all right, title and interest in the Patents,
Trademarks and the ReSeal Technology as it relates to the Field of Use, (b) said
right, title and interest is free and clear of any material liens, claims,
mortgages or other encumbrances, and (c) no license currently exists for the use
of the ReSeal Technology as it relates to the Field of Use.
5.1.7 The ReSeal Technology does not infringe upon the patent,
trademark, development, ownership or other proprietary right of any Person.
5.1.8 The RIC License Agreement is in full force and effect and neither
RIC nor RILP is in default under the RIC License Agreement.
5.2 Licensee. Licensee represents and warrants to RIC as follows:
5.2.1 Licensee is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
5.2.2 Licensee has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
5.2.3 The execution and delivery of this Agreement and the performance
by Licensee of its obligations hereunder have been duly authorized by all
necessary corporate action and do not (i) violate (a) any provision of any law,
rule, regulation, order, writ, judgment, injunction or court decree applicable
to it, or (b) any provision of its charter or bylaws; or (ii) result in a breach
of or constitute a default under any mortgage or material agreement, license,
permit or other instrument or obligation to which it is a party or by which it
may be bound.
5.2.4 This Agreement constitutes the legal, valid and binding
obligation of Licensee, enforceable against Licensee in accordance with its
terms.
5.2.5 No authorization, consent, approval, license, exemption of, or
filing or registration with, any court,
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governmental authority or regulatory body is required for the due execution and
delivery of this Agreement by Licensee and the performance by Licensee of its
obligations hereunder.
6. COVENANTS.
6.1 Licensee. Licensee covenants and agrees with RIC as follows:
6.1.1 Subject to Section 4, Licensee shall comply with all laws,
ordinances, rules and regulations enacted by, obtain all licenses and permits
required by, and pay all fees and assessments imposed by, any governmental
authority to the extent that any of the foregoing may be applicable to the
performance by Licensee of its obligations under this Agreement, and, in
particular, to the manufacture, production, sale, distribution or licensing of
the ReSeal Technology or any Products in the Field of Use.
6.1.2 Licensee shall notify RIC in writing of any and all
modifications, improvements, enhancements, developments or variations to the
ReSeal Technology, including methods for the manufacture of ReSeal Technology,
made by Licensee during the Term, and any and all such modifications,
improvements, enhancements, developments and variations shall be deemed included
within the definition of ReSeal Technology for all purposes of this Agreement,
shall be subject to the RIC License Agreement and the license granted hereunder,
and legal title thereto shall automatically vest in RILP, without any further
action on the part of RILP, RIC or Licensee and, subject to Section 4, without
the payment of any fees or other amounts by or to Licensee. Licensee shall
include the substance of this covenant in any manufacturing agreement it enters
into.
6.1.3 Licensee shall not use the RIC or RILP name or any Trademarks,
including in connection with any advertising or business materials, except as
contemplated by this Agreement.
6.1.4 Licensee, where physically feasible, shall mark any Products
distributed, marketed or sold by it or licensed for such by it in the United
States with all applicable United States patent numbers or patent pending, as
the case may be, and with any applicable markings, designations, legends or
logos to indicate and adequately protect all relevant Trademark registrations.
All Products distributed, marketed or sold in other countries, where physically
feasible, shall be marked in such a manner as to conform with the patent and
trademark laws and practice of such country. Any permutations, variations or
deviations of the Trademarks used by Licensee, which are directly related to the
ReSeal Technology, must be approved by RIC, shall become the property of RILP
and shall be subject to the RIC License Agreement and this Agreement without any
further action on the part of RILP, RIC or Licensee and, subject to Section 4,
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without the payment of any fees or other amounts by or to Licensee.
6.1.5 Licensee shall use its best efforts to research, develop, market
and commercially exploit the ReSeal Technology as it relates to the Field of Use
in a manner that will maximize the value of that technology. Such research and
development activities shall include, where feasible, all testing necessary to
ascertain the sound engineering of proposed Products, and ongoing technical
support for the modification, improvement, enhancement, development or variation
of existing Products or the development of new Products. All results of such
modifications, improvements, enhancements, developments or variations shall
belong to RILP and shall be subject to the RIC License Agreement and this
Agreement without any further action on the part of RILP, RIC or Licensee and
shall be made available, as they occur, for review by RIC for potential patent
applications. Under no circumstances shall any technical development, invention
or acquisition of technology by Licensee be used to nullify Licensee's
obligations hereunder, including payments, to RIC.
6.2 RIC. RIC covenants and agrees with Licensee as follows:
6.2.1 Subject to Section 4, RIC shall comply with all laws, ordinances,
rules and regulations enacted by, obtain all licenses and permits required by,
and pay all fees and assessments imposed by, any governmental authority to the
extent that any of the foregoing may be applicable to performance by RIC of its
obligations under this Agreement.
6.2.2 RIC shall use its best efforts to research, develop and
commercially exploit the ReSeal Technology. Such research and development
activities shall include, where feasible, all testing necessary to ascertain the
sound engineering of proposed Products, and ongoing technical support for the
modification, improvement, enhancement, development or variation of existing
Products or the development of new Products. Subject to Section 4, all resulting
modifications, improvements, enhancements, developments or variations to the
ReSeal Technology shall belong to RILP and shall be subject to the RIC License
Agreement and this Agreement without any further action on the part of RILP, RIC
or Licensee.
6.2.3 During the Term, RIC, subject to Licensee's approval of budgets
and expenditures in advance, shall cause RILP to prosecute all Patent
applications, and all continuations, divisionals, renewals or extensions
thereof, related to the ReSeal Technology, and any future patent applications,
and all continuations, divisionals, renewals or extensions thereof, related to
the future commercial exploitation of the ReSeal Technology, that, in either
case, in Licensee's reasonable judgment, should be prosecuted in order to
maximize the commercial exploitation of the ReSeal Technology or otherwise to
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carry out the purposes and intent of this Agreement. During the Term, RIC,
subject to Licensee's approval of budgets and expenditures in advance, shall
cause RILP to prosecute all Trademark registrations, and all reissues,
extensions and continuations thereof, and any future Trademark registrations,
and any reissues, extensions and continuations thereof, related to the ReSeal
Technology, that, in Licensee's reasonable judgment, should be prosecuted in
order to maximize the commercial exploitation of the ReSeal Technology or
otherwise to carry out the purposes and intent of this Agreement. Payment for
all such applications shall be as set forth in Section 4. To the extent that
RILP does not take the actions set forth in the first two sentences of this
Section 6.2.3, Licensee shall be permitted to take all such actions at RIC's
expense.
6.2.4 Subject to Section 4, RIC shall provide to Licensee for its use
under the terms of this Agreement any Patents or Trademarks obtained after the
date of this Agreement that relate to the ReSeal Technology and any and all such
Patents and Trademarks shall be deemed included within the definition of ReSeal
Technology for all purposes of this Agreement and shall become subject to the
license granted pursuant to Section 2 without any further action on the part of
RIC or Licensee and without payment of any additional fees or other amounts,
other than those fees contemplated by Section 4.
6.2.5 RIC shall keep adequate and complete books and records showing
the computations of, and the basis for computing, the amount of the
Reimbursement Obligation owed by Licensee pursuant to Section 4.
6.2.6 Any books and records maintained pursuant to Section 6.2.5 shall
be open to reasonable inspection by Licensee, at Licensee's sole expense, and to
independent auditors employed by Licensee, at Licensee's sole expense, during
reasonable business hours to the extent necessary to verify such amounts. RIC
shall retain any such books and records for such period as may be required by
law, provided that if such books and records are the subject of a dispute
between RIC and Licensee, then such books and records shall be retained until
such dispute has been finally resolved.
6.2.7 RIC shall perform its obligations under the RIC License Agreement
and agrees that no breach by it of the RIC License Agreement shall occur that
would entitle RILP to properly terminate the RIC License Agreement.
6.3 RIC and Licensee. RIC and Licensee mutually covenant and agree that
they shall use their best efforts to keep each other informed as to the latest
developments in all fields of knowledge related to the ReSeal Technology and the
marketing and commercial exploitation thereof.
11
<PAGE>
6.4 RILP. RILP covenants and agrees that in the event, for any reason,
including but not limited to the bankruptcy of RIC, RIC is unable to continue
its licensing obligations to Licensee pursuant to this Agreement, RILP or its
successor shall automatically and immediately be deemed to be the licensor
hereunder, without any further action on the part of RILP, RIC or Licensee.
7. QUALITY OF PRODUCTS.
7.1 Any Products manufactured, produced, distributed, marketed, sold or
licensed by or under the direction of Licensee or otherwise pursuant to the
terms of this Agreement which utilize the ReSeal Technology and/or which bear
any of the Trademarks shall be of such quality, workmanship, design, styling and
appearance as is consistent with good manufacturing practices in the relevant
industry and otherwise reasonably likely to preserve and maintain the prestige
and value of the Trademarks. Licensee shall provide RIC with a reasonable number
of samples of such Products to demonstrate compliance with this Section.
7.2 (a) For each application of the ReSeal Technology which is
contracted with customers, sublicensees or agents of Licensee for sale to
consumer or industrial markets in the Field of Use ("Commercial Application"),
either (i) RIC and Licensee or (ii) Licensee and a bona fide third party
customer of Licensee (each an "Approving Party") shall establish a Specification
listing criteria, including but not limited to raw materials, components of
system/packaging product, performance testing protocols, minimum performance
characteristics for the finished product based on the test results, and quality
control procedures and criteria for components, finished products and
advertising claims. Once a Specification has been signed by authorized
signatories for each Approving Party, the Specification shall be followed and
any changes thereto shall require the written approval by two Approving Parties.
(b) Prior to the production of components/systems/products from
tooling, Licensee shall provide access to RIC and RIC may inspect each completed
pre-tooling components/ systems/products created by Licensee in the process of
developing a Product, and if Licensee makes multiple samples of such pretooling
components/systems/products it shall provide RIC with one. RILP and RIC shall be
pre-notified of the expected cost of samples, computed as Licensee's costs less
Licensee's initial development costs ("Expected Costs"), and shall pay for the
costs of the samples it needs in excess of the first one which orders for
samples Licensee will include when ordering multiple samples; provided, however,
that Licensee shall not be obligated to provide more than one sample.
(c) If any performance tests are conducted on any pre-tooling
components/systems/products, RIC shall be provided with one sample of each item
being tested. RILP and RIC shall be
12
<PAGE>
pre-notified of the Expected Costs and shall pay the Expected Costs of each
sample it needs in excess of the first one which orders for samples Licensee
will include when ordering multiple samples; provided, however, that Licensee
shall not be obligated to provide more than one sample.
(d) Once the production phase commences, RIC may from time to time
receive and test samplings from the pilot production runs and scaled-up
production runs of Licensee and/or contract manufacturers approved by Licensee,
and RIC shall notify Licensee (and RIC shall be notified) of any Product or test
result not meeting the Specification. If Licensee agrees that the Product does
not meet the Specification, the Product shall be withheld from distribution and
destroyed or (if legal to do so) recycled. Then, if Licensee chooses to do so,
Licensee may undertake an amendment to the Specification pursuant to Section
7.2(a). Thereafter, future production of the Product shall be governed by the
amended Specification. If Licensee disagrees that the Product does not meet the
Specification, then Licensee shall not be required to withhold such Product from
distribution and the resolution of such disagreement shall be handled pursuant
to Section 15.5 below.
(e) All manufacturing of Products shall be in appropriate facilities
and in compliance with all applicable local, state and federal laws.
(f) Licensee shall maintain, and RIC may from time to time examine,
proper files on any and all documentation and data related to each
Specification, performance testing results, quality control, production,
manufacturing, use results (including but not limited to Product-related
complaints and Product defects), data made or to be made available to government
inspectors and reports from any inspection of manufacturing facilities (whether
used by Licensee or contract manufacturers approved by Licensee) by local, state
or federal regulatory officials. Licensee's approval of requests by RIC to
examine the above files will not be unreasonably withheld.
(g) Licensee shall make a reasonable, good faith effort to notify RIC
of any inspection of a manufacturing facility used to manufacture Products
(whether used by Licensee or contract manufacturers approved by Licensee) by
local, state or federal officials.
(h) Licensee shall develop, provide and/or approve advertising claims
which may be made by Licensee and/or any customer of Licensee. Such claims shall
not exceed the Specification and any performance test results.
(i) Licensee shall notify RIC of any repeated complaints of Product
liabilities and/or any pattern of Product defects.
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<PAGE>
8. CONFIDENTIAL INFORMATION. During the Term and for a period of three
(3) years thereafter, except as required by law, RIC agrees to keep in
confidence and protect from disclosure to any third party any proprietary and
confidential information relating to the ReSeal Technology as it relates to the
Field of Use (except to the extent that such confidential information has been
or is (a) in the public domain through no fault of RIC or (b) becomes generally
available from a source other than RIC). Any such confidential or proprietary
information relating to the ReSeal Technology may be disclosed to the directors,
officers, employees and representatives of RIC, who need to know such
information in connection with the performance of this Agreement; provided,
however, that any of the foregoing persons who receives such information shall
be informed of the confidential or proprietary nature of such information and
shall agree to maintain such confidentiality. RIC may also reveal such
confidential or proprietary information relating to the ReSeal Technology to
third parties, other than those listed in the preceding sentence, who need to
know such information in connection with the performance of this Agreement,
provided, however, that any such third party who receives such information shall
enter into a written confidentiality and non-competition agreement on terms
reasonably acceptable to Licensee. During the Term, Licensee agrees to keep in
confidence and protect from disclosure any proprietary and confidential
information it receives from RIC, and identified by RIC as proprietary and
confidential, but only to the same extent and with the same standard of care
that it uses with respect to its own confidential and proprietary information.
The provisions of this Section 8 shall survive the expiration or termination of
this Agreement.
9. TERMINATION.
9.1 Term. This Agreement shall commence on the date hereof and, unless
otherwise terminated as provided in Section 9.2, shall continue for a period
that is coextensive with the economic life of the ReSeal Technology, including
all Patents and Trademarks associated therewith, and any renewals, continuations
or extensions of such Patents and Trademarks (such period being referred to
herein as the "Term").
9.2 Termination. Notwithstanding anything to the contrary contained in
this Section 9, this Agreement may be terminated by either RIC or Licensee, upon
the occurrence of any of the following events of default:
(i) in the event that the $750,000 payment set forth in Section 2.5 is
not made by April 10, 1996; or
(ii) in the event that the $3,250,000 payment set forth in Section 2.5
is not made by December 31, 1996; or
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(iii) in the event that the other party pursuant to or within the
meaning of any Bankruptcy Law:
A. commences a voluntary case or proceeding;
B. consents to the entry of an order for relief against it in an
involuntary case or proceeding;
C. consents to the appointment of a custodian, receiver, trustee,
assignee, liquidator, sequestrator or similar official, of its or for all or
substantially all of its property; or
D. makes a general assignment for the benefit of its creditors; or
(iv) in the event that a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
A. provides for relief against such other party in an involuntary case
or proceeding;
B. appoints a custodian, receiver, trustee, assignee, liquidator,
sequestrator or similar official, of such other party for all or substantially
all of its property; or
C. orders the liquidation of such other party;
and in each case, the order or decree referred to in this Section 9.2(iv) is not
stayed, vacated or dismissed within ninety (90) days of the date such order or
decree was first issued.
10. RIGHT, TITLE AND INTEREST IN AND TO THE TRADEMARKS.
10.1 Licensee acknowledges that the Trademarks have acquired a valuable
secondary meaning and goodwill in the public market. Licensee further
acknowledges that RILP is the legal owner of the Trademarks. Licensee and RIC
shall comply with all notice requirements of any law or regulation necessary in
connection with the protection of the Trademarks, and RIC shall take all such
further action which shall be reasonably necessary for the protection of the
Trademarks in any State, territory or foreign jurisdiction. Any use of the
Trademarks by Licensee shall be deemed for the purposes of the acquisition of
trademark rights and the purposes of trademark registration to have been made by
and for the benefit of RIC and RILP, as owner of legal title to the Trademarks.
Licensee acknowledges that it may not acquire, or register, file or prosecute a
trademark application or applications to register, the Trademarks for any items
or
15
<PAGE>
services anywhere in the world that directly relate to the ReSeal Technology.
10.2 Licensee shall not (i) challenge the validity or ownership of the
Patents or Trademarks or (ii) subject to Section 4, challenge any application or
registration thereof in any jurisdiction, foreign or domestic, or (iii) contest
the fact that its rights under this Agreement are solely those provided for
herein.
10.3 The provisions of this Section 10 shall survive the expiration or
termination of this Agreement.
11. INFRINGEMENT OF TRADEMARKS AND PATENTS.
11.1 The parties hereto agree to exercise reasonable diligence in
discovering possible infringements of the Patents or Trademarks by third
parties. If either party hereto becomes aware at any time of any infringement or
threatened infringement of the Patents or Trademarks by third parties, such
party shall promptly notify the other party hereto of such infringement or
threatened infringement.
11.2 In the sole discretion of RIC, or upon receipt by RIC of
Licensee's commitment to pay 100% of the related reasonable costs and expenses
(the "Lawsuit Expenses"), RIC shall cause RILP to bring and maintain such
lawsuits, against third parties, for infringement of the Patents and Trademarks,
and shall cause RILP to take all other actions, that are reasonably necessary to
protect against the infringement of the Patents and Trademarks as they relate to
the Field of Use. Any and all amounts obtained as a result of lawsuits brought
and maintained pursuant to the previous sentence shall be divided in proportion
to RIC's and Licensee's contribution to the Lawsuit Expenses. If such lawsuit is
brought in the sole discretion of RIC, then Licensee shall not be obligated to
pay any of the Lawsuit Expenses and RIC may keep all amounts received pursuant
to such lawsuit.
12. POWER OF ATTORNEY. RIC hereby constitutes and irrevocably appoints
Licensee (or its designee), with full power of substitution and revocation by
Licensee, as RIC's true and lawful attorney-in-fact, to the full extent
permitted by law, at any time when, in Licensee's reasonable judgment, RIC shall
have failed to perform its obligations under Section 11 or Section 6.2.3, for
the purpose of carrying out the provisions of such Sections and taking any
action Licensee may reasonably deem necessary or advisable to accomplish the
purposes of said Sections. The power of attorney granted pursuant to this
License Agreement and all authority hereby conferred are granted and conferred
solely to protect Licensee's rights under this Agreement and shall not impose
any duty upon Licensee to exercise such power or limit any other rights of
Licensee. This power of
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attorney shall be irrevocable as one coupled with an interest during the term of
this Agreement.
13. INDEMNITY.
13.1 Indemnity of RIC and RILP. In consideration of the obligations and
duties undertaken by RIC and the license granted by RIC hereunder, Licensee
shall indemnify and hold harmless RIC, RILP, its general partner, and the
respective officers, directors, employees and agents of RIC, RILP, its general
partner and their respective heirs and personal representatives (each, an "RIC
Indemnitee") from and against any and all claims, losses, damages and
liabilities related to or arising out of (i) any failure of any representation
or warranty made by Licensee in this Agreement to be true as of the date of this
Agreement, (ii) the sale or use of any of the Products after the date of this
Agreement, including, without limitation, any product liability or strict
liability claims, or any claims of a similar nature, related to the manufacture,
sale or use of the Products after the date of this Agreement, or any personal
injury claims arising from the sale or use of the Products after the date of
this Agreement, or (iii) claims resulting from the use by any Licensee
Indemnitee (as defined below) of any Product not meeting its related
Specification. If any inquiry, action, claim or proceeding (including any
governmental investigation) shall be brought or asserted against any RIC
Indemnitee in respect of which an indemnity shall be sought from Licensee, such
RIC Indemnitee shall promptly notify Licensee in writing, and Licensee may
assume the defense thereof, including the employment of counsel reasonably
acceptable to such RIC Indemnitee and the payment of all fees and expenses
incurred in connection with the defense thereof; provided, however, that the
failure to so notify Licensee shall not affect an RIC Indemnitee's right to
indemnification hereunder except to the extent that Licensee demonstrates actual
prejudice caused by such failure. In the event that Licensee fails to assume the
defense of any claims, all fees and expenses incurred in connection with
defending such inquiry, action, claim or proceeding shall be paid to the RIC
Indemnitee, as incurred, on demand to Licensee. Licensee shall not be liable for
any settlement of any inquiry, action, claim or proceeding effected without its
prior written consent, which consent shall not be unreasonably withheld or
delayed. Licensee shall not settle any inquiry, action, claim or proceeding
unless the RIC Indemnitee receives a satisfactory release in connection
therewith.
13.2 Indemnity of Licensee. Subject to the provisions of Sections 4 and
11 of this Agreement, RIC shall indemnify and hold harmless Licensee, its
officers, directors, employees and agents, and their respective heirs and
personal representatives (each, a "Licensee Indemnitee") from and against any
and all claims, losses, damages and liabilities related to or arising out of (i)
any actions taken by RIC, RILP or their respective officers, directors,
partners, employees and agents, as
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<PAGE>
applicable, (ii) any failure of any representation or warranty made by RIC in
this Agreement to be true as of the date of this Agreement, (iii) any failure by
RIC to fulfill any of its covenants or obligations under this Agreement, or (iv)
any claims by third parties relating to patent, copyright or trademark
infringement (to the extent such claims are determined by a court to be true);
provided, however, that RIC shall not indemnify and hold harmless the Licensee
Indemnitees for claims resulting from (i) use by any Licensee Indemnitee of any
Product not meeting its related Specification or (ii) improper use of, or
representations made by Licensee and/or third parties regarding, the Products,
the ReSeal Technology or the Valves. If any inquiry, action, claim or proceeding
(including any governmental investigation) shall be brought or asserted against
any Licensee Indemnitee in respect of which an indemnity shall be sought from
RIC, such Licensee Indemnitee shall promptly notify RIC in writing, and RIC may
assume the defense thereof, including the employment of counsel reasonably
acceptable to such Licensee Indemnitee and the payment of all fees and expenses
incurred in connection with the defense thereof; provided, however, that the
failure to so notify RIC shall not affect a Licensee Indemnitee's right to
indemnification hereunder except to the extent that RIC demonstrates actual
prejudice caused by such failure. In the event that RIC fails to assume the
defense of any claims, all fees and expenses incurred in connection with
defending such inquiry, action, claim or proceeding shall be paid to the
Licensee Indemnitee, as incurred, on demand to RIC. RIC shall not be liable for
any settlement of any inquiry, action, claim or proceeding effected without its
prior written consent, which consent shall not be unreasonably withheld or
delayed. RIC shall not settle any inquiry, action, claim or proceeding unless
the Licensee Indemnitee receives a satisfactory release in connection therewith.
13.3 The provisions of this Section 13 shall survive the expiration or
termination of this Agreement.
14. NON-COMPETITION. During the Term, RIC shall not, directly or
indirectly, through any subsidiary or other entity controlled by or under common
control with RIC, engage in any business that is competitive with or
substantially similar to the business conducted by Licensee in the Field of Use
in connection with the marketing and commercial exploitation of the ReSeal
Technology, and shall not engage in any business that uses technology
substantially similar to the ReSeal Technology, except, in each case, as
contemplated by the terms of this Agreement and the license granted hereunder.
15. GENERAL PROVISIONS.
15.1 Notices. All notices and other communications given or made
pursuant to this Agreement shall be deemed to have been duly given or made if
(i) sent by registered or certified
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mail, return receipt requested, (ii) hand delivered, (iii) sent by prepaid
overnight carrier, with a record of receipt, or (iv) sent by telegram, facsimile
or telex (with a copy sent by registered or certified mail, return receipt
requested, as soon as practicable thereafter), to the parties at the addresses
set forth below (or at such other addresses as shall be specified by the parties
by like notice):
(a) if to RIC:
ReSeal International Corporation
342 Madison Avenue
Suite 1034
New York, New York 10173
Attn: Greg Pardes
Tel: (212) 682-2244
Fax: (212) 682-4720
(b) if to Licensee:
ReSeal Food Dispensing Systems, Inc.
c/o ReSeal Companies
342 Madison Avenue
Suite 1034
New York, New York 10173
Attn: David Brenman
Tel: (212) 682-2244
Fax: (212) 682-4720
Each notice or communication shall be deemed to have been given on the
date received.
15.2 Consents. Whenever the consent of one party to this Agreement is
required before the other party to this Agreement can take any action, such
consent shall be deemed to have been granted if the party whose consent is
required has not responded within ten (10) business days after receipt by such
party of notice from the other party requesting such consent.
15.3 Independent Contractor. Licensee is not and has never been an
employee, agent, partner or joint venturer of RIC for any purposes whatsoever
and shall not hold itself out as such. Under the terms of this Agreement,
Licensee is an independent contractor and shall have no power, right or
authority to enter into any agreement or commitment in the name or on behalf of,
or otherwise to obligate, RIC, other than in accordance with this Agreement.
Licensee shall have all authority to employ any persons that it pleases, and
shall perform all obligations and assume all liabilities associated with the
employment of such persons under law.
15.4 Assignment. Except as set forth herein, this Agreement shall not
be assignable or otherwise transferable by either party without the express
prior written consent of the
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other party hereto. Notwithstanding the foregoing, Licensee has the right to (a)
sublicense applications of ReSeal Technology within the Field of Use at its own
discretion and (b) subcontract for the manufacturing of components incorporating
the ReSeal Technology in the Field of Use; provided, however, that Licensee
cannot sublicense for the manufacturing of components incorporating the ReSeal
Technology.
15.5 Arbitration. Any dispute arising under or relating to this
Agreement shall be settled by arbitration in New York, New York, under and
pursuant to the rules of the American Arbitration Association in effect at the
time such controversy or dispute arises (the "Rules"). Such arbitration shall be
conducted before one (1) independent arbitrator chosen in accordance with the
Rules or, at the request of either party, before three (3) arbitrators to be
selected as follows: each party shall select one arbitrator and such arbitrators
shall agree on a third independent arbitrator. An arbitration award signed by
the arbitrator(s) shall be final and binding on the parties and not be subject
to any appeal or de novo review by any judicial body. The losing party shall pay
all costs and fees for the arbitration, including all legal fees, except as
otherwise determined by the arbitrator(s). Judgment upon the award rendered may
be entered in any court having jurisdiction, or application may be made to any
such court for judicial recognition of the award or any order of enforcement
thereof, as the case may be. The losing party shall pay all costs and expenses,
including reasonable attorneys' fees, incurred by the winning party in any legal
proceeding to enforce any arbitration award.
15.6 Waiver; Modification. No waiver of any term, condition or
obligation of this Agreement by either party shall be valid unless in writing
and signed by such party. No failure or delay by either party at any time to
require the other to perform strictly in accordance with the terms hereof shall
preclude either party from requiring performance by the other at any later time.
No waiver of any one or several of the terms, conditions or obligations of this
Agreement, and no partial waiver thereof, shall be construed as a waiver of any
of the other terms, conditions or obligations of this Agreement. This Agreement
may not be modified or changed in any manner except by written instrument signed
by each of the parties hereto.
15.7 Entire Agreement. This Agreement and the Schedules hereto contain
the entire agreement between RIC and Licensee concerning the subject matter
hereof, and supersede any prior oral statements, representations or
understandings and any prior written documentation not contained in this
Agreement.
15.8 Severability. If any provision of this Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall not in any
manner affect or render invalid or unenforceable any other provision of this
Agreement, and this
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Agreement shall be carried out as if any such invalid or unenforceable provision
were not contained herein.
15.9 Mutual Cooperation. Each of RIC and Licensee shall cooperate fully
with the other, and each shall ensure that their respective employees do the
same, to the extent necessary to effect the intents and purposes of this
Agreement and the transactions contemplated hereby.
15.10 Effective Date. This Agreement supersedes the License Agreement
between the parties hereto, dated October 10, 1995, and is effective as of such
date.
15.11 Headings. The section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
15.12 Counterparts. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and all of which counterparts shall be deemed to constitute one and the same
instrument.
15.13 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of the conflict of laws thereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
RESEAL INTERNATIONAL CORPORATION
By: /s/ Greg Pardes
---------------
Name: Greg Pardes
Title: President
RESEAL FOOD DISPENSING SYSTEMS,
INC.
By: /s/ David Brenman
-----------------
Name: David Brenman
Title: President
The undersigned acknowledges its receipt of and its agreement with the
foregoing Amended and Restated License Agreement and, in connection therewith,
the undersigned agrees to perform the obligations imposed upon the undersigned
pursuant to Section 6.4 of the foregoing Amended and Restated License Agreement.
RESEAL INTERNATIONAL LIMITED
PARTNERSHIP
By: ReSeal Technologies and
Advancements, Inc., Its
General Partner
By: /s/ Greg Pardes
---------------
Name: Greg Pardes
Title: Chairman
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SCHEDULE 1.4
LIST OF PATENTS
---------------
Subject to the provisions of Section 4, Licensee may use all of the
ReSeal Technology, Patents and patents pending or granted, and all of the
technological know-how and trade secrets of RILP and RIC as they apply to the
Field of Use, including but not limited to the Patents listed on Annex A hereto.
23
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SCHEDULE 1.14
LIST OF TRADEMARKS
------------------
Subject to the provisions of Section 4, Licensee may use all of the
ReSeal Technology, Trademarks and trademarks pending or granted, and all of the
technological know-how and trade secrets of RILP and RIC as they apply to the
Field of Use, including but not limited to the Trademarks listed on Annex A
hereto.
24
__________, 199_
David Brenman
ReSeal Food Dispensing Systems, Inc.
342 Madison Avenue
New York, NY 10173
Gentlemen:
Re: RESEAL FOOD DISPENSING SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
------------------------------------
This Subscription Agreement (the "Agreement") has been executed by the
undersigned in connection with the purchase of
__________________________(_______) shares of Common Stock, par value $.01 per
share (the "Common Stock") of RESEAL FOOD DISPENSING SYSTEMS, INC. (the
"Company") at a purchase price of $2.00 per Share of Common Stock.
1. AGREEMENT TO INVEST
The undersigned hereby agrees to invest an aggregate of _________
Dollars ($________) (the "Purchase Price") for the Common Stock in accordance
with the terms hereof.
Within 15 days of receipt of the Purchase Price, the Company will cause
the delivery to the undersigned of a certificate evidencing the Common Stock
subscribed for hereunder.
The undersigned understands that this subscription is irrevocable and
the execution and delivery of this Agreement will not constitute an agreement
between the undersigned and the Company until this Agreement has been accepted
by the Company.
<PAGE>
2. ACCESS TO INFORMATION
The undersigned acknowledges that he is subscribing for the Common
Stock after what he deems to be adequate investigation of the business and
prospects of the Company by the undersigned. The undersigned has been furnished
any materials relating to the business and operation of the Company, including
without limitation, all documents which have been requested and he or his
representative has been given an opportunity to make any further inquiries
desired of the management and of any other personal of the Company. The
undersigned has received complete and satisfactory answers to any such
inquiries.
----------------------------------
("Initials")
3. INVESTMENT REPRESENTATION
(a) The undersigned understands that the Common Stock has not been
registered under the Securities Act of 1933 (the "Act"), or the securities laws
of any state and that he is purchasing the Common Stock for investments only and
not with a view to the further sale, assignment or other distribution of all or
any portion of this investment. The undersigned agrees and represents that he
will not sell, assign, pledge, hypothecate or otherwise dispose of the Common
Stock unless they may be legally sold or disposed of without registration or
qualification under the applicable state or federal statutes, or the Common
Stock shall have been registered or qualified with an appropriate registration
statement in effect. The undersigned understands that the certificates
representing the Common Stock will bear a legend containing the restriction as
to transfer articulated in this paragraph. The undersigned understands that he
must bear the economic risk of this investment for an indefinite period of time.
----------------------------------
("Initials")
(b) The undersigned acknowledges that he has significant prior
investment experience, including investment in non-listed and unregistered
United States securities, or he has employed the services of an investment
advisor, attorney or accountant to read all of the documents furnished or made
available by the Company and to evaluate the merits and risks of such an
investment on his behalf; and that he recognized the highly speculative nature
of this investment and is able to bear the economic risk he hereby assumes.
----------------------------------
("Initials")
<PAGE>
(c) The undersigned represents that he is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D promulgated under the Act.
----------------------------------
("Initials")
(d) The undersigned has been advised by the Company and understands
that he must bear the economic risk of the investment because the Common Stock
has not been reviewed or registered under the Act or elsewhere. The undersigned
recognizes that the purchase of the Common Stock involves a high degree of risk
and is suitable only for persons of adequate financial means who have no need
for liquidity. The undersigned fully recognized that (i) he may not be able to
liquidate his investment in the event of an emergency, (ii) transferability is
extremely limited, and, (iii) in the event of the disposition, he could sustain
a complete loss of his entire investment.
----------------------------------
("Initials")
(e) The undersigned acknowledges and agrees that the Company is relying
on the undersigned's representation contained in this Agreement in determining
whether to accept this subscription.
----------------------------------
("Initials")
4. REPRESENTATION BY THE COMPANY
The Company represents and warrants to the undersigned as follows:
(a) The Company is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware and has the corporate power to
conduct its business.
(b) The execution, delivery and performance of this Agreement by the
Company has been duly approved by the Board of Directors of the Company.
(c) The Common Stock has been duly and validly authorized and when
issued in accordance with the terms thereof, will be duly and validly binding
obligations of the Company, enforceable in accordance with their terms.
5. DUE AUTHORIZATION
If the undersigned is a corporation, partnership or trust, the
undersigned represents and warrants that the undersigned has authority to enter
into the transaction contemplated by the Agreement. This Agreement has been duly
and validly authorized,
<PAGE>
executed and delivered, and when executed and delivered by the Company will
constitute the valid, binding and enforceable agreement of the undersigned.
----------------------------------
("Initials")
6. INDEMNIFICATION
The undersigned agrees to indemnify and hold the Company, its officers,
directors and shareholders and any other person who may be deemed to control the
Company harmless from any loss, liability, claim, damage or expense, arising out
of the inaccuracy of any of the above representations, warranties or statements
or the breach of any of the agreements contained herein.
7. RESTRICTIVE LEGEND
The Common Stock is being acquired solely for the subscriber's own
account for investment and not with a view toward, or for resale in connection
with, any "distribution" (as that term is used in the Securities Act of 1933 and
the Rules and Regulations thereunder) of all or any portion thereof. The
undersigned further understands that a stop-transfer order will be placed on the
books of the Company's transfer agent respecting the Common Stock, until
registration thereof an exemption thereof satisfactory to the Company and its
legal counsel, if ever, for which there are no such current intentions, and such
Common Stock shall bear the following legend or one substantially similar
thereto:
"THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THEY MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNLESS SO REGISTERED OR THE COMPANY HAS
RECEIVED THE WRITTEN OPINION OF COUNSEL TO THE COMPANY THAT
SUCH TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING
REGISTRATION OF SUCH COMMON STOCK UNDER SUCH ACT."
8. MISCELLANEOUS
(a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be delivered or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the parties hereto
at their respective addresses set forth herein.
(b) Jurisdiction. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflict of laws.
<PAGE>
(c) Integration. The Subscription Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
may be amended only by writing executed by all parties thereto.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the date set forth below.
Date: __________, 199__
___________________________ By: ______________________________
Number of Shares of Common Stock
This subscription agreement is hereby accepted as of the date first
written above:
RESEAL FOOD DISPENSING
SYSTEMS, INC.
By: ______________________________
Name: David W. Brenman
Title: President
Date: ________________________________
______________, 199_
David Brenman
ReSeal Food Dispensing Systems, Inc.
342 Madison Avenue
New York, NY 10173
RE: BRIDGE LOAN
Dear Mr. Brenman:
This letter summarizes our agreement as follows:
1. Bridge Loan. Upon the execution of this letter, the undersigned
("Lender") shall loan (the "Loan") ____________ Dollars ($_____) to ReSeal Food
Dispensing Systems, Inc., a Delaware corporation (the "Company"), pursuant to
the terms of a certain promissory note, the form of which is attached hereto as
Exhibit "A" (the "Note"). Concurrently, with the execution of this letter, the
Company shall execute and deliver the Note to Lender.
2. Issuance of Bridgeholder's Units. As additional consideration,
solely for making the Loan, the Company hereby grants to Lender the right to
receive _____________ (______) Bridgeholder's Units consisting of Two Shares of
Common Stock and Two A Warrants. At any time following the date on which the
registration statement filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the Company's initial public offering (the
"Initial Public Offering") is declared effective by the Commission (the
"Effective Date"), Lender may exercise the right to receive the Bridgeholder's
Units by delivering notice thereof to the Company and the Company will deliver
to Lender certificates representing the securities underlying the Bridgeholder's
Units. The terms and conditions of the units will be identical to the terms and
conditions of the Units being offered to the public pursuant to the Company's
Initial Public Offering.
3. Registration Rights. The Company agrees to include the shares of
Common Stock and warrants underlying the Bridgeholder's Units (the "Registrable
Securities"), in the registration statement filed in connection with the Initial
Public Offering, during the five (5) year period after the date hereof, at no
cost or expense to Lender.
<PAGE>
Anything in this Section 3 to the contrary notwithstanding, in the
event that the managing underwriter of the Initial Public Offering informs the
Company in writing that the inclusion of the Registrable Securities in the
Initial Public Offering will result in the inability to effect the Initial
Public Offering or qualify the Initial Public Offering in one or more states
which such managing underwriter, in its sole discretion deems necessary for the
Initial Public Offering to proceed, Lender shall agree to withhold some or all
of the Registrable Securities from registration in accordance with the
instructions of such managing underwriter. In such event, upon Lender's request,
the Company shall file a registration statement with the Commission for the
purpose of registering the Registrable Securities as soon as practicable after
the closing date of such Initial Public Offering at no cost or expense to
Lender.
Lender agrees not to sell, pledge, hypothecate, encumber or otherwise
dispose of any of the Registrable Securities for a period of thirteen (13)
months following the effective date of the Initial Public Offering, subject to
earlier release at the discretion of the Underwriter of the Initial Public
Offering.
4. Representation of Lender. Lender represents that he is acquiring the
Bridgeholder's Options and the Underlying Bridge Securities for investment
purpose only and not with a view to any resale or public distribution thereof.
Lender has had full access to the books and records of the Company and has had
the opportunity to question the officers, counsel and independent accountants of
the Company. Lender is an "accredited investor" as defined in section 2(15) of
the Securities Act of 1933, as amended, and Regulation D promulgated by the
Commission.
5. Governing Law; Jurisdiction and Venue. Regardless of the place of
execution or performance, this letter and the Note shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to such state's conflicts of laws provisions. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal and state
courts located in the State of New York, County of New York.
Please acknowledge your consent to the foregoing terms by
countersigning the enclosed duplicate copy of this letter and returning it to us
together with the Note.
By: __________________________
AGREED TO AND ACKNOWLEDGED:
ReSeal Food Dispensing Systems, Inc.
By: ___________________________
David W. Brenman, President
-2-
<PAGE>
PROMISSORY NOTE
---------------
$__________ ______________, 199_
New York, New York
FOR VALUE RECEIVED, RESEAL FOOD DISPENSING SYSTEMS, INC., a Delaware
corporation ("Maker"), promises to pay to _________________________________
("Holder") or at such place as Holder may designate in writing, the entire
principal sum of ______________________ Dollars ($________), together with
interest at the rate of eight percent (8%) per annum, (i) on the earlier of
January 1, 1997 or (ii) the closing date of the first underwritten public
offering of Maker's securities, at which time all principal and interest shall
be due and owing.
All payments of principal and interest hereunder shall be payable in
lawful money of the United States.
Maker shall be in default hereunder, at the option of Holder, upon the
occurrence of any of the following events: (i) the failure by Maker to make any
payment of principal or interest when due hereunder, and such failure shall have
continued for a period of more than ten (10) days after notice and a reasonable
opportunity to cure; (ii) the entering into of a decree or order by a court of
competent jurisdiction adjudicating Maker a bankrupt or the appointing of a
receiver or trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditors suit; (iii) a court of
competent jurisdiction approving as properly filed a petition for reorganization
or arrangement under the Federal bankruptcy laws and such decree or order not
being vacated within thirty (30) days; (iv) the pendency of any bankruptcy
proceeding or other creditors' suit made in good faith against Maker; (v)
provided the petitioner is acting in good faith a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy laws with respect to
Maker; (vi) an assignment for the benefit of creditors by Maker; (vii) Maker
consents to the appointment of a receiver or trustee in an insolvency or
bankruptcy proceeding or other creditors' suit; (viii) the existence of any
uncured event of default under the terms of any instruments in writing
evidencing a debt to someone other than Holder, provided, that Maker is not
contesting in good faith by appropriate proceedings such uncured event of
default; (ix) the existence of any judgment against, or any attachment of
property of Maker; or (x) any other condition which, in the good faith
determination of Holder, would materially impair the timely repayment of this
Note.
Upon the occurrence of any event or condition of default hereunder, or
at any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all
<PAGE>
of the indebtedness or any portions thereof to be immediately due and payable,
together with accrued interest thereon, and payment thereof may be enforced by
suit or other process of law. The maker shall pay the holder liquidated damages
of $10,000 per day for every day this note is in default.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of collection and such
costs shall include without limitation all costs, attorneys fees and expenses
incurred by Holder hereof in connection with any insolvency, bankruptcy,
reorganization, arrangement or similar proceedings involving Holder, or
involving any endorser or guarantor hereof, which in any way affects the
exercise by Holder hereof of its rights and remedies under this Note.
Presentment, demand, protest, notices of protest, dishonor and
non-payments of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and
the Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflicts of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
RESEAL FOOD DISPENSING SYSTEMS, INC.
By:_________________________________
David W. Brenman, President
- 2 -
AGREEMENT
This Agreement is made on the fifth day of March, 1996 by and between
ReSeal Food Dispensing Systems, Inc. ("Company"), A Delaware Corporation, and
Nologies, Inc. ("Nologies"), a Connecticut Corporation.
WHEREAS, Company desires to engage the services of Nologies upon the
terms and conditions hereinafter set forth, and Nologies desires to be so
engaged;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Company and Nologies agree as follows:
1. Term of Engagement
1.01 Company hereby agrees to utilize the services of Nologies on a
monthly basis beginning on March 1, 1996 for an initial period of twelve (12)
months. This agreement may be terminated with a 30 day written notice by either
party.
1.02 At the conclusion of this initial period, this agreement can be
extended with the execution of a letter detailing any new or modified mutually
agreed upon terms and conditions.
2. Nologies' Services
2.01 In consideration hereof, Nologies hereby agrees to serve in the
capacity of assisting in the directing and managing of Product and Technology
Development, and assisting the
<PAGE>
Company in its licensing and strategic alliance pursuits as well as other
related services that the Company may request from time to time. Nologies'
primary activities will be limited to the area of food and beverage dispensing
and delivery systems. Any activities by Nologies on behalf of ReSeal
Pharmaceutical Systems, Ltd. (RPS) will be arranged between Nologies and RPS
directly.
2.02 In the event the Company, at its expense, undertakes to prepare
and file any patent application(s) in any country based upon inventions and
developments related to work performed under this agreement, Nologies agrees to:
(i) Assign all worldwide rights to any and all inventions related to
ReSeal delivery and dispensing valve technologies to ReSeal International
Limited Partnership or if the work performed under this agreement is not related
to ReSeal delivery and dispensing valve technologies, to the Company;
(ii) Provide the Company and its attorney(s) with complete cooperation
and full assistance in the preparation of any such patent application(s), at the
expense of the Company;
(iii) Execute all papers necessary in connection with the applications
and any continuing or divisional applications and execute separate assignment(s)
in connection with such applications(s) as the Company may deem necessary or
expedient;
- 2 -
<PAGE>
(iv) Execute all papers necessary in connection with any interference
which may be declared concerning the application or continuation or division and
cooperate with the Company in every way possible in obtaining evidence and going
forward with such interference;
(v) Execute all papers and documents and perform any act which may be
necessary in connection with the claims or provisions of the International
Convention for Protection of Industrial Property or similar agreements;
(vi) Perform all affirmative acts which may be necessary to obtain a
grant to the Company of a valid United States patent or the equivalent in any
and all countries; and
(vii) Authorize and request the Commissioner of Patents to issue any
and all Letters of Patents of the United States resulting from any such
applications or any division or continuing applications to the Company, as
assignee of the entire interest, and covenant that its has full right to convey
the entire interest assigned, and that it has not executed and will not execute
any agreement in connection with assigned interest.
3. Compensation
3.01 Company agrees to pay Nologies a fee of Eight Thousand Dollars
($8,000) per month, such payments to be made in monthly installments of Eight
Thousand Dollars ($8,000) each on the first day of each month.
- 3 -
<PAGE>
3.02 As an independent contractor, Nologies will be paid a gross sum of
compensation with no withholdings by the Company for taxes, social security,
unemployment or any other monies Nologies is legally responsible to pay to any
local, state or federal agencies.
3.03 Company agrees to reimburse Nologies' reasonable documented
business expenses. However, no expense in excess of Two Hundred Dollars ($200)
may be incurred without prior approval of the Company.
4. Trade Secrets
4.01 Nologies agrees not to disclose or use in any way nor cause or
permit others to disclose or use in any way, either during its employment with
Company or thereafter, except as required in the course of its association with
Company or as required by judicial order, any confidential business or technical
information or trade secret acquired during its association with Company and
which relates to the present or contemplated business of Company, whether or not
conceived of, discovered, developed or prepared by Nologies, including without
limitation any formulae, patterns, inventions, procedures, processes, plans,
devices, products, operations, techniques, know-how, specifications, data,
compilations of information, customer lists, records, financing or production
methods, costs, employees, and information concerning specific customer
requirements, preferences practices and methods of doing
- 4 -
<PAGE>
business, all of which are the exclusive and valuable property of Company.
5. Confidentiality and Non-Compete
5.01 Nologies freely agrees that, for the duration of this agreement,
plus all amendments thereto and including any and all renewals thereof, and for
one (1) year thereafter, Nologies will not represent, consult, serve, or be
employed by any competing enterprise.
5.02 Nologies agrees never to divulge any confidential information to
any third party nor make available to any third party any trade secrets, details
of closed or impending contractual relationships, designs, plans, samples, cost
data, sales prices, policy decisions, past or future.
5.03 Nologies recognizes that the unique ReSeal Valve Technology
represents a special patented system which was not utilized by Nologies in its
endeavors prior to its relationship with Company and/or its affiliated entities.
Therefore, in agreeing not to compete with Company and/or its related affiliated
companies for a period of one (1) year after the termination of its association
with Company has been terminated by either party, Nologies recognizes that this
will not represent a restriction on its ability to earn a livelihood in its
field of expertise.
5.04 This confidentiality and non-compete clause shall be enforceable
at law and equity and Nologies recognizes
- 5 -
<PAGE>
that the right of the Company to injunctive relief in the event Nologies is in
breach of this agreement.
5.05 The territory of this restrictive covenant shall encompass the
entire world and shall not be void by the extent of such restriction as Nologies
agrees that the time limitation of this covenant is not overly broad.
5.06 In the event this restrictive covenant is determined to be
unenforceable by any state or federal court within the United States as it is
overly restrictive, this shall not void the remaining terms of this agreement,
specifically all of the terms and conditions relating to the within provisions
of confidentiality.
5.07 In the event the length of time provision of the above restrictive
covenant is adjudicated to be unenforceable as aforesaid in paragraph 5.07
hereinabove, Nologies agrees to be bound by the remaining terms of this
agreement other than that for the time duration of this restrictive covenant,
but Nologies agrees to be bound by any new time provisions set by any Court
empowered to make such judicial decree.
6. Assignment of Proprietary Interests
6.01 Nologies hereby assigns and transfers to Company its entire right,
title and interest in and to any and all inventions, copyrights, trademarks,
trade names, improvements, processes, sketches, writings, drawings, books,
papers, articles, methods of production, design, discoveries, and ideas (whether
or
- 6 -
<PAGE>
not shown or described in writing) whether or not patentable or copyrightable,
which are or were made, conceived or first reduced to practice by Nologies with
the Company's equipment, supplies, facilities, or trade secrets during the life
of this agreement or which relates to the business of the Company or Company's
actual or anticipated research or business development or which results from any
work performed by Nologies for the Company ("INVENTIONS").
6.02 Nologies agrees that the Company shall have the right to keep such
inventions as trade secrets. To permit the Company to claim rights to which it
may be entitled, Nologies agrees to promptly disclose to the Company in
confidence all related inventions which Nologies makes, conceives or first
reduces to practice during the course of its association or within one year
after termination of this agreement if such inventions relate to product,
process or service upon which Nologies worked during the period of its
association by the Company, and all patent or copyright publications which cover
such inventions filed by Nologies within a year after termination of this
agreement.
6.03 Nologies further agrees to assist the Company, whether during or
after termination of this agreement, in obtaining patents or copyrights on such
inventions deemed patentable or copyrightable by the Company in the United
States and in all foreign countries, and shall execute all documents and do all
things necessary to obtain letters of patent and/or
- 7 -
<PAGE>
copyright, to vest the Company with full and extensive title thereto, and to
protect the same against infringement by others including, without limitation,
cooperation with Company or its representatives in any controversy, legal
proceedings or the like. Company hereby agrees to pay any and all expenses
related to Company's Intellectual Property interests including, but not limited
to, legal expenses, out of pocket expenses, and timely compensation to Nologies
for services rendered if a working agreement is no longer in effect.
6.04 Nologies agrees that for purposes of the copyright laws of the
United States and any other country, Nologies shall be deemed to be Company's
"employee-for-hire," however, at no time shall Nologies be deemed an employee of
the Company.
6.05 Nologies further agrees that any related patent application filed
within a year after termination of its association with the Company or an
invention for which Nologies was partially or totally responsible shall be
presumed to relate to an invention made during the term of Nologies' obligation
to the Company and shall be the exclusive property of and belong to the Company.
7. Tangible Items as Property of Company
7.01 Excluding any personal or professional property owned by Nologies
prior to the date hereof, all files, records, documents, drawings, plans,
specifications, manuals, books,
- 8 -
<PAGE>
forms, receipts, notes, reports, memoranda, studies, data, calculations,
recordings, catalogues, compilations of information, correspondence and all
copies, abstracts and summaries of the foregoing, instruments, tools and
equipment and all other physical items related to the business of Company for
which Nologies has received complete and full compensation, other than a merely
personal item of a general professional nature, whether of a public nature or
not and whether prepared by Nologies or not, are and shall remain the exclusive
property of Company and shall not be removed from the premises of Company under
any circumstances whatsoever without the prior written consent of Company, and
same shall be promptly returned to Company by Nologies on the expiration or
termination of its association with Company or at any time prior thereto upon
the request of Company for any reason regardless of whether or not Nologies may
have or deem to have any rights of redress or claims against Company.
8. Solicitation of Customers, Employees and Consultants
8.01 During Nologies' association with the Company hereunder, Nologies
shall not solicit, interfere with or attempt to entice away, either directly or
indirectly, any employee or customer of Company with whom it became acquainted
during its association with Company, either for its own benefit or purpose or
for the benefit or for the purpose of any other person,
- 9 -
<PAGE>
partnership, corporation, firm, association or other business organization,
entity or enterprise.
9. Interference with Personnel
9.01 Nologies will not at any time cause or induce, or attempt to cause
or induce, or participate in any plan or arrangement to cause or induce any
personnel now or hereafter employed, or engaged by, the Company to terminate
such employment or engagement.
10. Interference with Third Parties
10.01 Nologies will not at any time cause or induce, or attempt to
cause or induce, or participate in any plan or arrangement to cause or induce
any person or firm supplying goods, services, or credit to the Company to
diminish or cease the furnishing of such goods, services or credit.
11. Injunctive Relief
11.01 Nologies hereby acknowledges and agrees that it would be
difficult to fully compensate Company for damages resulting from the breach or
threatened breach of paragraphs 4 through 9 of this agreement and, accordingly,
that Company shall be entitled to temporary and injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent injunctions,
to enforce such sections of this agreement without the necessity of proving
actual damage therewith. This provision with respect to injunctive relief shall
not, however,
- 10 -
<PAGE>
diminish Company's right to claim and recover damages or enforce any other of
its legal and/or equitable rights or defenses.
12. Indemnification
12.01 Company shall, to the maximum extent permitted by law, indemnify
and hold Nologies harmless against expenses, including reasonable attorney's
fees, fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of Nologies' association with
Company if Nologies, in incurring the above expenses, acted in good faith and in
a manner Nologies reasonably believed to be in the best interests of the Company
and, in the case of a criminal proceeding, had no reasonable cause to believe
Nologies was unlawful.
13. Severable Provisions
13.01 The provisions of this agreement are severable and if any one or
more provisions may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions, and any partially unenforceable
provisions to the extent enforceable, shall nevertheless be binding and
enforceable.
14. Binding Agreement
14.01 This agreement shall inure to the benefit of and shall be binding
upon Company, its successors and assigns.
- 11 -
<PAGE>
15. Captions
15.01 The section captions are inserted only as a matter of convenience
and reference and in no way define, limit or describe the scope of this
agreement or the intent of any provisions hereof.
16. Entire Agreement
16.01 This agreement contains the entire agreement of the parties
relating to the subject matter hereof, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
agreement that shall be valid unless made in writing and signed by the parties
hereto.
17. Assignments
17.01 Nologies shall not have the right to assign this agreement to any
third parties, including any third party beneficiaries, without the expressed
written consent by the Company prior to such assignment.
17.02 Company shall have the right to immediately terminate this
agreement upon the unauthorized assignment by Nologies to any third parties.
17.03 Company shall have the exclusive right to assign all rights and
obligations hereunder to any third parties for any reason(s) whatsoever without
any prior approval of Nologies. However, in the event Company shall assign all
rights and
- 12 -
<PAGE>
obligations herein, Company shall give notice to Nologies of such assignment
within thirty (30) days of such assignment.
18. Governing Law
18.01 This agreement shall be governed by, and construed in accordance
with, the laws of the State of New York without regard to the conflicts or
choice of law provisions thereof, and according to its fair meaning and not in
favor of or against any party.
19. Notices
19.01 All notices by and/or between the parties as may be required
pursuant to the terms herein shall be made in writing by certified mail as
follows:
To Nologies, Inc.: 166 Old Brookfield Road, Unit 27-6
Danbury, CT 06811
To Company: 342 Madison Avenue, Suite 1034
New York, NY 10173
19.02 In the event either Nologies or Company changes their address for
the purpose of notice pursuant to the terms of this agreement, the party
effectuating such change of address shall notify, in writing, the other party
herein of any new address. Such notice must be made as soon as practicable.
20. Arbitration
20.01 Any disagreements between the parties herein shall be resolved by
arbitration under the auspices of the
- 13 -
<PAGE>
American Arbitration Association with the party bearing the adverse decision
responsible for the reasonable legal fees and expenses of such arbitration
including all costs associated with preparation for arbitration, witness fees,
filing fees and arbitrators fees.
IN WITNESS WHEREOF, the parties have executed this agreement on the day
and year first written.
RESEAL FOOD DISPENSING SYSTEM, INC.
By:/s/David Brenman
----------------
David Brenman, President
Date:______________________________
By:/s/Michael Handler
------------------
Michael Handler, President
Nologies, Inc.
Date: 3/5/96
- 14 -
Confidentiality and Non-Compete Agreement
-----------------------------------------
This Agreement is made on the ninth day of May, 1996 by and between
ReSeal Food Dispensing Systems, Inc. ("Company"), a Delaware Corporation, and
Eastgate Group ("Eastgate Group or Eastgate").
WHEREAS, Company has engaged the services of Eastgate Group and
Eastgate Group has agreed to be so engaged, Eastgate agrees to the following:
1. Eastgate Group freely agrees that, for the duration its association
with the Company, and for one (1) year thereafter, Eastgate Group will not
represent, consult, serve, or be employed by any competing enterprise directly
with the Special Patented ReSeal Valve Technology.
2. Eastgate Group agrees never to divulge any confidential information
to any third party nor make available to any third party any trade secrets,
details of closed or impending contractual relationships, designs, plans,
samples, cost data, sales prices, policy decisions, past or future.
3. Eastgate Group recognizes that the unique ReSeal Valve Technology
represents a special patented system which was not utilized by Eastgate Group in
its endeavors prior to its relationship with Company and/or its affiliated
entities. Therefore, in agreeing not to compete with Company and/or its related
affiliated companies for a period of one (1) year after the termination of its
association with Company has been
<PAGE>
terminated by either party, Eastgate Group recognizes that this will not
represent a restriction on its ability to earn a livelihood in its field of
expertise.
4. This confidentiality and non-compete agreement shall be enforceable
at law and equity and Eastgate Group recognizes that the right of the Company to
injunctive relief in the event Eastgate Group is in breach of this agreement.
5. The territory of this restrictive covenant shall encompass the
entire world and shall not be void by the extent of such restriction as Eastgate
Group agrees that the time limitation of this covenant is not overly broad.
6. Eastgate Group hereby assigns and transfers to Company its entire
right, title and interest in and to any and all inventions, copyrights,
trademarks, trade names, improvements, processes, sketches, writings, drawings,
books, papers, articles, methods of production, design, discoveries, and ideas
(whether or not shown or described in writing) whether or not patentable or
copyrightable, which are or were made, conceived or first reduced to practice by
Eastgate Group with the Company's equipment, supplies, facilities, or trade
secrets during the life of this agreement or which relates to the business of
the Company or Company's actual or anticipated research or business development
or which results from any work performed by Eastgate Group for the Company.
- 2 -
<PAGE>
7. Eastgate Group agrees that the Company shall have the right to keep
such inventions as trade secrets. To permit the Company to claim rights to which
it may be entitled, Eastgate Group agrees to promptly disclose to the Company in
confidence all related inventions which Eastgate Group makes, conceives or first
reduces to practice during the course of its association or within one year
after termination of this agreement if such inventions relate to product,
process or service upon which Eastgate Group worked during the period of its
association by the Company, and all patent or copyright publications which cover
such inventions filed by Eastgate Group within a year after termination of this
agreement.
8. Eastgate Group further agrees to assist the Company, whether during
or after termination of this agreement, in obtaining patents or copyrights on
such inventions deemed patentable or copyrightable by the Company in the United
States and in all foreign countries, and shall execute all documents and do all
things necessary to obtain letters of patent and/or copyright, to vest the
Company with full and extensive title thereto, and to protect the same against
infringement by others including, without limitation, cooperation with Company
or its representatives in any controversy, legal proceedings or the like.
Company hereby agrees to pay any and all expenses related to Company's
Intellectual Property interests including, but not limited to, legal expenses,
out of pocket expenses, and timely compensation to Eastgate Group for services
rendered if a working agreement is no longer in effect.
- 3 -
<PAGE>
9. Eastgate Group agrees that for purposes of the copyright laws of the
United States and any other country, Eastgate Group shall be deemed to be
Company's "employee-forhire", however, at no time shall Eastgate Group be deemed
an employee of the Company.
10. Eastgate Group further agrees that any related patent application
filed within a year after termination of its association with the Company or an
invention for which Eastgate Group was partially or totally responsible shall be
presumed to relate to an invention made during the term of Eastgate Group's
obligation to the Company and shall be the exclusive property of and belong to
the Company.
11. In the event the restrictive covenant is determined to be
unenforceable by any state or federal court within the United States as it is
overly restrictive, this shall not void the remaining terms of this agreement,
specifically all of the terms and conditions relating to the within provisions
of confidentiality.
12. In the event the length of time provision of the restrictive
covenant is adjudicated to be unenforceable as aforesaid hereinabove. Eastgate
Group agrees to be bound by the remaining terms of this agreement other than
that for the time duration of this restrictive covenant, but Eastgate Group
agrees
- 4 -
<PAGE>
to be bound by any new time provisions set by any Court empowered to make such
judicial decree.
RESEAL FOOD DISPENSING SYSTEMS, INC.
By:_________________________________
David Brenman, President
Date:
By:/s/Gordon Beguhn
----------------
Gordon Beguhn
Eastgate Group
Date: June 4, 1996
- 5 -
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT, dated as of October 10, 1995, by and among Hardee
Capital Partners, L.P., Louis Simpson, Gregory Abbott and George Kriste
(together, the "Hardee/Simpson/Abbott Group"), David Brenman, Gerald Gottlieb,
Marc Gottlieb, Joseph Koster, Greg Pardes, Linda Poit, ReSeal Food Dispensing
Systems, Inc. ("RFDS"), ReSeal International Limited Partnership ("RILP"),
ReSeal Technologies & Advancements, Inc. ("RT&A"), ReSeal International
Corporation ("RIC"), ReSeal Pharmaceutical Systems, Ltd. ("RPS"), Milton
Stanson, Hilda Brown, Ann Hoopes, Townsend Hoopes, Robin Smith and Eugene Sumner
(together, the "Stanson Group").
In consideration of the premises and mutual agreements herein
contained, and for other good consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
Section 1. Issuance of RFDS Stock.
(a) As inducement for RIC to agree to the transactions contemplated by
this Agreement and pursuant to that certain License Agreement, dated as of
October 10, 1995, by and between RIC and RFDS, RFDS shall issue to RIC, at the
Closing (as defined in Section 7 below), 2,900,000 shares of common stock of
RFDS.
(b) Pursuant to Section 2(a)(x) below, RFDS shall issue, at the
Closing, an aggregate of 1,500,000 shares of RFDS common stock to those persons
and in such amounts as listed on Schedule 1(b) hereto (the "H/S/A Shares").
(c) RFDS shall issue, at the Closing, an aggregate of 450,000 shares of
RFDS common stock to those persons and in such amounts as listed on Schedule
1(c) hereto.
Section 2. Conversions by the Hardee/Simpson/Abbott Group.
(a) At the Closing, the Hardee/Simpson/Abbott Group shall (i) return,
or cause to be returned, to RIC those certain promissory notes issued by RIC and
listed on Schedule 2(a) hereto, (ii) relinquish any possible claim for
reimbursement of any and all expenses incurred by them, relating to their
dealings with RILP, RT&A, RIC, RPS, ReSeal Temptronics Dispensing Systems, Inc.,
ReSeal Food & Beverage Systems, Inc. and RFDS, and (iii) surrender, or cause to
be surrendered, all of the RILP partnership interests of the members of the
Hardee/Simpson/ Abbott Group, in exchange for (x) the H/S/A Shares, (y) a
three-year $250,000 promissory note issued by RIC to Gregory Abbott in
substantially the form attached hereto as Exhibit A (the "$250,000 RIC Note"),
and (z) a three-year $750,000 promissory
<PAGE>
note issued by RIC to Gregory Abbott in substantially the form attached hereto
as Exhibit B (the "$750,000 RIC Note").
(b) The holders of the shares of stock being issued under Section
2(a)(x) above (i) shall be entitled to register and sell 25% of such shares
commencing on the date one year from the date of the initial public offering of
RFDS common stock (the "RFDS IPO") and (ii) if RFDS files a subsequent
registration statement after the RFDS IPO other than the registration statement
referred to in Section 2(b)(i), shall be entitled to register and sell an
additional 25% of the H/S/A Shares in such subsequent offering.
(c) The $250,000 RIC Note shall have a mandatory prepayment provision
requiring payment of the principal out of the initial licensing fees that RIC
shall receive from the private placement of securities in RFDS (the "RFDS
Private Placement").
(d) The $750,000 RIC Note shall have a mandatory prepayment provision
requiring payment of the principal out of licensing fees that RIC shall receive
from RFDS upon completion of the RFDS IPO.
Section 3. Directors of RFDS.
(a) At the time of the Closing, the Board of Directors of RFDS shall
consist of John Silverman, Joseph Koster, David Brenman and two nominees of the
Hardee/Simpson/Abbott Group (i.e., Gregory Abbott and George Kriste).
(b) Each of the parties hereto agree that (i) none of Gerald Gottlieb,
Greg Pardes and Linda Poit shall be on the Board of Directors of RFDS, and (ii)
none of David Hardee, Louis Simpson, Gregory Abbott, Milton Stanson, Hilda
Brown, Ann Hoopes, Townsend Hoopes, Robin Smith, Eugene Sumner and George Kriste
shall be on any of the Boards of Directors of (x) any general partner of RILP,
(y) RIC or (z) RPS.
(c) Subject to the availability of commercially reasonable terms and
its business needs, RFDS shall purchase directors and officers insurance for its
directors and officers.
Section 4. Settlement of Stanson Lawsuit.
(a) At the Closing, the Stanson Group shall (i) relinquish all of their
partnership units in RILP, and (ii) dismiss their lawsuit in the Supreme Court
of the State of New York, County of New York (Index No. 130623/94) against the
parties listed on Schedule 4(a) hereto (the "Stanson Defendants"), with
prejudice.
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<PAGE>
(b) Prior to the Closing, the Stanson Group shall, if necessary, seek
(with the Stanson Defendants) the court's approval of all aspects of this
settlement and dismissal of such lawsuit.
Section 5. General Releases.
(a) Each of the members of the Stanson Group, for their respective
selves, affiliates, heirs, assigns and successors, hereby absolutely, fully and
forever releases, waives, relinquishes and discharges, simultaneously with the
Closing, each of the other parties hereto and their respective affiliates,
agents, heirs, assigns and successors from any and all claims whatsoever which
any of such parties may have had, presently have or in the future may have
against the other parties which arise, have arisen or may hereinafter arise in
whole or in part out of or on account of any matter or thing whatsoever
occurring on or before the date hereof, whether known or unknown and if unknown,
whether or not the unknown matter would have been material to the releasing
party's decision to enter into this Settlement Agreement; provided, however,
that the released claims shall not include any claim to enforce the provisions
of this Settlement Agreement.
(b) Each of the members of the Hardee/Simpson/Abbott Group, for their
respective selves, affiliates, heirs, assigns and successors, hereby absolutely,
fully and forever releases, waives, relinquishes and discharges, simultaneously
with the Closing, each of the other parties hereto and their respective
affiliates, agents, heirs, assigns and successors from any and all claims
whatsoever which any of such parties may have had, presently have or in the
future may have against the other parties which arise, have arisen or may
hereinafter arise in whole or in part out of or on account of any matter or
thing whatsoever occurring on or before the date hereof, whether known or
unknown and if unknown, whether or not the unknown matter would have been
material to the releasing party's decision to enter into this Settlement
Agreement; provided, however, that the released claims shall not include any
claim to enforce the provisions of this Settlement Agreement; and provided
further, that if the payment under Section 2(c) is not promptly made following
the Closing, the release between the Hardee/Simpson/ Abbott Group, on the one
hand, and David Brenman, Gerald Gottlieb, Marc Gottlieb, Greg Pardes, Linda
Poit, RILP, RT&A, RIC, RPS and RFDS, on the other hand, shall be null and void.
(c) Except as provided in the second proviso of Section 5(b) above,
each of David Brenman, Gerald Gottlieb, Marc Gottlieb, Joseph Koster, Greg
Pardes & Linda Poit, for their respective selves, affiliates, heirs, assigns and
successors, hereby absolutely, fully and forever releases, waives, relinquishes
and discharges, simultaneously with the Closing, each of the other individuals
hereto and their respective affiliates, agents, heirs, assigns and successors
from any and
-3-
<PAGE>
all claims whatsoever which any of such parties may have had, presently have or
in the future may have against the other individuals which arise, have arisen or
may hereinafter arise in whole or in part out of or on account of any matter or
thing whatsoever occurring on or before the date hereof, whether known or
unknown and if unknown, whether or not the unknown matter would have been
material to the releasing party's decision to enter into this Settlement
Agreement; provided, however, that the released claims shall not include any
claim to enforce the provisions of this Settlement Agreement; and provided
further, that the release under this Section 5(c) does not waive any right of
the individuals listed in this Section 5(c) to receive past compensation,
expenses or other reimbursement due to them from RFDS, RILP, RT&A, RIC or RPS.
Section 6. Approvals/Ratifications by Boards of Directors. The Board of
Directors of each of RT&A, RIC, RPS and RFDS shall approve and/or ratify all
terms of this Settlement Agreement.
Section 7. The Closing. Subject to the satisfaction or waiver of each
of the conditions set forth herein, the consummation of the transactions
contemplated hereby shall take place at a closing (the "Closing") at the offices
of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York,
New York, on October 24, 1995 (the "Closing Date") or at such other place and
time mutually agreed by the parties hereto.
Section 8. Waiver and Amendment. This Settlement Agreement and the
exhibits hereto may not be changed, waived, terminated or discharged orally, but
only by an instrument in writing signed by the party against which enforcement
of the change, waiver, termination or discharge is sought. No delay or omission
by any party hereto to exercise any right under this Settlement Agreement shall
impair any such right, nor shall it be construed as a waiver thereof.
Section 9. Governing Law. This Agreement and the rights and duties of
the parties hereto shall be construed and determined in accordance with the laws
of the State of New York, without regard to principles of conflicts of law.
Section 10. Further Assurances. The parties hereto shall execute and
deliver such further documents and do such further acts as any party hereto
shall reasonably require in order to assure and confirm to the parties hereto
the rights hereby created or to facilitate the full performance of the terms of
this Settlement Agreement and the exhibits hereto.
Section 11. Successors and Assigns. This Settlement Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
-4-
<PAGE>
Section 12. Headings. The descriptive headings of the various sections
or parts of this Settlement Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
Section 13. Notices. To be validly given, all notices, requests,
consents and other communications under this Settlement Agreement and the
exhibits hereto shall be in writing and shall either be sent (postage prepaid)
by first class registered or certified mail or by a nationally-recognized
overnight courier service, transmitted by facsimile or telex (with confirmed
receipt) or delivered personally:
(a) if to the Hardee/Simpson/Abbott Group, to Gregory Abbott at 1200
Kessler Drive, Aspen, Colorado 81611, telecopier: (970) 925-5080;
(b) if to the Stanson Group, to Milton Stanson at 24 Fifth Avenue,
Suite 1515, New York, New York 10011, telecopier: (212) 228-7276; and
(c) if to David Brenman, Gerald Gottlieb, Marc Gottlieb, Joseph Koster,
Greg Pardes, Linda Poit, RILP, RT&A, RPS or RFDS, to Joseph Koster at the ReSeal
Companies, 342 Madison Avenue, Suite 1034, New York, New York 10173, telecopier:
(212) 682-4720.
Section 14. Entire Agreement. This Settlement Agreement and the
exhibits hereto constitute the entire agreement among the parties hereto
relating to the subject hereof.
Section 15. Illegality. The illegality or unenforceability of any
provisions of this Settlement Agreement, the exhibits hereto or any instrument
or agreement required hereunder or thereunder shall not in any way affect or
impair the legality or enforceability of the remaining provisions hereof or
thereof. In lieu of any illegal or unenforceable provision hereof or thereof,
the parties hereto agree to the substitution of a legal or enforceable provision
as similar in terms to such illegal or unenforceable provision as may be
possible.
Section 16. Counterparts; Facsimile Transmission. This Settlement
Agreement may be executed in as many counterparts as may be deemed necessary or
convenient, and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed an original, but all of which such
counterparts shall constitute but one and the same agreement. This Agreement and
any executed signature pages hereto may be delivered by any party hereto by
facsimile transmission with the same effect as if delivered by such person to
all other parties hereto in person. All original executed signature pages sent
by facsimile shall also be sent by mail.
-5-
<PAGE>
Section 17. Consent to Jurisdiction; Jury Waiver.
(a) Each party hereto hereby irrevocably submits to the personal
jurisdiction of any New York or Federal court sitting in the County of New York
in the State of New York in any action or proceeding arising out of or relating
to this Settlement Agreement, and each party hereby irrevocably agrees that all
claims and counterclaims in respect of such action or proceeding may be heard
and determined in such New York State court or in such Federal court. Each party
hereto hereby irrevocably waives, to the fullest extent it may effectively do
so, the defenses of improper venue or an inconvenient forum to the maintenance
of such action or proceeding. Each party hereto agrees that a final
non-appealable judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(b) Nothing in this Section 17 shall affect the right of any party to
serve legal process in any other manner permitted by law or affect the right of
any party to bring any action or proceeding against any other party or its
property in the courts of any other jurisdictions.
(c) Each party hereto hereby irrevocably waives any and all rights to
trial by jury of any claim, counterclaim or defense arising out of or relating
to this Settlement Agreement.
[SIGNATURES TO FOLLOW ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Settlement
Agreement to be executed as of the date first written above.
/s/Gregory Abbott
--------------------------------
Gregory Abbott
Hardee Capital Partners, L.P.
By:/s/David Hardee
---------------
David Hardee, General Partner
/s/Townsend Hoopes
--------------------------------
Townsend Hoopes
/s/George Kriste
--------------------------------
George Kriste
/s/Louis Simpson
--------------------------------
Louis Simpson
/s/David Brenman
--------------------------------
David Brenman
/s/Gerald Gottlieb
--------------------------------
Gerald Gottlieb
--------------------------------
Marc Gottlieb
/s/Joseph Koster
--------------------------------
Joseph Koster
/s/Greg Pardes
--------------------------------
Greg Pardes
/s/Linda Poit
--------------------------------
Linda Poit
ReSeal International Limited
Partnership
By:/s/ Greg Pardes
---------------
Name: Greg Pardes
Title: Chairman of Reseal
Techologies &
Advancements, Inc.,
its General Partner
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<PAGE>
ReSeal Technologies & Advancements, Inc.
By: /s/ Greg Pardes
----------------
Name: Greg Pardes
Title: Chairman
ReSeal International Corporation
By: /s/ Greg Pardes
----------------
Name: Greg Pardes
Title: President
ReSeal Pharmaceutical Systems, Ltd.
By: /s/ Greg Pardes
----------------
Name: Greg Pardes
Title: Chairman
ReSeal Food Dispensing
Systems, Inc.
By: /s/ Greg Pardes
----------------
Name: Greg Pardes
Title: President
--------------------------------
Milton Stanson
--------------------------------
Hilda Brown
--------------------------------
Ann Hoopes
--------------------------------
Robin Smith
--------------------------------
Eugene Sumner
-8-
<PAGE>
Schedule 1(b)
List of Shareholders
--------------------
Name Number of Shares
- ---- ----------------
David Hardee 324,000
Louis Simpson 324,000
Gregory Abbott 422,000
George Kriste 130,000
Milton Stanson 105,000
Eugene Sumner 80,000
Townsend Hoopes 65,000
Hilda Brown 30,000
Robin Smith 20,000
---------
Total 1,500,000
<PAGE>
Schedule 1(c)
List of Shareholders
--------------------
Name Number of Shares
- ---- ----------------
ReSeal Technologies & Advancements, Inc. 75,000
Gerald Gottlieb 75,000
Joseph Koster 58,000
Linda Poit 46,000
David Brenman 53,000
Pamela Reed 28,000
Michael Secondo 26,000
Michael Healy 14,000
John Silverman 50,000
Bernard Gerber 25,000
------
Total 450,000
<PAGE>
Schedule 2(a)
List of Notes
-------------
Payee Date Amount
- ----- ---- ------
Hardee Capital Partners, L.P. 2/28/94 $1,500,000
Louis A. Simpson 2/28/94 1,500,000
---------
Total $3,000,000
<PAGE>
Schedule 4(a)
List of Stanson Defendants
--------------------------
ReSeal International Limited Partnership
ReSeal Technologies and Advancements, Inc.
Greg P. Pardes
Linda Poit
David Brenman
Gerald Gottlieb
Marc Gottlieb
John Doe # 500
SETTLEMENT AGREEMENT
--------------------
Settlement Agreement, dated as of May 8, 1996, by and among (i) Banco
Inversion, S.A. and Administratadora General de Patrimonios, S.A., corporations
duly organized under the laws of Spain (together, "Banco"), (ii) ReSeal
Pharmaceutical Systems, Ltd., a corporation duly organized under the laws of
Hong Kong ("RPS"), ReSeal International Corporation, a corporation duly
organized under the laws of the State of Florida ("RIC"), ReSeal International
Limited Partnership, a limited partnership duly organized under the laws of the
State of Delaware, Greg P. Pardes, Lawrence B. Pentoney, Joseph D. Blau, Bernard
Gerber, George DeBush, Michael Secondo, Linda Poit, Samuel Tucker, and
Chungliang Al Huang (together, "ReSeal"), and (iii) Rainer Greeven ("Greeven").
Recitals
--------
Whereas, Banco purchased 28,000 shares of RPS (the "RPS Shares") for a
total purchase price of $2,962,400 in or about December 1991;
Whereas, an action was brought in the United States District Court for
the Southern District of New York (the "Court"), titled Banco Inversion, S.A.,
et ano v. ReSeal Pharmaceutical Systems, Inc., et al., 92 Civ. 8973 (DLC) (the
"Litigation") in which Banco has alleged, among other things, that the sale of
the RPS Shares was made in violation of Federal securities laws;
Whereas, the parties hereto wish to avoid the costs and uncertainty of
further litigation and to settle all of the claims asserted in the Litigation
(the "Claims"); and
Whereas, the Court, having been informed by the parties of an impending
settlement of the Litigation, ordered that the Litigation be dismissed without
prejudice on or about January 11, 1996 (the "Order"), which dismissal shall
remain binding so long as none of the parties request that the Litigation be
reinstated within sixty (60) days of entry of the Order, which time has been
extended by the Court.
Now, therefore, in consideration of the mutual covenants set forth in
this Settlement Agreement, the parties hereto agree as follows:
1. Execution of Documents. Simultaneously with the execution of this
Settlement Agreement:
(a) The parties hereto, by their respective attorneys, shall execute a
Stipulation discontinuing the Litigation substantially in the form of that
appended hereto as Exhibit A;
<PAGE>
(b) Banco, on the one hand, and Reseal and Greeven, on the other hand,
shall execute mutual general releases substantially in the form of that appended
hereto as Exhibit B (to the extent such releases are unable to be signed
simultaneously herewith, they shall be signed as soon as practicable
thereafter);
(c) The parties hereto, by their respective attorneys, shall execute
and deliver to one another counterpart originals of a Tolling Agreement
substantially in the form of that appended hereto as Exhibit C (the "Tolling
Agreement");
(d) Banco shall execute and deliver to ReSeal Food Dispensing Systems,
Inc. ("Dispensing") the Registration Rights Agreement substantially in the form
of that appended hereto as Exhibit D (the "Registration Rights Agreement"); and
(e) Banco will surrender to the attorneys for ReSeal all share
certificates representing the RPS Shares and any other shares in RPS owned by
Banco, and will receive from RIC share certificates (issued in denominations and
to the holders designated by Banco) representing an aggregate of 300,000 shares
of common stock (the "Common Stock") of Dispensing (the "Dispensing Shares").
2. Release of Documents. The Stipulation referenced in paragraph 1(a)
shall remain in escrow with the attorneys for Banco and the releases referenced
in paragraph 1(b) shall remain in escrow with the attorneys for the executing
party until the Release Date (as hereinafter defined). On the Release Date, the
attorneys for Banco shall deliver the Stipulation to the attorneys for ReSeal,
and the attorneys for the releasing parties shall deliver the releases to the
attorneys for the released parties.
3. Payment of Funds. (a) Promptly following the execution hereof, Banco
shall receive from RIC $50,000; and
(b) Upon the closing of the initial public offering of Common Stock of
Dispensing (the "Public Offering"), Banco shall receive from RIC $150,000 out of
the funds raised by Dispensing in the Public Offering.
4. Stock Adjustments. (a) Precisely thirty months from the first day
that shares of Common Stock of Dispensing are publicly traded (or, if such day
falls on a weekend, holiday or other day in which there is no public trading,
then the next day in which there is such public trading) (the "Review Day"),
Banco and Dispensing shall calculate the aggregate value of the Dispensing
Shares (the "Aggregate Value"), as determined by multiplying the number of
Dispensing Shares by the average Market Price (as defined below) of the thirty
(30) day period ending on the day before the Review Day. If the Aggregate Value
on the Review Day is less than $2,800,000 then, on the Release Date,
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<PAGE>
Banco (or its designated nominee) shall receive from RIC, subject to Sections
4(b) and 4(c) hereof, additional authorized and registered shares of Common
Stock of Dispensing (the "Additional Shares") such that the total value of the
Dispensing Shares and the Additional Shares, determined by using the average
Market Price calculated in the preceding sentence, shall be equal to, but in no
event be more than, $2,800,000. The Release Date shall be on or before the third
(3rd) business day following the Review Date.
(b) The number of Additional Shares shall be subject to adjustment from
time to time as follows:
(i) If at any time after the date hereof, the total number of
outstanding shares of Common Stock shall change due to stock splits,
stock dividends, combinations, reclassifications and reorganizations or
similar events affecting the Common Stock as a whole, the number of
Additional Shares shall be adjusted accordingly.
(ii) If at any time after the date hereof, Dispensing shall
issue any shares of Common Stock to its employees or affiliates for a
consideration per share on the date of issuance less than the Market
Price on such date, then the number of Additional Shares shall be
adjusted to that number determined by multiplying the number of
Additional Shares by a fraction:
(x) the numerator of which shall be the number of
shares of Common Stock outstanding, on a fully-diluted basis,
immediately prior to the issuance of such shares (the "Then
Outstanding Shares") plus the number of shares of Common Stock
so issued; and
(y) the denominator of which shall be the Then
Outstanding Shares plus the number of shares of Common Stock
which the aggregate consideration for the total number of such
shares of Common Stock so issued would purchase at such Market
Price.
(iii) If at any time after the date hereof, Dispensing shall
issue or sell to its employees or affiliates any warrants, options or
other rights entitling the holders thereof to subscribe for or purchase
shares of Common Stock (collectively, "Options"), and the consideration
per share for which shares of Common Stock may at any time thereafter
be issuable pursuant to such Options (when added to the consideration
per share of Common Stock, if any, received for such Options) shall be
less than the Market Price on the date of such issuance or sale, then
the number of Additional Shares shall be adjusted for such options in
the same manner as provided in Section 4(b)(ii).
-3-
<PAGE>
(iv) No adjustment of the Additional Shares shall be made
under Section 4(b)(ii) upon the issuance of any shares of Common Stock
which are issued pursuant to the exercise of any Options if such
adjustment shall previously have been made upon the issuance of such
Options pursuant to Section 4(b)(iii).
(v) Anything herein to the contrary notwithstanding, no
adjustment in the number of Additional Shares shall be required unless
the number of shares of Common Stock included in the issuance of Common
Stock referenced Section 4(b)(ii) or the issuance of Options referenced
in Section 4(b)(iii), either by itself or with other issuances not
previously adjusted for, equals five (5%) percent of the Then
Outstanding Shares; provided, however, that any adjustment which by
reason of this Section 4(b)(v) is not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(c) Notwithstanding anything to the contrary contained herein, the
aggregate number of Dispensing Shares and Additional Shares, prior to taking
into account any stock adjustments described in Section 4(b), shall not exceed
600,000 shares of Common Stock.
(d) The Market Price of a share of Common Stock on a specified date
shall be determined as follows: in case the shares of Common Stock are listed or
admitted to trading on a national securities exchange, the last reported sales
price on such date or, if not listed or admitted to trading on any national
securities exchange, the closing bid price on such date.
5. Representations of RIC. RIC hereby represents and warrants as of the
date hereof that:
(a) Title to Shares. Upon receipt of the Dispensing Shares and the
Additional Shares, Banco will acquire good and marketable title to such shares,
free and clear of all liens or encumbrances, except such restrictions on
transfer, if any, as may be imposed by federal or state securities laws.
(b) Compliance with Securities Laws. The Dispensing Shares and the
Additional Shares will be issued to Banco in full compliance with all applicable
federal and state securities laws and regulations.
6. Confidentiality. The terms of this Settlement Agreement, including
without limitation the amount of money to be paid to Banco pursuant to Section 3
above, shall be kept confidential and shall not be disclosed to any other person
or entity, with the following exceptions: (1) disclosures by the parties to
their attorneys, accountants, officers, directors, insurers and such employees
necessary to implement the terms of
-4-
<PAGE>
this Settlement Agreement; and (2) disclosures required by law and to any
federal, state or local instrumentality of government which requires such
disclosure (including disclosure in the registration statement relating to the
Public Offering). In any action to enforce this Section 6, the prevailing party
shall be entitled to seek all remedies permitted under law and shall be entitled
to recover its reasonable attorneys' fees incurred in the enforcement
proceedings.
7. No Admission of Liability. This Settlement Agreement does not
constitute or evidence an admission of liability or any wrongdoing by any of the
parties hereto.
8. Termination. This Settlement Agreement shall terminate and be of no
further force or effect on (a) June 30, 1996, unless a registration statement
relating to the Public Offering has been filed with the Securities and Exchange
Commission prior thereto, or (b) September 30, 1996, unless a registration
statement relating to the Public Offering is declared effective prior to such
date. In the event of such termination, Banco may reinstitute the Litigation
against ReSeal and Greeven, subject to the Tolling Agreement, by refiling the
Complaint in the Court and notifying the undersigned counsel for ReSeal and
Greeven, by facsimile and certified mail return receipt requested, that it has
taken such action. Notwithstanding the first sentence of this Section 8, this
Settlement Agreement shall not terminate, and the dates listed in such sentence
shall be extended, if Dispensing is able to show to Banco that Dispensing is
proceeding in good faith.
9. Successors and Assigns. This Settlement Agreement shall bind and
inure to the benefit of each of the parties and their respective successors and
assigns. Other than Banco, no party hereto may assign any of its rights or
liabilities under this Settlement Agreement without the express written consent
of Banco.
10. Miscellaneous. (a) This Settlement Agreement and the Exhibits
hereto constitute the entire agreement of the parties hereto and may not be
modified except in a writing signed by all of the parties hereto (or the
attorneys representing such parties).
(b) This Settlement Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same original.
(c) Each of the attorneys signing this Settlement Agreement represents
that he has the authority to execute this Settlement Agreement on behalf of the
party for whom executed.
(d) This Settlement Agreement and the Exhibits hereto shall be governed
by the internal laws of the State of New York
-5-
<PAGE>
without reference to conflicts of laws principles. Any action or proceeding
brought to enforce this Settlement Agreement or in which any of the parties
alleges a breach of this Settlement Agreement shall be brought in the United
States District Court for the Southern District of New York. If said court does
not have subject matter jurisdiction, any such action or proceeding shall be
brought in the Supreme Court of the State of New York for the County of New
York. The parties hereto expressly and irrevocably consent to the personal
jurisdiction of either such court in any such action or proceeding. The parties
hereto further expressly acknowledge and agree that either such court shall have
the exclusive jurisdiction to adjudicate any action or proceeding brought to
enforce this Settlement Agreement or in which any of such parties alleges a
breach of this Settlement Agreement, and that no other court in any state or
country shall have the jurisdiction to adjudicate any such action or proceeding.
Further, the parties hereto expressly and irrevocably waive any claim or defense
in such action or proceeding based upon lack of personal jurisdiction, forum non
conveniens, or improper venue.
(e) The obligations set forth in this Settlement Agreement are
obligations of the parties hereto only and not of their respective attorneys,
who are executing this Settlement Agreement on the parties' behalf solely in
their representative capacities.
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IN WITNESS WHEREOF, the undersigned have caused this Settlement
Agreement to be duly executed as of the date first written above.
BAKER & McKENZIE KRAMER, LEVIN, NAFTALIS
& FRANKEL
/s/Robert B. Davidson /s/Arthur H. Aufses III
- ----------------------- ----------------------------
By: Robert B. Davidson By: Arthur H. Aufses III
Attorneys for Banco Attorneys for Reseal
805 Third Avenue 919 Third Avenue
New York, New York 10022 New York, New York 10022
Telephone: (212) 751-5700 Telephone: (212) 715-9100
GREEVEN & ERCKLENTZ
/s/Rainer Greeven
- --------------------------
By: Rainer Greeven
Attorneys for Greeven
630 Fifth Avenue
New York, New York 10111
Telephone: (212) 957-3030
-7-
RESEAL FOOD DISPENSING SYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Period Ended Three Months Ended
December 31, March 31,
1995 1996
------ -----
Historical Earnings Per Share
Net Loss $ 173,557 $ 209,025
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 $ 0.03
(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 $3.50 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 $3.50.
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 Form SB-2.
Arthur Andersen LLP
New York, New York
July 10, 1996
