AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1996
REGISTRATION NO. 333-7915
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
INTERNATIONAL DISPENSING CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
3039
(PRIMARY STANDARD
INDUSTRIAL CLASSIFICATION CODE NUMBER)
13-3856324
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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
INTERNATIONAL DISPENSING CORPORATION
342 MADISON AVENUE
SUITE 1034
NEW YORK, NEW YORK 10173
(212) 682-2244
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
SCOTT S. ROSENBLUM, ESQ. STEVEN F. WASSERMAN, ESQ.
KRAMER, LEVIN, NAFTALIS BERNSTEIN & WASSERMAN, LLP
& FRANKEL 950 THIRD AVENUE
919 THIRD AVENUE NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 826-0730
(212) 715-9100
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| __________________
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Proposed
Maximum Proposed
Offering Maximum Amount of
Title of Each Class of Securities to be Amount To Be Price Per Aggregate Registration
Registered (1) Registered Unit (2) Offering Price (2) Fee
- --------------------------------------------------------------------------------------------------------------------------------
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
<S> <C> <C> <C> <C>
Warrants")....................................... 833,334 $12.00 $10,000,008.00 $3,448.28
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock included as part of the Units....... 1,666,668 -- -- (3)
- --------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included as part of the Units... 1,666,668 -- -- (3)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the
Class A Warrants included in the Units........... 1,666,668 $7.00 $11,666,676 .00 $4,022.99
- --------------------------------------------------------------------------------------------------------------------------------
Underwriter's Unit Purchase Option............... 83,333 $.001 $83 .33 $.03
- --------------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the Underwriter's
Unit Purchase Option............................. 83,333 $19.80 $1,649,993.40 $568.96
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock included in the Units issuable
upon exercise of the Underwriter's Unit Purchase
Option........................................... 166,666 -- -- (3)
- --------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the Units issuable
upon exercise of the Underwriter's Unit Purchase
Option........................................... 166,666 -- -- (3)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Class A Warrants included in the
Units issuable upon exercise of the Underwriter's Unit Purchase
Option........................................... 166,666 $11.55 $1,924,992.30 $663.79
- --------------------------------------------------------------------------------------------------------------------------------
Bridge Units, consisting of two shares of
Common Stock and two Class A Warrants 787,500 $12.00 $9,450,000 .00 $3,258.62
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock included as part of the Bridge
Units 1,575,000 -- -- (3)
- --------------------------------------------------------------------------------------------------------------------------------
Class A Warrants included as part of the Bridge
Units 1,575,000 -- -- (3)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Class A Warrants included in the
Bridge Units issuable upon exercise of the Bridgeholder
Options 1,575,000 $7 .00 $11,025,000.00 $3,801.72
- --------------------------------------------------------------------------------------------------------------------------------
$15,764.39
Total........................................................................................................ (4)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------
</TABLE>
(1) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), this Registration Statement also covers
such indeterminable additional shares of Common Stock as may be issuable as
a result of any future anti-dilution adjustments made in accordance with
the terms of the Class A Warrants included in the Units and the
Underwriter's Unit Purchase Option Units.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 promulgated under the Securities Act.
(3) No separate registration fee required pursuant to Rule 457(i) promulgated
under the Securities Act.
(4) An aggregate of $15,027.77 has previously been paid with the initial filing
of the Registration Statement on July 10, 1996 and the filing of Amendment
No. 1 to the Registration Statement on August 30, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- ii -
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
CROSS-REFERENCE SHEET
(SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2)
REGISTRATION STATEMENT ITEM CAPTION IN PROSPECTUS
<TABLE>
<S> <C> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus.......................... Facing Page; Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Prospectus Cover Page; Prospectus Back Cover
Page
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Risk Factors; Underwriting
6. Dilution............................................. Dilution
7. Selling Security-Holders............................. Selling Securityholders
8. Plan of Distribution................................. Prospectus Cover Page; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and
Control Persons.................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management.............................. Principal Stockholders
12. Description of Securities............................ Description of Capital Stock
13. Interest of Named Experts and Counsel................ Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities.................................... Management
15. Organization Within Five Years....................... Prospectus Summary; Business
16. Description of Business.............................. Business
17. Management's Discussion and Analysis or
Plan of Operation.................................. Management's Discussion and Analysis of
Results of Operations and Financial Condition
18. Description of Property.............................. Business
19. Certain Relations and Related
Transactions....................................... Certain Relationships and Related Transactions
20. Market for Common Equity and Related
Stockholder Matters................................ Description of Capital Stock
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure............................... Not applicable
</TABLE>
- iii -
<PAGE>
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 SEPTEMBER 18, 1996
PROSPECTUS
INTERNATIONAL DISPENSING CORPORATION
1,620,834 UNITS
International Dispensing Corporation (the "Company") is offering (the
"Offering") 833,334 Units (the "Company Units") on a "best efforts, all-or-none"
basis at a price of $12.00 per Unit. Each Company Unit consists of two shares of
common stock, par value $0.001 per share, of the Company (the "Common Stock")
and two redeemable class A warrants (the "Class A Warrants"). Pending the sale
of all of the Company Units, all proceeds will be held in an escrow account. If
the Company Units are not sold within 90 days from the date of this Prospectus
(the "Effective Date"), which period (the "Offering Period") may be extended an
additional 30 days by mutual agreement of the Company and Stratton Oakmont, Inc.
(the "Underwriter"), all monies received will be promptly refunded to
subscribers in full without interest thereon.
This Offering also includes 787,500 Units (the "Bridge Units," and
together with the Company Units, the "Units") owned and offered by sixteen
non-affiliates of the Company (collectively, the "Selling Securityholders"). The
Bridge Units consist of an aggregate of 1,575,000 shares of Common Stock and
1,575,000 Class A Warrants. The Company will not receive any of the proceeds
from the sale of the Bridge Units by the Selling Securityholders. See
"Description of Capital Stock," "Selling Securityholders" and "Underwriting."
The Common Stock and the Class A Warrants underlying the Units are
detachable and may trade separately immediately upon issuance. The Class A
Warrants will be exercisable commencing one year after the Effective Date. Each
Class A Warrant entitles the holder thereof to purchase one share of Common
Stock at $7.00 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 National Association of Securities Dealers, Inc.
(the "NASD") OTC Bulletin Board equals or exceeds $8.00 per share for any 20
consecutive trading days ending within 10 days of the notice of redemption. Upon
30 days' prior written notice to all holders of the Class A Warrants, the
Company shall have the right to reduce the exercise price and/or extend the term
of the Class A Warrants in compliance with the requirements of Rule 13e-4 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the
extent applicable. See "Description of Capital Stock."
The Selling Securityholders have agreed not to sell or transfer the
Bridge Units and its underlying securities (the "Bridge Securities") for a
period of 13 months from the Effective Date without the prior written consent of
the Underwriter. The Underwriter may release the Bridge Securities held by the
Selling Securityholders at any time after the Company Units have been sold. The
resale of the Bridge Securities is subject to prospectus delivery and other
requirements of the Securities Act of 1933, as amended (the "Securities Act").
If the Underwriter releases the Selling Securityholders' Bridge Securities
(which has happened in previous offerings underwritten by the Underwriter), then
sales of the Bridge Securities, as well as the potential of such sales at any
time, may have an adverse effect on the market prices of the securities offered
hereby. See "Selling Securityholders" and "Underwriting."
Prior to this Offering, there has been no public market for the
securities of the Company and there is no assurance that a market will develop
or, if a market should develop, that it will continue. See "Risk Factors--No
Prior Public Market for Securities." It is currently anticipated that the
initial public offering price will be $12.00 per Unit and $6.00 per share of
Common Stock. The price of the securities and the exercise price of the Class A
Warrants have been determined by negotiations between the Company and the
Underwriter and do not necessarily bear any relationship to the Company's
assets, book value, net worth or results of
<PAGE>
operations or any other established criteria of value. See "Risk
Factors--Arbitrary Offering Price" and "Under- writing."
The Company intends to apply for the inclusion of the Units, the Class
A Warrants and the Common Stock (collectively, the "Securities") on the OTC
Bulletin Board, an unorganized, inter-dealer, over-the-counter market which
provides significantly less liquidity than The Nasdaq Stock Market ("Nasdaq"),
and quotes for stocks included on the OTC Bulletin Board are not listed in the
financial sections of newspapers as are those for Nasdaq. In the event the
Securities are not included on the OTC Bulletin Board, quotes for the Securities
may be included in the "pink sheets" for the over-the-counter market. See "Risk
Factors--No Prior Public Market for Securities."
The Underwriter, from time to time, will become a market maker and
otherwise effect transactions in the securities of this Offering. The
Underwriter, if it participates in the market, may become an influence and
thereafter a factor of increasing importance in the market for the securities.
However, there is no assurance that the Underwriter will or will not continue to
be a dominating influence. The prices and liquidity of the Units, Common Stock
and Class A Warrants may be significantly affected by the degree, if any, of the
Underwriter's participation in such market as a market maker. The Underwriter
may discontinue such market making activities at any time or from time to time.
On February 28, 1995, the Underwriter became subject to a court-imposed
permanent injunction to comply with certain procedures recommended by an
independent consultant arising out of the settlement of a Securities and
Exchange Commission (the "Commission") proceeding. The failure by the
Underwriter to comply with such permanent injunction may adversely affect the
Underwriter's activities in that the court may issue a further order restricting
the ability of the Underwriter to act as a market maker of the Company's
securities. See "Risk Factors--Litigation Involvement of Underwriter May Have
Adverse Consequences."
-------------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON
STOCK INCLUDED IN THE UNITS AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 AND "DILUTION."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SECURITYHOLDERS (3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Unit Offered by the Company(4)......... $12.00 $1.02 $10.98 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Per Unit Offered by Selling Securityholders $12.00 $ -- $ -- $12.00
- ----------------------------------------------------------------------------------------------------------------------------------
Total............................. $850,000.68 $9,150,007.30 $9,450,000.00
$19,450,008.00
==================================================================================================================================
</TABLE>
(Footnotes on next page)
The Units are being offered by the Underwriter when, as, and if
delivered to and accepted by the Underwriter and subject to various prior
conditions, including the right to reject orders in whole or in part. It is
expected that delivery of the Units will be made upon transfer of the funds in
escrow by the escrow agent to the Company's account.
-------------------------
STRATTON OAKMONT, INC.
The date of this Prospectus is ________, 1996
- 2 -
<PAGE>
- ----------------
(Footnotes from previous page)
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a 3% non-accountable expense allowance, (ii) an option
(exercisable for a period of four years commencing one year after the
Effective Date) entitling the Underwriter to purchase up to an aggregate of
83,333 Units at an exercise price of $19.80 per Unit (the "Underwriter's
Unit Purchase Option"), (iii) in certain instances, a warrant solicitation
fee equal to 4% of the exercise price of the Class A Warrants, beginning
one year from the Effective Date, and (iv) a finder's fee to the
Underwriter, based on a formula that provides a maximum fee of five
percent, in connection with financing and/or merger and acquisition
activities of the Company. The Company has agreed to permit the Underwriter
to designate an individual as an observer to the Company's Board of
Directors for a period of three years commencing on the Effective Date. In
addition, the Company and the Underwriter have agreed to certain indemnity
and contribution arrangements regarding certain civil liabilities,
including liabilities under the Securities Act. See "Underwriting."
(2) Before deducting expenses of this Offering payable by the Company,
estimated at $420,000, not including the Underwriter's non- accountable
expense allowance. See "Underwriting."
(3) The Company will not receive any of the proceeds from the sale of Bridge
Units offered by the Selling Securityholders. See "Selling
Securityholders."
(4) The 833,334 Company Units are being offered on a "best efforts,
all-or-none" basis. There is no assurance that any or all of these Company
Units will be sold. Pending the sale of all of the Company Units, all
proceeds of the Offering will be deposited in escrow in a non-interest
bearing account. Unless all of the Company Units are sold within a period
of 90 days from the date of this Prospectus, or a 30 day extension period
thereafter at the option of the Company and the Underwriter, the Offering
will terminate and all funds collected will be promptly returned to the
subscribers without deduction therefrom or interest thereon. Moreover,
during the period of escrow, subscribers will not be entitled to a return
of their subscriptions. There can be no assurance that any or all of the
Units being offered will be sold. See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
COMMON STOCK AND CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
THE SECURITIES TO BE SOLD IN THIS OFFERING MAY, IN THE ORDINARY COURSE
OF BUSINESS, BE SOLD ONLY TO CUSTOMERS OF THE UNDERWRITER, AND THE CONCENTRATION
OF SECURITIES IN CUSTOMERS OF THE UNDERWRITER MAY ADVERSELY AFFECT THE MARKET
FOR AND LIQUIDITY OF THE COMPANY'S SECURITIES SINCE THE UNDERWRITER MAY BE A
DAILY MARKET MAKER. IN THE EVENT THAT ONLY A LIMITED NUMBER OF ADDITIONAL
BROKER-DEALERS MAKE A MARKET IN THE COMPANY'S SECURITIES AND THE UNDERWRITER
BECOMES A MARKET MAKER, THE UNDERWRITER MAY BECOME A DOMINATING INFLUENCE ON THE
MARKET. THE UNDERWRITER DOES NOT HAVE ANY CURRENT PLANS OR AGREEMENTS TO OFFER
AND/OR SELL ANY OF THE SECURITIES TO A SPECIFIC CUSTOMER OR CUSTOMERS. SUCH
PURCHASERS, AS CUSTOMERS OF THE UNDERWRITER, SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE SECURITIES THROUGH AND/OR WITH THE
UNDERWRITER, ALTHOUGH NO AGREEMENTS OR UNDERSTANDINGS, WRITTEN OR ORAL, EXIST
FOR SUCH TRANSACTIONS, AND SUCH TRANSACTIONS MAY FURTHER ENHANCE THE
UNDERWRITER'S DOMINATING INFLUENCE ON THE MARKET. SEE "RISK
FACTORS--UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE ADVERSE CONSEQUENCES."
SPECIAL STANDARDS FOR SECURITIES SOLD IN CALIFORNIA
Each California investor, and each transferee thereof who also is a
California investor, must have an annual gross income of at least $65,000 and a
net worth, exclusive of home, furnishings and automobiles, of at least $250,000,
or in the alternative, a net worth exclusive of home, furnishings and
automobiles, of at least $500,000. In addition, an investor's total purchase may
not exceed 10% of such investor's net worth.
- 3 -
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information and the Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated in Delaware in October 1995 under the name
ReSeal Food Dispensing Systems, Inc. and changed its name to International
Dispensing Corporation on September 12, 1996. The Company was formed primarily
for the purpose of commercializing and marketing certain proprietary and
patented delivery and dispensing technologies (the "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 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 Technologies from RIC, which technologies
consist of barrier oriented, closed delivery and dispensing systems (the
"Systems") composed of: (i) self-adjusting reservoir bodies, (ii) patented,
barrier capable, unidirectional flow valves (the "Valve Assemblies"), and (iii)
as required, mechanisms to activate and facilitate the product delivery and flow
functions (the "Pump Assemblies"). The self-adjusting reservoir body of a System
is designed to shrink in proportion to the amount of the product being dispensed
through the Valve Assembly. The 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 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 Technologies in
conjunction with products that have an existing market share, as well as the
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
<TABLE>
<S> <C>
Securities Offered
by the Company.................... 833,334 Company Units. Each such Unit consists of two shares of Common Stock and
two Class A Warrants. The Class A Warrants will be exercisable commencing one
year after the Effective Date. Each Class A Warrant entitles the holder thereof
to purchase one share of Common Stock at $7.00 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
underlying the Company Units be exercised, of which there is no assurance, the
Company shall receive additional gross proceeds equal to $11,666,676. The
Offering of the Company Units is being made on a "best efforts, all-or-none"
basis. See "Description of Capital Stock" and "Underwriting."
Securities Offered by the
Selling Securityholders........... 787,500 Bridge Units. Each such Unit is identical to the Company
Units. See "Underwriting."
Public Offering Price............. $12.00 per Unit.
Common Stock Outstanding Prior to
the Offering(1)................... 7,900,000 shares.
Common Stock Outstanding After
Completion of the Offering(1)(2).. 9,566,668 shares.
Class A Warrants Outstanding after
Completion of the Offering(3).... 3,241,668 Class A Warrants.
Use of Proceeds................... The net proceeds of the Offering received by the Company will be used
(i) to repay certain indebtedness, (ii) to pay licensing fees, and (iii) for
general corporate purposes. See "Use of Proceeds."
Risk Factors...................... The Units offered hereby involve a high degree of risk and immediate
substantial dilution and should be purchased only by persons who can
afford to sustain a total loss of their investment. See "Risk Factors" and
"Dilution."
Proposed OTC Bulletin Board
Symbols(4)...................... Units: IDCOU
Common Stock: IDCOC
Class A Warrants: IDCOW
</TABLE>
(1) Does not include the 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units.
(2) Does not include: (i) 1,666,668 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Company Units; (ii)
166,666 shares of Common Stock issuable upon the exercise of the
Underwriter's Unit Purchase Option; and (iii) 166,666 shares of Common
Stock issuable upon the exercise of the Class A Warrants included in the
Underwriter's Unit Purchase Option.
(3) Does not include 166,666 Class A Warrants issuable upon the exercise of the
Underwriters' Unit Purchase Option. See "Underwriting."
(4) Application will be made for the inclusion of the Units, Class A Warrants
and Common Stock on the OTC Bulletin Board. See "Risk Factors--No Prior
Public Market for Securities."
- 5 -
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data is qualified in its entirety by,
and should be read in conjunction with, the Company's Financial Statements and
the Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(October 10, 1995) (October 10, 1995)
through Six Months through
December 31, Ended June 30,
1995 June 30, 1996 1996
(unaudited) (unaudited)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
General and administrative costs 244,768 451,491 696,259
Depreciation and amortization 882 441 1,323
Loss from operations 245,650 451,932 697,582
Interest expense 4,145 26,015 30,160
------------- ------------- -------------
Net loss before extraordinary loss $ 249,795 $ 477,947 $ 727,742
Extraordinary loss on retirement of debt $ -- $ 250,000 $ 250,000
------------- ------------- -------------
Net loss $ 249,795 $ 727,947 $ 977,742
============= ============= =============
Net loss per share before extraordinary item $ (.03) $ (.06)
Extraordinary loss per share $ -- $ (.03)
------------- -------------
Net loss per share $ (.03) $ (.09)
============ ============
Shares used in computing net loss per
share amounts 7,900,000 7,900,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- ------------------------
Actual As Adjusted (1)
------ ---------------
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents $ 5,168 $ 488,379 $ 7,410,142
Working capital (3,840,377) (3,943,023) 4,508,740
Total assets 27,788 585,698 7,485,698
Current liabilities 3,845,545 4,431,402 2,901,402
Long term liabilities 175,000 -- --
Stockholder's equity (deficit) (3,992,757) (3,845,704) 4,584,296
- ------------
</TABLE>
(1) Adjusted to give effect to (a) the sale of the Units offered hereby, at an
assumed initial public offering price of $12.00 per Unit, and (b) the
application of the estimated net proceeds of this Offering, including (i)
the repayment of the loans the Selling Securityholders made to the Company
from October 1995 to April 1996 in the aggregate principal amount of
$1,050,000 (the "Bridge Loans") and interest thereon and (ii) payments to
the holders of certain convertible promissory notes issued by the Company
(the "Convertible Notes") in an aggregate amount of $400,000. See "Use of
Proceeds."
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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; CURRENT LOSSES; DEVELOPMENT STAGE BUSINESS.
The Company was recently formed for the purpose of licensing, marketing and
commercializing the 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. As of June 30, 1996,
the Company had an accumulated deficit of $4,977,742, a stockholder deficit of
$3,845,704 and a working capital deficit of $3,943,023.
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 Technologies. However, there can be no assurance that definitive
agreements will be consummated and if consummated, when and on what terms. The
operations of the Company will be subject to the risks inherent in the
establishment of a new enterprise and uncertainties arising from the absence of
an operating history. As a result of the start-up nature of the Company's
business, operating losses can be expected. There can be no assurance that the
Company can be operated profitably in the future.
2. SUFFICIENCY OF CAPITAL; NEED FOR ADDITIONAL FINANCING. The Company
is relying on the sale of the Company Units offered hereby and the receipt of
the net proceeds therefrom to fund its initial operations and implement its
proposed business plan. There can be no assurance, however, that the net
proceeds of this Offering received by the Company will be adequate for these
purposes. In the event that the net proceeds received by the Company from this
Offering are not sufficient for its purposes, the Company may have to seek
additional financing. There can be no assurance that such financing will be
available in amounts and on terms which will enable the Company to pursue its
business plan and which are otherwise satisfactory to the Company. The Company's
inability to raise sufficient financing could have a material adverse effect on
its business and on the value of the Company's securities. See "Use of
Proceeds."
As of June 17, 1996, according to the unaudited financial statements of
RIC, RIC had outstanding indebtedness of approximately $3,800,000 which includes
obligations with respect to the patents covered by the Company License
Agreement. RIC shall receive licensing fees out of the proceeds of this Offering
(see "Use of Proceeds") as well as possible licensing fees in connection with
other applications of the Technology. RIC may need to seek additional financing
to discharge the remaining indebtedness. There can be no assurance that such
financing will be available in amounts and on terms satisfactory to RIC. RIC's
inability to raise sufficient funds could affect its obligations in connection
with the patents covered in the Company License Agreement.
3. AUDITOR'S REPORT OF ACCOUNTANTS; COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN. As a result of the Company's current financial condition, the
Company's independent auditors have modified their report on the Company's
financial statements for the period October 10, 1995 (inception) to December 31,
1995, to include explanatory language regarding the Company's ability to
continue as a going concern. The Company is in the development stage, and the
Company's ability to continue in the normal course of business is dependent upon
successful completion of this Offering to raise capital and the success of
future operations. The uncertainties raise substantial doubt about the Company's
ability to continue as a going concern. There can be no assurance that the
Company will not incur net losses in the future. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and "Financial
Statements and Notes."
4. UNCERTAINTY OF PATENT LICENSES AND PROPRIETARY RIGHTS IN EVENT OF
BANKRUPTCY; ENFORCEABILITY CONTINGENT ON FINANCIAL CAPABILITIES. Initially, the
Company's sole significant business activity will be dependent upon the Company
License Agreement relating to the 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
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<PAGE>
in a bankruptcy proceeding might not enforce such continuing obligations. In
addition, problems may arise relating to the 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 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 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
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 Technologies and yet are equivalent or superior to the
Technologies.
Furthermore, the use of the 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 Technologies and such other products and technologies. In
addition, the Technologies may become obsolete by new technology that does not
infringe upon the patents licensed to the Company.
5. ABSENCE OF RESEARCH AND MANUFACTURING FACILITIES; DEPENDENCE ON
SUBCONTRACTORS. At the present time, the Company does not own any research
laboratories or manufacturing facilities. Therefore, the Company will need to
rely on subcontracting sources to support research and manufacturing. The
Company does not currently have any written or oral contracts with such
subcontractors and no assurance can be given that any will be entered into.
Also, there can be no assurance that the Company will construct or acquire
research and/or manufacturing facilities, and if any such facilities are
constructed or acquired, when this would occur or on what terms.
6. NO ASSURANCE OF COMMERCIALIZATION OF TECHNOLOGY. The Company and RIC
have produced prototypes using the 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 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 September 11, 1996, the
Company had three full-time employees. To the extent that the Company is unable
to, or determines not to, enter into marketing agreements or third party
distribution agreements for its products, significant additional resources will
be required to develop a sales force and distribution organization. To the
extent that the Company enters into co-marketing or other licensing arrangements
with third parties, any revenues received by the Company will be shared with and
will be dependent on the efforts of such third parties, and there can be no
assurance that such efforts will be successful. See "Business--Marketing."
8. ABSENCE OF INDEPENDENT SYSTEMS EFFICACY TEST RESULTS. RILP and RIC
have utilized the services of a contract laboratory previously sponsored by
RILP, to conduct testing and efficacy studies of the
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<PAGE>
Technologies. The 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 System has been
tested with a range of material compositions. Although not all combinations have
proven to be effective, certain combinations of materials have proven to be
satisfactory under certain laboratory controlled conditions. Although management
believes that the Technologies can be adjusted to accommodate the specific
requirements of each product utilizing the System, there can be no assurance
that the System will be compatible or advantageous for use with any products
that may be submitted by potential licensees or end customers for development.
The 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 Technologies in order to demonstrate its performance and efficacy
with respect to a specific product. There can be no assurance that the
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 Technologies, Systems, or Valve Assemblies, the
Company may be exposed to potential liabilities resulting from the use of the
Technologies with particular products. Such liabilities might result from claims
made directly by consumers, the sublicensee, or other users or sellers of the
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 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 Technologies.
11. POTENTIAL ANTI-TAKEOVER EFFECTS. Certain provisions of the
Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation"), the Company's Bylaws and Delaware law could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. Such provisions could diminish the opportunities for a
stockholder to participate in tender offers, including tender offers at a price
above the then current market value of the Common Stock. Such provisions may
also inhibit increases in the market price of the Common Stock that could result
from takeover attempts. The Company's Board of Directors has the authority to
issue "blank check" preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board. Accordingly,
the Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Common Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. The possible impact on takeover
attempts could adversely affect the price of the Company's securities. Although
the Company has no present intention to issue any shares of its preferred stock,
there can be no assurance that the Company will not do so in the future. See
"Description of Capital Stock."
12. LITIGATION INVOLVEMENT OF UNDERWRITER MAY HAVE ADVERSE
CONSEQUENCES.
Recent NASD Actions Involving Stratton Oakmont, Inc.
The Company has been advised by the Underwriter that the NASD (District
10) filed a complaint (No. C10950081) on October 5, 1995 ("Complaint") against
the Underwriter, Steven Sanders, the head trader of the Underwriter, Daniel M.
Porush, the president of the Underwriter, and Paul F. Byrne, formerly the
Underwriter's director of compliance (collectively, the "Respondents"), alleging
various violations of the NASD Rules of Fair Practice. The Complaint consisted
of three causes. The first cause alleged that the Underwriter and Mr. Sanders
effected principal retail sales of securities at prices that were fundamentally
excessive. The second cause alleged that the Underwriter and Mr. Sanders charged
excessive markups. The third cause alleged the Underwriter and Messrs. Porush
and Byrne failed to establish, maintain and enforce reasonable supervisory
procedures designed to assure compliance with the NASD's rules and policies.
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:
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<PAGE>
o Mr. Sanders was censured, fined $25,000 and was suspended from association
with any member of the NASD in any capacity for a period of one year.
o The Underwriter was censured, fined $500,000 and was required to disgorge
its excess profits to its customers, totaling $1,876,205, plus prejudgment
interest. In addition, the Underwriter was suspended for a period of one
year from effecting any principal retail transactions.
o Mr. Porush was censured, fined $250,000 and barred from association with
any member of the NASD in any capacity.
The Underwriter and Messrs. Porush and Sanders have appealed the NASD's
decision, thereby staying imposition of the sanctions.
If the sanctions imposed on the Underwriter are not reversed on appeal,
the Underwriter's ability to act as a market maker of the Company's securities
will be restricted. The Company cannot ensure that other broker dealers will
make a market in the Company's securities. In the event that other broker
dealers fail to make a market in the Company's securities, the possibility
exists that the market for and the liquidity of the Company's securities may be
adversely affected to such an extent that public security holders may not have
anyone to purchase their securities when offered for sale at any price. In such
event, the market for and liquidity of the Company's securities may not exist.
It should be noted that although the Underwriter may not be the sole market
maker in the Company's securities, it may likely be the dominant market maker in
the Company's securities.
In April 1996, the NASD settled an action whereby it fined the
Underwriter $325,000 for fraud and other violations (which were neither admitted
or denied) in connection with its underwriting of an initial public offering.
Steven Sanders was fined $50,000 and was suspended for a period of 45 days from
associating with an NASD member and agreed not to engage in any trading-related
activities for any NASD member for a period of 50 days. The settlement also
requires that the Underwriter file certain new supervisory procedures with the
NASD. The Underwriter filed with the NASD on April 11, 1996 procedures relating
to the conduct of associated persons during and preceding an initial public
offering, which were aimed at preventing violations of Section 5 of the
Securities Act and Rule 10b-6 violations and the type of arbitrary pricing which
occurred in connection with the trading of securities underwritten by the
Underwriter on January 16, 1991. These procedures have been in effect since
April 11, 1996. See "Underwriting."
The Company has been advised by the Underwriter that the NASD (District
10) filed a complaint (No. C10960080) on June 6, 1996 ("June 1996 Complaint")
against the Underwriter, Daniel Porush, Steven Sanders, Irving Stitsky, formerly
a registered representative of the Underwriter, and Jordan Shamah, a vice
president and director of the Underwriter (collectively, the "Respondents"),
alleging various violations of the Exchange Act and the NASD Rules of Fair
Practice. The June 1996 Complaint consists of seven causes of action. The first
cause alleges that the Underwriter, through Messrs. Porush and Sanders, engaged
in the use of fraudulent and manipulative devices in the failure to make bona
fide distributions in specified public offerings of securities underwritten by
the Underwriter. The second cause alleges that the Underwriter, through Messrs.
Porush, Sanders, Stitsky and Shamah, engaged in the use of fraudulent and
manipulative devices in the failure to make a bona fide distribution of common
stock of a company whose initial public offering was underwritten by the
Underwriter. The third cause alleges that the Underwriter, through Messrs.
Porush and Sanders for a period of three days, manipulated the common stock of
such company. The fourth cause alleges that the Underwriter, through Mr.
Sanders, charged fraudulently excessive markups in connection with the warrants
of such company. The fifth cause alleges that the Underwriter, through Mr.
Porush, violated the NASD's Free-Riding and Withholding Interpretation inasmuch
as he allegedly allocated securities in certain public offerings to persons
restricted from purchasing such securities. The sixth cause alleges that Messrs.
Porush and Stitsky failed to adequately supervise the Underwriter's activity
relating to the various alleged violations. The seventh cause alleges that the
Underwriter and Mr. Porush failed to establish and maintain reasonable
supervisory procedures to prevent the Underwriter's violative conduct. The
Respondents have filed answers to the June 1996 Complaint denying all material
allegations and alleged violations and are contesting the proceeding.
In addition, the Company has been advised by the Underwriter that the
NASD (District 10) filed a complaint (No. C10960068) on June 6, 1996
("Complaint") against the Underwriter and Patrick Gerard Hayes, the compliance
director of the Underwriter (collectively, the "Respondents"), alleging
violations of the NASD Rules of Fair Practice. The Complaint consists of two
causes of action. The first cause alleges that the Underwriter failed to report
information regarding at least 59 customer complaints the Underwriter received
during the relevant time
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periods as required by the NASD Rules of Fair Practice. The second cause alleges
that the Underwriter, through its compliance director, failed to establish,
maintain and enforce written procedures designed to ensure that the Underwriter
complied with the NASD Rules of Fair Practice. The Respondents have filed
answers to the Complaint and are contesting the proceeding.
On or about July 13, 1996, the District Business Conduct Committee for
District No. 10 ("District Committee") of the NASD issued a complaint against
the Underwriter alleging that the Underwriter violated Article III, Section 1
and Article IV, Section 5 of the NASD Rules of Fair Practice by entering into
settlement agreements with former customers which condition customers' ability
to cooperate with NASD investigations. The charges in the complaint were upheld
by the District Committee on this same date as well as the National Business
Conduct Committee of the NASD, and a fine of $20,000 was assessed and the
Underwriter was ordered to get the NASD's agreement on language used in certain
customer settlement agreements. The Underwriter also is required, if asked by
the NASD, to release customers from provisions in settlement agreements that
impose conditions on a customer's ability to provide information to the NASD.
The sanctions follow an appeal of findings that the firm used certain agreements
when settling customer complaints that precluded, restricted, or conditioned
customers' ability to cooperate with the NASD in connection with its
investigation of customer complaints. The Underwriter also failed to release a
customer from the restrictive provisions of such a settlement. This action had
been appealed to the Commission and the sanctions aren't in effect pending
consideration of the appeal. The Underwriter contests the charges and has
perfected an appeal to the Commission.
Permanent Injunction Granted--Stratton Oakmont, Inc. Enjoined to Comply
with Recommendations of an Independent Consultant and an Independent Auditor
Appointed Pursuant to an Administrative Order
The Company has been advised by the Underwriter that the Commission
instituted an action on December 14, 1994 in the United States District Court
for the District of Columbia against the Underwriter. The complaint alleged that
the Underwriter was not complying with the Administrative Order entered by the
Commission on March 17, 1994 ("Administrative Order") by failing to adopt the
recommendations of an independent consultant. The Administrative Order was
previously consented to by the Underwriter, without admitting or denying the
findings contained therein, as settlement of an action commenced against the
Underwriter by the Commission in March 1992, which found willful violations of
the securities laws such that the Underwriter:
o engaged in fraudulent sales practices;
o engaged in and/or permitted unauthorized trading in customer
accounts;
o knowingly and recklessly manipulated the market price of a
company's securities by dominating and controlling the market for
those securities;
o made improper and unsupported price predictions with regard to
recommended over-the-counter securities; and
o made material misrepresentations and omissions regarding certain
securities and its experience in the securities industry.
Pursuant to the Administrative Order, the Underwriter was censured and
an independent consultant (the "Stratton Consultant") was chosen by the
Commission to advise and consult with the Underwriter and to review and
recommend new supervisory and compliance procedures. The complaint sought:
o to enjoin the Underwriter from violating the Administrative
Order;
o an order commanding the Underwriter to comply with the
Administrative Order;
o to have a Special Compliance Monitor appointed to ensure
compliance with the Administrative Order; and
o the Underwriter claimed that the Stratton Consultant exceeded his
authority under the Administrative Order and had violated the
terms of the Administrative Order.
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<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.
Recent State Administrative Proceedings Involving Stratton Oakmont,
Inc.--Possible Loss of Liquidity
As a result of the Permanent Injunction, the States of Pennsylvania,
Indiana and Illinois have commenced administrative proceedings seeking, among
other things, to revoke the Underwriter's license to do business in such states.
In Indiana, the Commissioner suspended the Underwriter's license for a three
year period. The Underwriter has appealed the decision and has requested a stay
pending appeal. The requested stay would maintain the status quo pending appeal.
In Illinois, the Underwriter intends to file an answer to the administrative
complaint denying the basis for revocation. The District of Columbia suspended
the Underwriter's license pending the outcome of an investigation. The States of
North Carolina and Arkansas also have suspended the Underwriter's license
pending a resolution of the proceedings in those states. The States of
Minnesota, Vermont, and Nevada have served upon the Underwriter notices of
intent to revoke the Underwriter's license in such states. The State of Rhode
Island has served on the Underwriter a Notice of Intent to suspend its license
in that state. The State of Connecticut has served on the Underwriter a notice
of intent to suspend or revoke the Underwriter's registration in that state with
a notice of right to hearing. In the State of Mississippi, the Underwriter has
agreed to a suspension of its license pending resolution of certain claims and
review of its procedures and practices by the state authorities. In addition,
the Underwriter withdrew its registration in the State of New Hampshire (with
the right of reapplication) and in the State of Maryland. There may be further
administrative action against the Underwriter in Maryland. The Underwriter
withdrew its registration in Massachusetts with a right to reapply for
registration after two years, withdrew its registration in Delaware with a right
to reapply in three years and agreed to a temporary cessation of business in
Utah pending an on-site inspection and further administrative proceedings. The
Underwriter's license in the State of New Jersey was revoked by an
administrative judge pursuant to an administrative hearing, which revocation was
affirmed by the New Jersey Bureau of Securities, and an appeal has been filed
with the appellate division of the New Jersey Superior Court. The States of
Georgia, Alabama and South Carolina have lifted their suspensions and have
granted the Underwriter conditional licenses. Such conditional licenses were
granted pursuant to an order, which the Underwriter has proposed to various
states, which provides provisions for: (i) the suspension of revocation, (ii)
compliance with recommendations of the Consultant, (iii) an expedited claims
mediation arbitration process, (iv) resolution of claims seeking compensatory
damages, (v) restrictions on use of operating revenue, (vi) the limitation on
selling group members in offerings underwritten by the Underwriter and the
prohibition of participating as a selling group member in offerings underwritten
by certain other NASD member firms, (vii) the periodic review of the
Underwriter's agents, (viii) the retention of an accounting firm, and (ix)
supervision and training, restrictions on trading, discretionary accounts and
other matters.The State of Oregon, as a result of the Permanent Injunction, has
filed a notice of intent to revoke the Underwriter's license subject to the
holding of a hearing to determine definitively the Underwriter's license status,
and the Underwriter, in this proceeding as well as other proceedings, expects to
be able to demonstrate that the Permanent Injunction is not of a nature as to be
a lawful basis to revoke the Underwriter's license permanently. Finally, the
Underwriter has received an order limiting its license in the State of Nebraska.
Such proceedings, if ultimately successful, may adversely affect the market for
and liquidity of the Company's securities if additional broker-dealers do not
make a market in the Company's securities. Moreover, should investors purchase
any of the securities in this Offering 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
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securities. In the event that other broker-dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
and liquidity and prices of the Company's securities may not exist. It should be
noted that although the Underwriter may not be the sole market maker in the
Company's securities, it will most likely be the dominant market maker in the
Company's securities. In addition, in the event that the Underwriter's license
to do business is revoked in the states set forth above, the Underwriter has
advised the Company that the members of the selling syndicate in this Offering
may be able to make a market in the Company's securities in such states and that
such an event will not have a materially adverse effect on this Offering,
although no assurance can be made that such an event will not have a materially
adverse effect on this Offering. The Company has applied to register this
Offering for the offer and sale of its securities in the following states:
California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois,
Louisiana, New York, Rhode Island and Virginia. The offer and sale of the
securities of this Offering are not available in any other state, absent an
exemption from registration. See "Underwriting."
FOR ADDITIONAL INFORMATION REGARDING STRATTON OAKMONT, INC., INVESTORS
MAY CALL THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AT 1-800-289-9999.
Paul Carmichael v. Stratton Oakmont, Inc.
The Company has been advised by the Underwriter that Honorable John E.
Sprizzo, United States Judge for the Southern District of New York, on May 6,
1994 denied the class certification motion in Paul Carmichael v. Stratton
Oakmont, Inc., et al., Civ. 0720 (JES), of the plaintiff Paul Carmichael. The
class action complaint alleges manipulation and fraudulent sales practices in
connection with a number of securities. The allegations were substantially
similar and involve much of the same time period as the Commission's civil
complaint (discussed above). The Company has further been informed that counsel
for the class action plaintiff sought to re-argue the motion for class
certification, which motion for re-argument was denied.
13. DEPENDENCE UPON KEY PERSONNEL. The success of the Company's
business is largely dependent upon the continued active participation of Jon
Silverman, currently a consultant to the Company. Upon the closing of this
Offering, the Company intends to engage the services of Mr. Silverman in the
capacity of Chairman, Chief Executive Officer and President, pursuant to a
three-year employment agreement. See "Management--Employment Agreements." In the
event his services are lost for any reason whatsoever, the Company's business,
financial condition and results of operations may be adversely affected.
14. IMMEDIATE AND SUBSTANTIAL DILUTION. An investor in this Offering
will experience immediate and substantial dilution. At June 30, 1996, the
Company had a negative net tangible book value of $(3,915,367), or approximately
$(.62) per share of Common Stock, based upon 6,325,000 shares outstanding. After
giving effect to the sale of the Units offered hereby at an assumed initial
public offering price of $12.00 per Unit ($6.00 per share) and the receipt and
application of the estimated net proceeds therefrom, pro forma net tangible book
value would have been $4,534,596 or approximately $.47 per share. The result
will be an immediate increase in net tangible book value to existing
stockholders of $1.09 per share and an immediate dilution to new investors of
$5.53 per share. As a result, new investors will bear most of the risk of loss
since their shares are being purchased at a cost substantially above the price
that existing stockholders acquired their shares. See "Dilution."
15. BEST EFFORTS OFFERING; ESCROW OF INVESTOR'S FUNDS. Since this
Offering is being made on a "best efforts, all-or-none" basis, there can be no
assurance that any of the Units will be sold. Under the terms of this Offering,
the Underwriter is offering the Company's Units for a period of 90 days which
may be extended up to an additional 30 days. Pending the sale of all Company
Units, all proceeds will be held in an escrow account. No commitment exists by
anyone to purchase all or any of the Units offered hereby. Consequently,
subscribers' funds may be escrowed for as long as 120 days and then returned
without interest thereon or deduction therefrom in the event all Company Units
are not sold within the Offering Period. Investors, therefore, will not have the
use of any subscription funds during the subscription period. See
"Underwriting."
16. ARBITRARY OFFERING PRICE. The initial public offering price of the
securities offered hereby and the exercise price of the Class A Warrants have
been arbitrarily determined by negotiations between the Company and the
Underwriter and bear no relationship to the Company's earnings, book value or
any other recognized criteria of value. See "Underwriting."
- 13 -
<PAGE>
17. FUTURE ISSUANCES OF STOCK BY THE COMPANY. The Company is authorized
to issue 40,000,000 shares of Common Stock. Upon consummation of this Offering,
there will be a total of 9,566,668 shares of Common Stock issued and
outstanding. This total number of shares of Common Stock issued and outstanding
does not include: (i) 1,666,668 shares of Common Stock issuable upon the
exercise of the Class A Warrants included as part of the Company Units; (ii)
166,666 shares of Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option; (iii) 166,666 shares of Common Stock issuable upon exercise of
the Class A Warrants included in the Underwriter's Unit Purchase Option; and
(iv) 1,575,000 shares of Common Stock issuable upon exercise of the Class A
Warrants included as part of the Bridge Units. See "Underwriting." The remaining
shares of Common Stock not reserved for issuance in connection with the
foregoing specific purposes, as well as 2,000,000 shares of Preferred Stock, may
be issued without any action or approval of the Company's stockholders. Although
there are no present plans, agreements or undertakings involving the issuance of
such shares, any such issuance could be used as a method of making acquisitions
of related businesses and for discouraging, delaying or preventing a change in
control of the Company. There can be no assurance that the Company will not
undertake to issue such shares if it deems it appropriate to do so. Any issuance
of additional shares of Common Stock or securities convertible into shares of
Common Stock may cause stockholders of the Company to suffer significant
dilution which may adversely affect the market price of the Company's
securities. See "Dilution," "Description of Capital Stock" and "Shares Eligible
for Future Sale."
18. UNDERWRITER'S UNIT PURCHASE OPTION. In connection with this
Offering, the Company will sell to the Underwriter, for nominal consideration,
the Underwriter's Unit Purchase Option to purchase up to an aggregate of 83,333
Units. The Underwriter's Unit Purchase Option will be exercisable for a period
of four years commencing one year after the Effective Date, at an exercise price
of 165% of the initial public offering price of the Units ($19.80 per Unit),
subject to certain adjustments. The exercise price of the Class A Warrants
included in the Units issuable upon exercise of the Underwriter's Unit Purchase
Option during the period of exercisability shall be 165% of the exercise price
of the Class A Warrants included in the Company Units and the Bridge Units
($11.55 per Unit). The holders of the Underwriter's Unit Purchase Option will
have an opportunity to profit from a rise in the market price of the Common
Stock, if any, without assuming the risks of ownership, with a resulting
dilution in the interests of other stockholders. The Company may find it more
difficult to raise additional equity capital while the Underwriter's Unit
Purchase Option remains outstanding. At any time when the holders thereof might
be expected to exercise this option, the Company would probably be able to
obtain additional capital on terms more favorable than that provided by the
Underwriter's Unit Purchase Option. The holders of the Underwriter's Unit
Purchase Option have the right to require the registration under the Securities
Act, of the Units, the Common Stock and the Class A Warrants included in such
Units, and the Common Stock issuable upon exercise of such Class A Warrants, as
well as certain "piggyback" registration rights. See "Description of Capital
Stock--Registration Rights." The cost to the Company of effecting a demand
registration may be substantial. See "Dilution" and "Underwriting."
19. IMPACT OF PENNY STOCK REGULATIONS ON MARKETABILITY OF SECURITIES;
BROKER-DEALER SALES OF THE UNITS. The Commission has adopted regulations which
generally define "penny stock" to be an equity security that has a market price
(as defined) of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Because the Company's securities
are not listed on Nasdaq or any national securities exchange, the Company's
securities will, if their market price decreases to less than $5.00 per share,
be subject to a rule, absent the availability of an exemption, that imposes
additional sales practice requirements on broker-dealers who sell such "penny
stocks" to persons other than established customers and accredited investors
(accredited investors are generally persons having net worth in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with a
spouse). For transactions covered by this rule, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale, as well as
disclosing certain information concerning the risks of purchasing low-priced
securities on the market for such securities. The broker-dealer also must
disclose the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
aforementioned regulations will adversely affect the ability of broker-dealers
to sell the Company's securities and the ability of purchasers in this Offering
to sell their securities in the secondary market.
20. NO OBLIGATION ON UNDERWRITER TO CONTINUE TO ACT AS MARKET MAKER. As
of the date of this Prospectus, several brokerage firms, including the
Underwriter, have indicated their intention to engage in market making
activities with respect to the securities. There is no obligation on the part of
such brokerage firms to act,
- 14 -
<PAGE>
or the Underwriter to continue to act, as a market maker. In the event that the
market makers cease to function as such, public trading in the Company's
securities will be adversely affected or may cease entirely.
21. NO PRIOR PUBLIC MARKET FOR SECURITIES. Prior to this Offering,
there has been no public market for the Company's securities. Although the
Company intends to apply for the inclusion of the Securities on the OTC Bulletin
Board, there can be no assurance that such application will be approved or that,
even if it is approved, a regular trading market for the Securities will develop
after this Offering or that, if developed, it will be sustained. The OTC
Bulletin Board is an unorganized, inter-dealer, over-the-counter market which
provides significantly less liquidity than Nasdaq and quotes for stocks included
on the OTC Bulletin Board are not listed in the financial sections of newspapers
as are those for Nasdaq. Therefore, prices for securities traded solely on the
OTC Bulletin Board may be difficult to obtain and purchasers of the Units may be
unable to resell the Securities offered hereby at or near their original
offering price or at any price. In the event the Securities are not included on
the OTC Bulletin Board, quotes for the Securities may be included in the "pink
sheets" for the over-the-counter markets. See "Underwriting."
22. CONTRACTUAL OBLIGATION TO UNDERWRITER. The Company has agreed to
pay fees to the Underwriter if the Underwriter arranges or assists with mergers
and acquisitions for the Company during a period of five years commencing on the
Effective Date. Further, in addition to an eight and one-half (8.5%) percent
underwriting discount available to the Underwriter, the Company has also agreed
to pay the Underwriter a non-accountable expense allowance of three (3%) percent
of the gross proceeds of this Offering from the sale of Company Units and has
agreed that for a period of three years from the Effective Date, the Underwriter
shall be entitled to designate one individual as an observer to the Company's
Board of Directors. In addition, the Company has agreed to pay the Underwriter,
under certain circumstances, a fee of 4% of the exercise price of the Class A
Warrants when such warrants are exercised. To the extent the foregoing
compensation is paid from the proceeds of this Offering received from the sale
of the Company Units, the amounts available to the Company will be reduced. On
the closing date, the Company will sell to the Underwriter for nominal
consideration the Underwriter's Unit Purchase Option to purchase up to an
aggregate of 83,333 Units at 165% of the initial public offering price. See
"Underwriting."
23. CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE
CLASS A WARRANTS. The Class A Warrants may not be exercised by the holders
thereof unless at the time of exercise a registration statement covering the
shares of Common Stock issuable upon exercise of the Class A Warrants is
effective and such shares of Common Stock have been registered under the
Securities Act and qualified, or deemed to be exempt, under the securities laws
of the states of residence of the respective holders of such Class A Warrants.
While the Class A Warrants are being registered herewith, there can be no
assurance, however, that such registration statement will remain current or that
such Class A Warrants will be properly qualified under applicable state
securities laws, the failure of which may result in the exercise of the Class A
Warrants and the resale or other disposition of Common Stock issued upon such
exercise becoming unlawful. See "Description of Capital Stock--Class A
Warrants."
24. POTENTIAL ADVERSE EFFECT OF REDEMPTION OF CLASS A WARRANTS. The
Class A Warrants may be redeemed by the Company at any time commencing two years
from the Effective Date, at a redemption price of $.05 per Class A Warrant, upon
30 days' prior written notice, provided the closing bid price of the Common
Stock as reported by the OTC Bulletin Board for 20 consecutive trading days
ending within 10 days of the notice of redemption equals or exceeds $8.00 per
share, subject to adjustment. Redemption of the Class A Warrants could force the
holders to exercise the Class A Warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, to sell the Class A
Warrants at the then current market price when they might otherwise wish to hold
the Class A Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Class A Warrants at the time of
redemption. See "Description of Capital Stock--Class A Warrants."
25. EXERCISE OF CLASS A WARRANTS MAY HAVE DILUTIVE EFFECT ON MARKET.
The Class A Warrants issued in connection with this Offering will provide,
during their term, an opportunity for the holder to profit from a rise in the
market price, of which there is no assurance, with resulting dilution in the
ownership interest in the 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."
- 15 -
<PAGE>
26. UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE ADVERSE
CONSEQUENCES. Although the Underwriter has no legal obligation to do so, it may,
from time to time in the future, make a market in and otherwise effect
transactions in the Company's securities. To the extent the Underwriter acts as
a market maker in the Units, the Common Stock or the Class A Warrants, it may be
a dominating influence in that market. The price and liquidity of such
securities may be affected by the degree, if any, of the Underwriter's
participation in the market, inasmuch as a significant amount of such securities
may be sold to customers of the Underwriter. Such customers subsequently may
engage in transactions for the sale or purchase of such securities through or
with the Underwriter. Such market making activities, if commenced, may be
discontinued at any time or from time to time by the Underwriter without
obligation or prior notice. If a dominating influence at such time, the
Underwriter's discontinuance may adversely affect the price and liquidity of the
securities.
Further, unless granted an exemption by the Commission to its Rule
10b-6, the Underwriter may be prohibited from engaging in any market making
activities with regard to the Company's securities for the period from two or
nine business days prior to any solicitation of the exercise of the Class A
Warrants until the later of the termination of such solicitation activity or the
termination, by waiver or otherwise, of any right that the Underwriter may have
to receive a fee for the exercise of the Class A Warrants following the
solicitation. As a result, the Underwriter may be unable to continue to provide
a market for the Company's securities during certain periods while the Class A
Warrants are exercisable, which may adversely affect the price and liquidity of
the securities.
27. ABSENCE OF DIVIDENDS. The Company intends to retain future
earnings, if any, to provide funds for the operations of its business and,
accordingly, does not anticipate paying any dividends on its Common Stock in the
reasonably foreseeable future. See "Dividend Policy."
28. SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
All of the Company's 7,900,000 currently outstanding shares of Common Stock are
"restricted securities" and, in the future, may be sold upon compliance with
Rule 144 adopted under the Securities Act, or upon the filing and effectiveness
of a registration statement with respect thereto. Rule 144 provides, in essence,
that a person holding "restricted securities" for a period of two years may sell
an amount of such securities every three months equal to the greater of (i) one
percent of the Company's issued and outstanding shares, or (ii) the average
weekly volume of sales during the four calendar weeks preceding the sale. The
amount of "restricted securities" which a person who is not an affiliate of the
Company may sell is without volume limitation after the non-affiliate has held
such shares for three years.
The Company's stockholders and the Company have agreed not to sell,
transfer, assign or issue any securities of the Company for a period of 24
months from the Effective Date, without the prior consent of the Underwriter.
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."
This Offering includes 787,500 shares of Common Stock owned by the
Selling Securityholders. The shares of Common Stock held by the Selling
Securityholders may be sold commencing thirteen (13) months from the Effective
Date, subject to earlier release at the sole discretion of the Underwriter, and
such securities include a legend with such restrictions. The Underwriter may
release the securities held by the Selling Securityholders at any time after all
of the Company Units have been sold. The resale of the Bridge Securities is
subject to prospectus delivery and other requirements of the Securities Act. The
early release of the Selling Securityholders' Bridge Securities, which has
occurred in previous offerings underwritten by the Underwriter, or the potential
of such sales at any time, may have an adverse effect on the market prices of
the securities offered hereby. See "Certain Relationships and Related
Transactions," "Selling Securityholders" and "Underwriting."
- 16 -
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $8,430,000 (after deducting the Underwriter's discount and
commission, the non-accountable expense allowance and other estimated fees and
expenses). The Company will not receive any of the proceeds from the sale of
Bridge Securities by the Selling Securityholders.
The Company presently intends that the net proceeds it receives from
this Offering will be applied approximately as follows:
<TABLE>
<CAPTION>
Percentage of
Net
Description Amount Proceeds
----------- ------ -------------
Administrative Expenses
<S> <C> <C>
Management/Employee Compensation $1,200,000 14.2%
Consultant Compensation 400,000 4.8%
Bridge Loan Repayment(1) 1,130,000 13.4%
Payment of Convertible Notes 400,000 4.8%
Operating Costs and Working Capital
General Overhead 880,000 10.4%
Licensing Fees(2) 2,700,000 32.0%
Product Development/
Tooling/Equipment 1,720,000 20.4%
---------- ------
TOTAL $8,430,000 100.0%
- -------------
</TABLE>
(1) Approximately $1,130,000 of the proceeds of this Offering received by the
Company will be used to repay the principal from and interest on the Bridge
Loans . The Bridge Loans bear interest at the rate of 8% per year and are
due the earlier of the closing of this Offering or January 1, 1997.
(2) As of the Effective Date, the Company will have paid to RIC approximately
$1,300,000 of the $4,000,000 licensing fee owed under the Company License
Agreement. The remaining $2,700,000 shall be paid out of the proceeds of
this Offering received by the Company.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the net proceeds of this Offering
received by the Company, together with cash flow from operations, will be
sufficient to satisfy its contemplated cash requirements for approximately
sixteen months following consummation of the Offering. In the event that (i) the
Company's plans change, (ii) the Company's assumptions change or prove to be
inaccurate or (iii) the amount of proceeds of this Offering received by the
Company or cash flow prove to be insufficient to fund operations (due to
unanticipated expenses, technical difficulties, problems or otherwise), the
Company would be required to seek additional financing sooner than anticipated.
The Company has no current arrangements with respect to, or sources of,
additional financing and there can be no assurance that additional financing
will be available to the Company on acceptable terms, or at all. Any inability
to obtain additional financing could possibly require the Company to
significantly curtail its operations.
The allocation of the net proceeds of the Offering set forth above
represents management's best estimates based upon its present plans and certain
assumptions regarding the Company's anticipated revenues and expenditures. If
any of these factors change, the Company may find it necessary or advisable to
reallocate some
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<PAGE>
of the net proceeds within the above-described categories for other purposes,
including but not limited to acquisitions of companies in related businesses.
Proceeds received by the Company not immediately required for the
purposes set forth above will be invested principally in United States
government securities, short-term certificates of deposit, money market funds or
other interest-bearing investments.
DIVIDEND POLICY
The Company expects that it will retain all available earnings
generated by its operations for the development and growth of its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Any future determination as to dividend policy will be made
at the discretion of the Board of Directors of the Company and will depend on a
number of factors, including the future earnings, capital requirements,
financial condition and business prospects of the Company and such other factors
as the Board of Directors may deem relevant.
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share after this
Offering constitutes the dilution to investors in the Offering. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. At June 30, 1996, the net tangible book
value of the Company was $(3,915,367) or $(.62) per share.
Without taking into account any other changes in the net tangible book
value of the Company except for the sale of the Company Units offered hereby at
an assumed initial public offering price of $12.00 per Unit ($6.00 per share of
Common Stock) and the receipt and application of the estimated net proceeds
therefrom, and without ascribing any value to the Class A Warrants included in
the Units, the pro forma net tangible book value of the Company at June 30, 1996
would have been $4,534,596, or $.47 per share, representing an immediate
increase in net tangible book value of $1.09 per share to the existing
shareholders and an immediate dilution of $5.53 per share to new investors.
The following table illustrates the foregoing information with respect
to dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)........................................ $6.00
Net tangible book value before Offering.......................................... $(.62)
Increase attributable to purchase by new investors............................... $1.09
-------
Pro forma net tangible book value after offering.......................................... $.47
------
Dilution of net tangible book value to new investors...................................... $5.53
========
</TABLE>
- --------------
(1) Represents the initial public offering price per share, before deducting
underwriting discounts and offering expenses payable by the Company.
- 18 -
<PAGE>
The following table summarizes, as of the Effective Date, the
differences between existing stockholders and investors in this Offering with
respect to the number and percentage of shares of Common Stock purchased from
the Company (attributing no value to the Class A Warrants and not giving effect
to the sales by the Selling Securityholders of the 787,500 Bridge Units), the
amount and percentage of consideration paid and the average price paid per
share, before deduction of offering expenses and underwriting discounts:
<TABLE>
<CAPTION>
Shares Owned Consideration Price Per
Number Percent Amount Percent Share
<S> <C> <C> <C> <C> <C>
Present Stockholders............................ 7,900,000 82.6% $ 1,050,000 9.5% $0.13
New Investors................................... 1,666,668 17.4% 10,000,008 90.5% 6.00
----------- ------ ---------- -----
Total.................................. 9,566,668 100.0% $11,050,008 100.0%
=========== ====== ============= ======
</TABLE>
The foregoing computations do not include (i) 1,575,000 shares of
Common Stock issuable upon the exercise of the Class A Warrants contained in the
Bridge Units; (ii) 1,666,668 shares of Common Stock issuable upon exercise of
the Class A Warrants contained in the Company Units; (iii) 166,666 shares of
Common Stock issuable upon exercise of the Underwriter's Unit Purchase Option;
and (vi) 166,666 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Underwriter's Unit Purchase Option.
- 19 -
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as
of June 30, 1996, and (ii) as adjusted to reflect the sale of the Units offered
hereby at an assumed initial public offering price of $12.00 per Unit and the
application of the estimated net proceeds therefrom. For purposes hereof, no
value has been ascribed to the Class A Warrants included as part of the Units.
<TABLE>
<CAPTION>
June 30, 1996
Actual As Adjusted(1)
<S> <C> <C>
Short-term debt, including current portion
of long-term debt: ............................................ $1,450,000 $ --
Long-term debt.................................................... -- --
Stockholders' equity:
Preferred Stock, par value $.001 per share:
2,000,000 shares authorized, no shares
issued and outstanding................................... -- --
Common Stock, par value $.001 per share:
20,000,000 shares authorized, 6,325,000
shares issued and outstanding; 9,566,668 shares
issued and outstanding as adjusted(2) ................... 6,325 9,567
Additional paid-in capital...................................... 1,125,713 9,552,471
Accumulated deficit............................................. (4,977,742) (4,977,742)
Total stockholders' equity............................... (3,845,704) 4,584,296
---------- -----------
Total capitalization................................. (2,395,704) 4,584,296
=========- ============
</TABLE>
- ------------
(1) Adjusted to give effect to (a) the sale of the Units offered hereby, at an
assumed initial public offering price of $12.00 per Unit and (b) the
application of the estimated net proceeds of this Offering, including (i)
the repayment of the $1,050,000 Bridge Loan and (ii) payments to the
holders of the Convertible Notes. See "Use of Proceeds."
(2) Does not include (i) 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units; (ii)
1,666,668 shares of Common Stock issuable upon exercise of the Class A
Warrants contained in the Company Units; (iii) 166,666 shares of Common
Stock issuable upon exercise of the Underwriter's Unit Purchase Option; and
(iv) 166,666 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Underwriter's Unit Purchase Option.
- 20 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company was incorporated in Delaware in October 1995 under the name
ReSeal Food Dispensing Systems, Inc. and changed its name to International
Dispensing Corporation on September 12, 1996. The Company was formed primarily
for the purpose of commercializing and marketing the Technologies licensed from
RIC, which technologies consist of the Systems composed of: (i) self-adjusting
reservoir bodies, (ii) the Valve Assemblies, and (iii) the Pump Assemblies. When
utilized in dispensing flowable food and beverage products like milk, juice,
wine, etc., 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 System is designed to shrink in proportion to the amount of the product
being dispensed through the Valve Assembly. The 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
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 Technologies in
conjunction with products that have an existing market share, as well as the
System associated with the introduction of new products. See "Business."
RESULTS OF OPERATIONS
The Company has not generated any revenues to date and must be
considered in the development stage. The activities of the Company since
inception in October 1995 have been primarily directed at formational activities
including the completion of initial capitalization, pursuant to which the
Company obtained aggregate capital of $2,250,000. These funds were procured
through the issuance by the Company of the Convertible Notes, the Bridgeholder
Options and the sale of Common Stock. See "Description of Capital Stock."
In addition, the Company has engaged in on-going marketing discussions
with a number of potential strategic alliance partners, licensees and end users
of the ReSeal Technologies. In this regard, discussions have been conducted with
major companies in Canada and the United States to explore opportunities in the
product categories.
See "Business."
The Company has reported a net loss from operations of $977,742 since
inception.
FINANCIAL CONDITION
As reflected in the financial statements, the Company has experienced
continuing net losses and negative cash flows from operations and has maintained
negative working capital and negative equity at June 30, 1996. The Company's
continuing existence is dependent on its ability to raise additional capital and
achieve and maintain profitable operations. The Company continues to be in the
development stage and does not foresee operating revenue until fiscal year 1997.
Management plans to finance the Company by obtaining additional financing
through either this Offering or additional private placements of equity. As of
June 30, 1996, the Company had liquid assets of $488,379.
- 21 -
<PAGE>
BUSINESS
OVERVIEW
The Technologies consist of the Systems composed of (i) self-adjusting
reservoir bodies, (ii) the Valve Assemblies and (iii) the Pump Assemblies. When
utilized in dispensing flowable food and beverage products, 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 System is designed to
shrink in proportion to the amount of the product being dispensed through the
Valve Assembly. The 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 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 Systems was
acquired by RILP for further development and testing. By 1982, implementation of
the Technologies resulted in the creation of Valve Assemblies composed of up to
seventeen different parts. From 1982 to the present many modifications and
improvements were made to the initial Technology in order to produce a
commercially and economically viable product. Such modifications and
improvements have resulted in the development of Valve Assemblies that to date
are composed of only three principal parts and, therefore, have resulted in the
current generation of 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 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 Technologies, RILP obtained patents on the 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 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 Systems for
these markets. The Company is also pursuing marketing opportunities with 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 Systems is expanding as the
Company identifies additional materials and structures which can be combined to
produce Systems that are applicable to a greater number of products in the food
and beverage industries. The most recent generation of Systems employs the
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 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
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 Valve Assemblies are attached. The Company,
based on such test results, believes that Systems, when structured appropriately
for product and use specific objectives, should effectively protect the contents
of the 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
Technologies in the Field of Use (as defined below) from RIC. The 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 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
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
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 Valve Assemblies. "Field of Use" means the use of the Technology to make,
use, lease, sell or distribute (a) any food or beverage dispensers or containers
that embody the Technology or the manufacture, use, lease, sale or distribution
of which uses the 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
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 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 Technologies within the Field of Use
at its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the Technologies in the Field of Use.
STRATEGIC FOCUS
The Company will focus its marketing activities on the application of
the Technologies to the food and beverage industries, specifically the food
service and consumer products markets. First, the Company plans to market the
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 Valve and the 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 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 System.
Second, the Company plans to market the 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 Technology since these
products tend to spoil quickly after being opened and exposed to air and
airborne contaminants, which is what the Systems are designed to prevent. Also,
the 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 System can be
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<PAGE>
used with a variety of tubes and pouches, and thereby is applicable to
condiments, salad dressings and baby foods. The Company believes that the 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 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
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 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 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 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 Systems. It is anticipated that various 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 System dispenses in an outward
direction as product leaves the package, but the system seals itself closed when
the dispensing is completed. Thus, 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 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 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.
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<PAGE>
The 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 System, provides the opportunity for considerably more product
purity and cleanliness.
Design Advantages
The 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 Systems will provide vendors with
the ability to serve and sell perishable products at their optimum temperature.
Possible Future Alliances
The Company plans to enter into strategic alliances, supply agreements,
direct license agreements and joint ventures with leaders in the food and
beverage industry. However, to date, the Company has not entered into any such
alliances, agreements or ventures and there can be no assurance that the Company
will be able to in the future. Under such agreements, the Company anticipates
that under some circumstances the sublicensee will pay a license fee of a
negotiated sum to the Company upon entering into the sublicense. Thereafter, the
Company would receive income from sale of Valve Assemblies or other components
of the Systems and, under certain circumstances, royalties and profits from the
sale of products employing the Technologies. The Company may provide the
relevant Technologies to its customers and, with input from the customers,
assist in transferring and adapting the Technologies to specific product
requirements. As some customers may choose to take a more active role in
adapting the Technologies to their specific product, a portion of development
and marketing costs and a portion of the costs of adapting the 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
Technologies.
All component parts of the Systems must be made of materials which are
compatible with the specific contents or formulation to be dispensed. 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 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 Systems for various applications
and product categories. The Company will endeavor to integrate other existing
technology with Systems which can be commercialized, marketed and manufactured
in a wide variety of applications, worldwide. The Company anticipates that, in
many cases, the 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 System will offer basic mechanical advantages,
including without limitation portion control and a pumping mechanism that will
enable customers to mix concentrates (such as teas and juices) with water when
being served.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
RILP has been granted numerous patents and trademarks covering Systems
and their component parts.
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)
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<PAGE>
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/Allowed;Application No.
08/327,608
9. A one-way vacuum actuated sheath valve with a flat elastic membrane
held in tension over a convex valve platform under a conforming cover
with inlet and outlet channels. The cover includes an expansion area on
the cover surface adjacent to the membrane and between the inlet and
outlet. Liquid flows through the valve when it is drawn by a vacuum.
The vacuum operates on both the flow path exit, but also above the
membrane, lifting it to open the flow path. Discontinuance of the
vacuum allows the membrane to seal the inlet and outlet, thus again
preventing any flow between them.
U.S. Patent Pending/Allowed; Application No.
08/398,771
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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 September 11, 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 Technologies to food and
beverage industries. In addition, Michael Handler has been hired as a
consultant. The backgrounds and experience of these individuals are set forth in
the section entitled "Management."
LITIGATION
The Company is not a party to any legal proceedings. However, certain
affiliates of RIC and the Company were named as defendants in a complaint filed
on or about October 31, 1994, alleging, among other things, breach of fiduciary
duty, mismanagement, waste and fraud. A settlement in connection therewith has
been entered into, which includes the dismissal with prejudice of the lawsuit.
See "Certain Relationships and Related Transactions--Settlements of Legal
Proceedings--Stanson Settlement."
In addition, certain affiliates of RIC and the Company were named as
defendants in a complaint filed on or about December 11, 1992, alleging, among
other things, violation of certain federal securities laws, common law fraud and
negligent misrepresentation. A settlement in connection therewith has been
entered into, which provides for the eventual dismissal with prejudice of the
lawsuit upon satisfaction of certain conditions. See "Certain Relationships and
Related Transactions--Settlements of Legal Proceedings--Banco Settlement."
MANAGEMENT
The executive officers, directors and significant employees of the
Company are as follows:
Name Age Position(s)
---- --- -----------
David W. Brenman 40 President, Treasurer and Director
Joseph F. Koster, Jr. 61 Secretary and Director
George V. Kriste 49 Director
Gregory B. Abbott 46 Director
Jon D. Silverman 55 Consultant
Michael D. Handler 46 Consultant
David W. Brenman has been the President, Treasurer and a director of
the Company since its inception. He also has served as a member of the Executive
Committee, Chief Financial Officer and Treasurer of RIC from May 1993 through
September 12, 1996 and has been a director 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.
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<PAGE>
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 on the Board of Trustees of the United Hospital, Port Chester, New York
for the past 15 years (he is currently an Honorary Trustee) and for a number of
years, prior to May 1995, had served as Vice Chairman thereof; 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.
Michael D. Handler has served as a consultant to the Company since
March 1996. Since January 1994, he has been the President and Chief Executive
Officer of Nologies, Inc. ("Nologies"), a product and technology development
company. From May 1993 through January 1994, he held various positions with RIC
and its affiliates, including Vice President of Research and Development. Prior
thereto he worked at a private contract research and development consulting
company for 19 years. He has 25 years of experience in the management and
implementation of research and development activities.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
for services, in all capacities for fiscal 1995, of those persons who were, at
the end of fiscal 1995, the Chief Executive Officer and the most highly
compensated executive officers of the Company (collectively, the "Named
Officers").
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
Other
Name and Annual Restricted Securities All
Principal Fiscal Compensation Stock Underlying Other
Position(1) Year Salary($) Bonus($) ($)(2) Awards($) Options(#) Compensation($)
----------- ---- --------- -------- ------ --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
David Brenman 1995 $18,000 -- -- -- -- --
President
</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 key-man life
insurance policy to be maintained by the Company on the life of Mr. Silverman.
He will also be entitled to customary benefits and perquisites.
Michael D. Handler
The Company has entered into an agreement, dated March 5, 1996, with
Nologies, under which Nologies will assist in (i) the directing and managing of
product and technology development, (ii) licensing and strategic alliance
pursuits, and (iii) other related services that the Company may request from
time to time, in the area of food and beverage dispensing and delivery systems.
The term of such agreement is for twelve months and may be terminated upon 30
days written notice. The Company shall pay Nologies $8,000 per month and
reimburse it for reasonable documented business expenses. Pursuant to the terms
of such agreement, Nologies agrees (a) not to disclose, at any time, any
confidential business or technical information or trade secrets acquired during
its association with the Company and which relates to the present or
contemplated business of the Company, whether or not conceived of, discovered,
developed or prepared by Nologies, (b) during the term of the agreement and for
a one year period thereafter, it will not represent, consult, serve, or be
employed by any competing enterprise, and (c) never to divulge any confidential
information to any third party.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
permits indemnification by a corporation of certain officers, directors,
employees and agents. Consistent therewith, Article Eighth of the Certificate of
Incorporation requires that the Company indemnify all persons whom it may
indemnify pursuant thereto to the fullest extent permitted by Section 145.
In addition, Article Seventh of the Certificate of Incorporation
provides that directors and officers of the Company shall not be personally
liable for monetary damages to the Company or its stockholders for a breach of
fiduciary duty as a director, except for liability as a result of (i) a breach
of the director's duty of loyalty to the Company or its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) an act related to the unlawful stock repurchase
or payment of a dividend under Section 174 of Delaware General Corporation Law,
and (iv) transactions from which the director derived an improper personal
benefit.
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<PAGE>
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LICENSE AGREEMENT
The Company has licensed the 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 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
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 Valve Assemblies. From October 1995 to the Effective Date, the Company has
paid RIC $750,000 and has advanced an aggregate of approximately $550,000 to
RIC, which shall be offset against the $4,000,000 license fee discussed above.
The remaining $2,700,000 shall be paid out of the proceeds of this Offering
received by the Company.
The Company is primarily responsible for all research and development
activities necessary to exploit fully the commercial possibilities of the
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 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 Technologies within the Field of Use
at its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the Technologies in the Field of Use.
See "Business--License Agreement."
PRIVATE PLACEMENT; BRIDGE FINANCING
Between October 1995 and April 1996, the Company (i) sold an aggregate
of 525,000 shares of Common Stock to the Selling Securityholders for a total of
$1,050,000 (the "Private Placement") and (ii) entered into the Bridge Loan with
the Selling Securityholders in the aggregate amount of $1,050,000. Each Selling
Securityholder participated in both the Private Placement and the Bridge Loan.
The Bridge Loan bears interest at the rate of eight (8%) percent per annum and
will be repaid out of the proceeds of this Offering received by the Company. As
further consideration for the Bridge Loan, the Selling Securityholders were
given the right to acquire, commencing on the Effective Date, the 787,500 Bridge
Units which are comprised of 1,575,000 shares of Common Stock and 1,575,000
Class A Warrants. The Class A Warrants included in the Bridge Units are
identical to the Class A Warrants included in the Company Units. The Company and
the Selling Securityholders are in the process of
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amending the Bridge Loan agreements to reflect that all of the 787,500 Bridge
Units will be outstanding prior to this Offering and will be included in the
Registration Statement. The Registration Statement, of which this Prospectus
forms a part, also covers the registration of (i) the 1,575,000 shares of Common
Stock included as part of the Bridge Units, (ii) the Class A Warrants to
purchase 1,575,000 shares of Common Stock included as part of the Bridge Units,
and (iii) the 1,575,000 shares of Common Stock issuable upon exercise of the
Class A Warrants included in the Bridge Units. The Bridge Securities held by the
Selling Securityholders may be sold commencing thirteen (13) months from the
Effective Date; however, the Underwriter may release the Bridge Securities held
by the Selling Securityholders at any time after the Company Units have been
sold. If the Underwriter releases the Bridge Securities (which has happened in
previous offerings underwritten by the Underwriter), then sales of such
securities, as well as the potential of such sales at any time, may have an
adverse effect on the market prices of the securities offered hereby. The resale
of the Bridge Securities of the Selling Securityholders are subject to
prospectus delivery and other requirements of the Securities Act. The Company
will not receive any of the proceeds from the sale of the Bridge Securities.
Should the Class A Warrants offered by the Selling Securityholders be exercised,
of which there is no assurance, the Company will receive the proceeds therefrom
aggregating up to an additional $11,025,000. The Class A Warrants are redeemable
upon certain conditions.
Prior to making the Bridge Loan to the Company and purchasing shares of
Common Stock in the Private Placement, the Selling Securityholders did not own
any other securities of the Company. None of the Selling Securityholders were
otherwise affiliated with the Company at the time of making the Bridge Loan, at
the Effective Date or at any other time. The Company believes that its financial
transactions with the Selling Securityholders served a legitimate business
purpose, i.e., providing needed working capital for the Company, and were fair
and reasonable under the circumstances. The Company's financial transactions
with the Selling Securityholders were managed by the Underwriter and no
commissions or other remuneration were paid to the Underwriter in connection
with such transactions. To the extent that the Underwriter acts as a
broker-dealer for the Selling Securityholders in connection with effecting the
sale of their securities, the Underwriter would receive brokerage and commission
income. See "Selling Securityholders," "Description of Capital Stock" and
"Underwriting."
CONVERTIBLE NOTES
In November and December 1995, the Company issued to each of Ross
Portenoy and ATG Group, Inc. a Convertible Note in the principal amount of
$100,000 (the "Portenoy Note") and $50,000 (the "ATG Note"), respectively. The
notes bear interest at an annual rate of 8%. The Portenoy Note came due on April
15, 1996 and the ATG Note comes due on December 20, 1996. On June 28, 1996, in
accordance with an agreement with the Company, the holder of the ATG Note, which
contained the right to convert into 1.2 million shares of Common Stock, agreed
to transfer such note to the Company for cancellation in return for the Company
agreeing to pay it $300,000. The amounts owed by the Company to the holders of
the Convertible Notes shall be paid out of the proceeds of this Offering
received by the Company. See "Use of Proceeds."
SETTLEMENTS OF LEGAL PROCEEDINGS
Stanson Settlement
In October 1995, in connection with a settlement of actions and claims
against certain affiliates of RIC and RIC's officers and directors, including
David Brenman (the "Stanson Settlement"), the licensor of the 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."
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<PAGE>
Banco Settlement
In May 1996, in connection with the settlement of a lawsuit (the "Banco
Settlement") brought by Banco Inversion, S.A. and Administratadora General de
Patrimonios, S.A. (collectively, "Banco") against certain affiliates of RIC, RIC
entered into an agreement pursuant to which it agreed, among other things, (i)
to transfer an aggregate of 300,000 of its shares of the Company's Common Stock
(the "Settlement Shares") to Banco, (ii) to pay Banco $50,000 at the closing of
such settlement and $150,000 out of the licensing fees RIC receives from the
proceeds of this Offering and (iii) to exchange mutual releases with the parties
of such lawsuit.
The number of Settlement Shares, subject to certain anti-dilution
adjustments, may be increased up to 600,000 shares in the event that 30 months
after the Effective Date the market value of the 300,000 Settlement Shares is
less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the
right to register such shares along with shares registered by the Company in a
public offering, whether on behalf of the Company or other holders of Common
Stock, subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act. See "Description of Capital
Stock--Registration Rights."
EMPLOYMENT AND NON-COMPETE AGREEMENTS
It is anticipated that the Company will enter into a three-year
employment agreement with Jon Silverman upon the closing of this Offering.
Pursuant to such proposed employment agreement, Mr. Silverman will receive a
monthly salary of $15,000. In addition, the Company will be obligated to pay the
premium on his $1,000,000 life insurance policy, to which his estate is the
beneficiary. This insurance policy is in addition to the $1,000,000 key-man life
insurance policy to be maintained by the Company on the life of Mr. Silverman.
He will also be entitled to customary benefits and perquisites.
The Company has entered into an agreement, dated March 5, 1996, with
Nologies, under which Nologies will assist in (i) the directing and managing of
product and technology development, (ii) licensing and strategic alliance
pursuits, and (iii) other related services that the Company may request from
time to time, in the area of food and beverage dispensing and delivery systems.
The term of such agreement is for twelve months and may be terminated upon 30
days written notice. The Company shall pay Nologies $8,000 per month and
reimburse it for reasonable documented business expenses. Pursuant to the terms
of such agreement, Nologies agrees (a) not to disclose, at any time, any
confidential business or technical information or trade secrets acquired during
its association with the Company and which relates to the present or
contemplated business of the Company, whether or not conceived of, discovered,
developed or prepared by Nologies, (b) during the term of the agreement and for
a one year period thereafter, it will not represent, consult, serve, or be
employed by any competing enterprise, and (c) never to divulge any confidential
information to any third party. Michael D. Handler is the President and Chief
Executive Officer of Nologies.
RENTAL SHARING
The Company may, at its own discretion, make payments for certain
expenses incurred by RIC and withhold such amounts from the licensing fees due
to RIC under the Company License Agreement. Such expenses, if advanced, may
include certain salaries, patent costs, insurance, medical plans, rent, phone
and office supplies, which in the past has aggregated approximately $21,000 per
month.
All of the transactions indicated above are on terms no less favorable
to the Company than those which could reasonably have been obtained from
non-affiliated third parties. In addition, any future transactions with
affiliates will be on terms no less favorable to the Company than those which
could reasonably be obtained from non-affiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of September 11, 1996, and
as adjusted to reflect the sale of shares offered hereby, for (i) each person or
group that is known by the Company to be a beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each of the Named Officers and
directors, and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that such beneficial
owners, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws,
where applicable.
<TABLE>
<CAPTION>
Percent Owned(2)
----------------
Name and Address Number
of Beneficial Owner(1) of Shares Before Offering(3) After Offering(4)
- ---------------------- --------- ------------------ -----------------
<S> <C> <C> <C>
ReSeal International Corporation 2,375,000(5) 30.1% 24.8%
342 Madison Avenue, Suite 1034
New York, New York 10173
Jon Silverman 500,000 6.3% 5.2%
c/o International Dispensing Corporation
342 Madison Avenue, Suite 1034
New York, New York 10173
Gregory Abbott 422,000 5.3% 4.4%
c/o International Dispensing Corporation
342 Madison Avenue, Suite 1034
New York, New York 10173
David Brenman 253,000(6) 3.2% 2.6%
Joseph Koster 158,000 2.0% 1.7%
George Kriste 130,000 1.6% 1.4%
All directors and executive officers as a group 963,000 12.2% 10.1%
(4 persons)
</TABLE>
- ------------
(1) Address provided for beneficial owners of more than 5% of the Common Stock.
(2) For purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security
which such person or persons have or have the right to acquire within 60
days is deemed to be outstanding but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(3) Does not include the 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units.
(4) Does not include (i) 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units; (ii)
1,666,668 shares of Common Stock issuable upon the exercise of the Class A
Warrants contained in the Company Units; (iii) 166,666 shares of Common
Stock issuable upon the exercise of the Underwriter's Unit Purchase Option;
and (iv) 166,666 shares of Common Stock issuable upon the exercise of the
Class A Warrants included in the Underwriter's Unit Purchase Option.
(5) This number may be reduced by 150,000 shares in the near future, since RIC
anticipates transferring such number of shares to one of its stockholders
in exchange for shares of RIC that such individual owns.
(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.
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<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 September 11, 1996, there were
approximately 40 record holders of the Common Stock.
UNITS
Each of the Units offered hereby consists of two shares of Common Stock
and two redeemable Class A Warrants. Each Class A Warrant entitles the holder
thereof to purchase one share of Common Stock. The Class A Warrants shall be
exercisable commencing one year from the Effective Date and shall be evidenced
by separate certificates. The Common Stock and Class A Warrants are detachable
and may trade separately immediately upon issuance.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote.
Holders of the Common Stock have equal ratable rights to dividends from funds
legally available therefor, when, as and if declared by the Board of Directors
and are entitled to share ratably, as a single class, in all of the assets of
the Company available for distribution to holders of shares of Common Stock upon
the liquidation, dissolution or winding up of the affairs of the Company.
Holders of Common Stock do not have preemptive, subscription or conversion
rights. There are no redemption or sinking fund provisions for the benefit of
the Common Stock in the Certificate of Incorporation. The Company's stockholders
do not have the right to cumulative voting in the election of directors. All
outstanding shares of Common Stock are, and those shares of Common Stock
included in the Units offered hereby and issuable upon exercise of the Class A
Warrants included in such Units will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued in series, and shares of each series
will have such rights and preferences as are fixed by the Board of Directors in
the resolutions authorizing the issuance of that particular series. In
designating any series of Preferred Stock, the Board of Directors may, without
further action by the holders of Common Stock, fix the number of shares
constituting that series and fix the dividend rights, dividend rate, conversion
rights, voting rights (which may be greater or lesser than the voting rights of
the Common Stock), rights and terms of redemption (including any sinking fund
provisions) and the liquidation preferences of the series of Preferred Stock.
Holders of any series of Preferred Stock, when and if issued, may have priority
claims to dividends and to any distributions upon liquidation of the Company,
and other preferences over the holders of the Common Stock.
The Board of Directors may issue a series of Preferred Stock without
action by the stockholders of the Company. The issuance of Preferred Stock may
adversely affect the rights of the holders of the Common Stock. For example, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the stockholders. In addition, the issuance of
Preferred Stock may dilute the voting power of holders of Common Stock (such as
by issuing Preferred Stock with supervoting rights) and may render more
difficult the removal of current management, even if such removal may be in the
stockholders' best interests. The Company has no current plans to issue any of
the Preferred Stock.
CLASS A WARRANTS
The Class A Warrants will be issued in registered form pursuant to an
agreement, dated the Effective Date (the "Warrant Agreement"), between the
Company and American 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 $7.00, subject
to adjustment (the "Purchase Price"). The Class A Warrants will be
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<PAGE>
entitled to the benefit of adjustments in the Purchase Price and in the number
of shares of Common Stock and/or other securities deliverable upon the exercise
thereof in the event of a stock dividend, stock split, reclassification,
reorganization, consolidation, merger or the issuance of Common Stock or options
to purchase Common Stock at a price below the Purchase Price then in effect. The
Company has the right to reduce the Purchase Price or increase the number of
shares of Common Stock issuable upon the exercise of the Class A Warrants.
Unless previously redeemed, the Class A Warrants may be exercised at
any time commencing one year from the Effective Date and prior to the close of
business on the fifth anniversary of the Effective Date (the "Expiration Date").
On and after the Expiration Date, the Class A Warrants become wholly void and of
no value. The Company may, upon 30 days written notice to all holders of the
Class A Warrants, reduce the exercise price or extend the Expiration Date of all
outstanding Class A Warrants for such increased period of time as it may
determine. The Class A Warrants may be exercised at the office of the Warrant
Agent.
The Company has the right at any time after the second anniversary of
the Effective Date to redeem the Class A Warrants at a price of $.05 each, by
written notice mailed 30 days prior to the redemption date to each Class A
Warrant holder at his address as it appears on the books of the Warrant Agent.
Such notice shall only be given within 10 days following any period of 20
consecutive trading days during which the average closing bid price of the
shares of Common Stock as reported by the OTC Bulletin Board exceeds $8.00,
subject to adjustments for stock dividends, stock splits and the like. If the
Class A Warrants are called for redemption, they must be exercised prior to the
close of business on the date prior to the date of any such redemption or the
right to purchase the applicable shares of Common Stock will lapse.
The Warrants may be exercised by filling out and signing the
appropriate notice of exercise form attached to the Warrant and mailing or
delivering it (together with the Warrant) to American Stock Transfer & Trust
Company of New York, New York, the Warrant Agent, in time to reach the Warrant
Agent prior to the time fixed for termination or redemption of the Warrants,
accompanied by payment of the full warrant exercise price.
No holder, as such, of Class A Warrants shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purpose whatsoever until such Class A Warrants have been duly exercised and the
Purchase Price has been paid in full. Although the Company intends to apply for
the Warrants to be included for quotation on the OTC Bulletin Board, of which
there can be no assurance, at the present time there is no market for the
Warrants and there can be no assurance that a trading market for the Warrants
will ever develop.
If required, the Company will file a new registration statement with
the Commission with respect to the securities underlying the Class A Warrants
prior to the exercise of the Class A Warrants and deliver a prospectus with
respect to such securities to all Class A Warrant holders as required by Section
10(a)(3) of the Securities Act. See "Risk Factors--Current Prospectus and State
Registration Required to Exercise Class A Warrants."
BRIDGE UNITS
In connection with the Bridge Loans, the Company issued to the Selling
Securityholders options to receive an aggregate of 787,500 Bridge Units. Each
Bridge Unit contains two shares of Common Stock and two Class A Warrants. The
Class A Warrants included in the Bridge Units are identical to the Class A
Warrants included in the Company Units. The Selling Securityholders and the
Company have amended the Bridge Loan agreements to reflect that all of the
787,500 Bridge Units are outstanding prior to this Offering. The Registration
Statement, of which this Prospectus forms a part, covers the 787,500 Bridge
Units, the 1,575,000 shares of Common Stock and the 1,575,000 Class A Warrants
contained in the Bridge Units, and the 1,575,000 shares of Common Stock
underlying the Class A Warrants contained in the Bridge Units, although the
Company will not receive any of the proceeds from the sale of such securities.
The Bridge Securities are not transferable until the earlier of 13 months
following the Effective Date or at such earlier date as may be permitted by the
Underwriter. The securities underlying the Bridge Units may trade separately.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company will be subject to the provisions of Section 203 of the
General Corporation Law of Delaware. Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"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
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<PAGE>
Directors prior to the date the interested stockholder obtained such status or
(ii) the holders of two-thirds of the outstanding shares of each class or series
of stock entitled to vote generally in the election of directors, not including
those shares owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or, more of the
corporation's voting stock.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violating of
law. The Company's Certificate of Incorporation also contains provisions to
indemnify its directors and officers to the fullest extent permitted by the
General Corporation Law of Delaware. These provisions have the practical effect
in certain cases of eliminating the ability of stockholders to collect damages
from such individuals. The Company believes that these provisions have assisted
the Company in attracting and retaining qualified individuals to serve as
directors and officers.
REGISTRATION RIGHTS
Pursuant to the terms of the Stanson Settlement, the holders of the
Investor Shares may require the Company to file a Registration Statement under
the Securities Act with respect to 25% of such shares of Common Stock,
commencing one year from the Effective Date, subject to certain conditions and
limitation. Further, if the Company proposes to register any shares of Common
Stock under the Securities Act, other than pursuant to an initial public
offering or the previous sentence, then the holders of the Investor Shares are
entitled to include an additional 25% of their shares of Common Stock in such
registration. See "Certain Relationships and Related Transactions--Settlement of
Legal Proceedings."
Under the terms of a Registration Rights Agreement entered into in
connection with the Banco Settlement, if the Company proposes to register any
shares of Common Stock, either for its own account or the account of holders of
shares having registration rights, other than pursuant to an initial public
offering or the registration of any of the Bridge Units and its underlying
securities, then Banco or their successors are entitled to notice of such
registration and to include their shares of Common Stock in such registration.
These rights are subject to certain conditions and limitations, including the
right of the underwriter to limit the number of shares included in such
registration. See "Certain Relationships and Related Transactions--Settlements
of Legal Proceedings."
Upon the consummation of this Offering, the Company will issue, for
nominal consideration, an Underwriter's Unit Purchase Option to acquire up to an
aggregate of 83,333 Units, which Units contain certain registration rights under
the Securities Act relating to the shares of Common Stock constituting a portion
of such Units and the shares of Common Stock issuable upon exercise of the Class
A Warrants that make up the remainder of such Units (collectively, the "Option
Shares"). Under the terms of the Underwriter's Unit Purchase Option, the Company
is obligated to register all or part of the Option Shares if it receives a
request to do so by the holders owning or entitled to purchase at least 50% of
the Option Shares, provided that the request is made 12 months after the
Effective Date. The Underwriter's Unit Purchase Option provides for one such
request, which will be at the Company's expense, other than legal fees and
expenses of the holders, and underwriting discounts and commissions on
securities sold by such holders. The demand registration rights contained in the
Underwriter's Unit Purchase Option will expire no later than five years from the
Effective Date. In addition, if the Company proposes to register any of its
securities under the Securities Act for its own account, holders of the
Underwriter's Unit Purchase Option or Option Shares are entitled to notice of
such registration and the Company is obligated to use all reasonable efforts to
cause the Option Shares to be included, provided that the underwriter of any
such offering shall have the right to limit the number of shares included in the
registration. The Company is responsible for all expenses incurred in connection
with any such piggyback registration of the Option Shares, other than legal fees
and expenses of the holders, and underwriting discounts and commissions on
securities sold by such holders. The piggyback registration rights contained in
the Underwriter's Unit Purchase Option will expire no later than five years from
the Effective Date.
Prior to this Offering, there has been no public market for the
Company's securities. The Company can make no prediction as to the effect, if
any, that sales of the Company's securities or the availability of such
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
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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 American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 7,900,000 shares of Common Stock currently outstanding may
be deemed "restricted securities" as that term is defined under the Securities
Act, and in the future may be sold pursuant to a registration under the
Securities Act, in compliance with Rule 144 under the Securities Act, or
pursuant to another exemption therefrom. Rule 144 provides, that, in general, a
person holding restricted securities for a period of two years and any affiliate
of the Company may, every three months, sell in brokerage transactions an amount
of shares which does not exceed the greater of one percent of the Company's then
outstanding Common Stock or the average weekly trading volume of the Common
Stock during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of shares without any quantity limitations
by a person who is not an affiliate of the Company and was not an affiliate at
any time during the 90 day period prior to sale and who has satisfied a three
year holding period. Sales of the Common Stock by certain present stockholders
under Rule 144 may, in the future, have a depressive effect on the market price
of the Company's securities.
The Company has agreed that, with certain exceptions, it will not
offer, sell, grant any option to purchase or otherwise issue any of its
securities for a period of 24 months after this Offering is complete without the
prior consent of the Underwriter. In addition, the holders of all of the
restricted securities have agreed not to offer, sell, grant any option to
purchase or otherwise dispose of any securities of the Company for a period of
24 months after this Offering is completed without the prior consent of the
Underwriter other than certain transfers between related parties or entities.
See "Risk Factors--Shares Eligible for Future Sale" and "Underwriting."
This Offering includes 787,500 shares of Common Stock owned by the
Selling Securityholders. The shares of Common Stock held by the Selling
Securityholders may be sold commencing thirteen (13) months from the Effective
Date, subject to earlier release at the sole discretion of the Underwriter, and
such securities include a legend with such restrictions. The Underwriter may
release the securities held by the Selling Securityholders at any time after all
of the Company Units have been sold. The resale of the Bridge Securities is
subject to prospectus delivery and other requirements of the Securities Act. The
early release of the Selling Securityholders' Bridge Securities, which has
occurred in previous offerings underwritten by the Underwriter, or the potential
of such sales at any time, may have an adverse effect on the market prices of
the securities offered hereby. See "Certain Relationships and Related
Transactions," "Selling Securityholders" and "Underwriting."
- 37 -
<PAGE>
SELLING SECURITYHOLDERS
This Offering includes the 787,500 Bridge Units, consisting of
1,575,000 shares of Common Stock and 1,575,000 Class A Warrants. The Class A
Warrants included in the Bridge Units are identical to the Class A Warrants
included in the Company Units. The Bridge Securities are all being registered
for resale under the Registration Statement, of which this Prospectus forms a
part, but may not be sold for a period of 13 months from the Effective Date
without the prior written consent of the Underwriter. The Underwriter may
release the Bridge Securities held by the Selling Securityholders at any time
after the Company Units have been sold. The resale of the Bridge Securities is
subject to prospectus delivery and other requirements of the Securities Act. If
the Underwriter releases the Selling Securityholders' Bridge Securities (which
has happened in previous offerings underwritten by the Underwriter), then sales
of the Bridge Securities, as well as the potential of such sales at any time,
may have an adverse effect on the market prices of the securities offered
hereby. See "Underwriting."
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF COMMON STOCK
SHARES OF CLASS A OWNED NUMBER OF
COMMON STOCK WARRANTS PRIOR TO SHARES COMMON STOCK OWNED
BRIDGE UNDERLYING UNDERLYING OFFERING(1) TO BE AFTER OFFERING (1)(3)
UNITS BRIDGE UNITS BRIDGE UNITS NUMBER PERCENT OFFERED(2) NUMBER PERCENT
<S> <C> <C> <C> <C> <C> <C> <C>
NAME OF INVESTOR
Armstrong Industries 131,250 262,500 262,500 612,500 7.5% 525,000 87,500 *
Harvey Bibicoff 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Calvin Caldwell 46,875 93,750 93,750 218,750 2.7 187,500 31,250 *
Edward Ferree 18,750 37,500 37,500 87,500 1.1 75,000 12,500 *
Andre Van Gils 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Daryl Hagler 18,750 37,500 37,500 87,500 1.1 75,000 12,500 *
Irving Kraut 93,750 187,500 187,500 437,500 5.4 375,000 62,500 *
David Landau 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Steven Madden 75,000 150,000 150,000 350,000 4 .3 300,000 50,000 *
Roger Oppenheimer 9,375 18,750 18,750 43,750 * 37,500 6,250 *
Plus One Finance Ltd. 56,250 112,500 112,500 262,500 3.3 225,000 37,500 *
Douglas Preston 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Rotanes Inc. 18,750 37,500 37,500 87,500 1.1 75,000 12,500 *
Raphael Schneiderman 93,750 187,500 187,500 437,500 5.4 375,000 62,500 *
Harry Shuster 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
Lloyd Solomon 37,500 75,000 75,000 175,000 2.2 150,000 25,000 *
-------- ----------- ----------- ------- -------
Total 787,500 1,575,000 1,575,000 3,150,000 525,000
======= ========= ========= ========= =======
</TABLE>
* less than 1%
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire after the Effective Date. For purposes of computing
the percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or persons has
or have the right to acquire after the Effective Date is deemed to be
outstanding but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community
property laws, the Company believes based on information supplied by such
persons, that the persons named in this table have sole voting power with
respect to all shares of Common Stock which they beneficially own.
(2) Includes the shares of Common Stock included in the Bridge Units and the
shares of Common Stock underlying the Class A Warrants included in the
Bridge Units.
(3) Assumes the sale of all Bridge Units registered in this Offering.
The Bridge Securities offered hereby may be sold from time to time
directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer such securities through
underwriters, dealers or agents. The distribution of Bridge Securities by the
Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated
- 38 -
<PAGE>
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders in connection with such
sales of Bridge Securities. The Selling Securityholders and intermediaries
through whom such securities are sold may be deemed "underwriters" within the
meaning of the Securities Act with respect to the Bridge Securities offered, and
any profits realized or commission received may be deemed underwriting
compensation.
Under the Exchange Act and the regulations thereto, any person engaged
in a distribution of the Securities offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities during the applicable "cooling off" period (nine days) prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation, Rule 10b-6 and 10b-7, in connection with transactions in such
securities, which provisions may limit the timing of purchases and sales of such
securities by the Selling Securityholders.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed to sell on behalf of the
Company 833,334 Company Units on a "best efforts, all-or-none" basis during the
Offering Period. The Underwriter has made no commitment to purchase or take down
all or any part of the Units offered hereby. The Underwriter has agreed to use
its best efforts to find purchasers for the Company Units offered hereby within
a period of 90 days from the Effective Date, subject to an extension by mutual
agreement of the parties for an additional period of 30 days. Each subscriber
will receive from the Underwriter confirmation of his subscription to purchase
Company Units with instructions to forward their funds to the escrow agent. All
proceeds raised in this Offering from sales of Company Units will be deposited
by noon of the next business day following receipt, in an escrow account. All
subscriber checks will be made payable to the escrow agent, as escrow agent for
the Company. If all the Company Units are not sold within 90 days from the
Effective Date (which may be extended an additional 30 days) and the offering is
cancelled, all monies received and held in the escrow account will be promptly
returned to the investor without interest thereon. In addition, during the
period of escrow, subscribers will not be entitled to a refund of their
subscription.
The Underwriter has advised the Company that it proposes to offer the
Units to the public at $12.00 per Unit as set forth on the cover page of this
Prospectus and that it may allow to certain dealers who are NASD members
concessions not to exceed $[____] per Unit. The Units will be sold on a fully
paid basis only. Common Stock and Warrant certificates will be issued to
purchasers only if the proceeds from the sale of all Company Units are released
to the Company. Until such time as the funds have been released by the escrow
agent, such purchasers, if any, will be deemed subscribers and not stockholders.
The funds in escrow will be held for the benefit of those subscribers until
released to the Company, and will not be subject to creditors of the Company or
the expenses of this Offering. After the initial public offering, the public
offering price, concession and allowance may be changed by the Underwriter. The
Underwriter has informed the Company that it does not intend to confirm sales to
any accounts over which it exercises discretionary authority.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be provided to officers, directors or persons controlling the
Company, the Company has been informed that in the opinion of the Commission,
such indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay the Underwriter, in addition to
underwriting discounts and commissions of eight and one-half (8.5%) percent of
the proceeds from sales of Company Units, a non-accountable expense allowance of
three (3%) percent of the gross proceeds of this Offering from the sale of the
Company Units. The Underwriter's expenses in excess of the stated expense
allowance will be borne by the Underwriter. To the extent that the expenses of
the Underwriter are less than the stated expense allowance, the difference may
be deemed compensation to the Underwriter in addition to the sales commission
payable to the Underwriter. The Company has also agreed to pay to the
Underwriter a fee of four (4%) percent of the exercise price of the Class A
Warrants on all Class A Warrants exercised one year after the Effective Date
(not including Class A Warrants exercised by the Underwriter), provided, among
other things, that the exercising warrantholder identifies the Underwriter in
writing as having solicited the exercise of such Class A Warrants and that the
fees paid are in compliance with Rule 2710(c)(6)(B)(xi) of the NASD Conduct
Rules.
- 39 -
<PAGE>
The Company has agreed to sell to the Underwriter, or its designees,
for a purchase price of $.001 per underlying Unit, the Underwriter's Unit
Purchase Option to purchase up to an aggregate of 83,333 Units. The
Underwriter's Unit Purchase Option shall be exercisable for a term of four (4)
years commencing twelve (12) months after the Effective Date. The Underwriter's
Unit Purchase Option may not be assigned, transferred, sold or hypothecated by
the Underwriter until twelve (12) months after the Effective Date, except to
officers of the Underwriter. Any profits realized by the Underwriter upon the
sale of the Units issuable upon exercise of the Underwriter's Unit Purchase
Option may be deemed to be additional underwriting compensation. The exercise
price of the Units issuable upon exercise of the Underwriter's Unit Purchase
Option during the period of exercisability shall be 165% of the initial public
offering price of the Units ($19.80 per Unit). The exercise price of the Class A
Warrants included in the Units issuable upon exercise of the Underwriter's Unit
Purchase Option during the period of exercisability shall be 165% of the
exercise price of the Class A Warrants included in the Company Units and the
Bridge Units ($11.55 per Unit). The exercise price of the Underwriter's Unit
Purchase Option and the Class A Warrants included thereunder, as well as the
number of shares covered thereby, are subject to adjustment in certain events to
prevent dilution. For the life of the Underwriter's Unit Purchase Option, the
holders thereof are given, at a nominal cost, the opportunity to profit from a
rise in the market price of the Company's Units, Common Stock and Class A
Warrants with a resulting dilution in the interest of other stockholders. The
Company may find it more difficult to raise capital for its business if the need
should arise while the Underwriter's Unit Purchase Option is outstanding. At any
time when the holders of the Underwriter's Unit Purchase Option might be
expected to exercise it, the Company would probably be able to obtain additional
capital on more favorable terms. See "Description of Capital Stock--Registration
Rights."
For a period of five (5) years following the Effective Date, if the
Company enters into a transaction (including a merger, joint venture or the
acquisition of another entity) introduced to the Company by the Underwriter, the
Company has agreed to pay the Underwriter a finder's fee equal to (i) 5.0% of
the first $3,000,000 of consideration involved in the transaction, (ii) 4.0% of
the next $3,000,000 of such consideration, (iii) 3.0% of the next $2,000,000 of
such consideration, (iv) 2.0% of the next $2,000,000 of such consideration and
(v) 1.0% of such consideration in excess of $10,000,000.
As of the Effective Date, all of the Company's stockholders have agreed
that with respect to all of the shares held by them, they will not sell,
transfer, pledge or otherwise encumber any securities of the Company for a
period of 24 months from the Effective Date, without the Underwriter's prior
written consent. Moreover, except for the issuance of shares of capital stock by
the Company in connection with a dividend, recapitalization, reorganization or
similar transaction or as a result of the exercise of warrants or outstanding
options disclosed in the Registration Statement, the Company shall not, for a
period of 24 months following the Effective Date, directly or indirectly, offer,
sell or issue any shares of its Common Stock, or any security exchangeable or
exercisable for, or convertible into, shares of Common Stock, without the prior
written consent of the Underwriter.
In accordance with the Underwriting Agreement, the Underwriter is
entitled to designate an observer (the "Board Observer") to the Board of
Directors, who will be kept apprised of all material activities conducted by the
Board, including being in attendance at all meetings of the Board. The Board
Observer will not be reimbursed for expenses incurred by him in connection with
his activities.
Following the consummation of this Offering, the Underwriter intends to
seek others to make a market in the Company's securities in addition to the
Underwriter. As of the Effective Date, no such others have been identified and
the Underwriter has not entered into any agreements, contracts, understandings
or guarantees with respect thereto. The failure of others to make a market in
the Company's securities will likely have an adverse impact on the ability of
the holders of such securities to sell them.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and the Underwriter's Unit Purchase Option which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
The Company has been advised by the Underwriter that the NASD (District
10) filed a complaint (No. C10950081) on October 5, 1995 ("Complaint") against
the Underwriter, Steven Sanders, the head trader of the Underwriter, Daniel M.
Porush, the president of the Underwriter, and Paul F. Byrne, formerly the
Underwriter's director of compliance (collectively, the "Respondents"), alleging
various violations of the NASD Rules of Fair Practice. The Complaint consisted
of three causes. The first cause alleged that the Underwriter and Mr. Sanders
effected principal retail sales of securities at prices that were fundamentally
excessive. The second cause alleged that the Underwriter and Mr. Sanders charged
excessive markups. The third cause alleged the Underwriter and
- 40 -
<PAGE>
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.
In April 1996, the NASD settled an action whereby it fined the
Underwriter $325,000 for fraud and other violations (which were neither admitted
or denied) in connection with its underwriting of an initial public offering.
Steven Sanders was fined $50,000 and was suspended for a period of 45 days from
associating with an NASD member and agreed not to engage in any trading-related
activities for any NASD member for a period of 50 days. The settlement also
requires that the Underwriter file certain new supervisory procedures with the
NASD. The Underwriter filed with NASD on April 11, 1996 procedures relating to
the conduct of associated persons during and preceding an initial public
offering, which were aimed at preventing violations of Section 5 of the
Securities Act and Rule 10b-6 violations and the type of arbitrary pricing which
occurred in connection with the trading of securities underwritten by the
Underwriter on January 16, 1991. These procedures have been in effect since
April 11, 1996.
The Company has been advised by the Underwriter that the NASD (District
10) filed a complaint (No. C10960080) on June 6, 1996 ("June 1996 Complaint")
against the Underwriter, Daniel Porush, Steven Sanders, Irving Stitsky, formerly
a registered representative of the Underwriter, and Jordan Shamah, a vice
president and director of the Underwriter (collectively, the "Respondents"),
alleging various violations of the Exchange Act and the NASD Rules of Fair
Practice. The June 1996 Complaint consists of seven causes of action. The first
cause alleges that the Underwriter, through Messrs. Porush and Sanders, engaged
in the use of fraudulent and manipulative devices in the failure to make bona
fide distributions in specified public offerings of securities underwritten by
the Underwriter. The second cause alleges that the Underwriter, through Messrs.
Porush, Sanders, Stitsky and Shamah, engaged in the use of fraudulent and
manipulative devices in the failure to make a bona fide distribution of common
stock of a company whose initial public offering was underwritten by the
Underwriter. The third cause alleges that the Underwriter, through Messrs.
Porush and Sanders for a period of three days, manipulated the common stock of
such company. The fourth cause alleges that the Underwriter, through Mr.
Sanders, charged fraudulently excessive markups in connection with the warrants
of such company. The fifth cause alleges that the Underwriter, through Mr.
Porush, violated the NASD's Free-Riding and Withholding Interpretation inasmuch
as he allegedly allocated securities in certain public offerings to persons
restricted from purchasing such securities. The sixth cause alleges that Messrs.
Porush and Stitsky failed to adequately supervise the Underwriter's activity
relating to the various alleged violations. The seventh cause alleges that the
Underwriter and Mr. Porush failed to establish and maintain reasonable
supervisory procedures to prevent the Underwriter's violative conduct. The
Respondents have filed answers to the June 1996 Complaint denying all material
allegations and alleged violations and are contesting the proceeding.
- 41 -
<PAGE>
In addition, the Company has been advised by the Underwriter that the
NASD (District 10) filed a complaint (No. C10960068) on June 6, 1996
("Complaint") against the Underwriter and Patrick Gerard Hayes, the compliance
director of the Underwriter (collectively, the "Respondents"), alleging
violations of the NASD Rules of Fair Practice. The Complaint consists of two
causes of action. The first cause alleges that the Underwriter failed to report
information regarding at least 59 customer complaints the Underwriter received
during the relevant time periods as required by the NASD Rules of Fair Practice.
The second cause alleges that the Underwriter, through its compliance director,
failed to establish, maintain and enforce written procedures designed to ensure
that the Underwriter complied with the NASD Rules of Fair Practice. The
Respondents have filed answers to the Complaint and are contesting the
proceeding.
On or about July 13, 1996, the District Business Conduct Committee for
District No. 10 ("District Committee") of the NASD issued a complaint against
the Underwriter alleging that the Underwriter violated Article III, Section 1
and Article IV, Section 5 of the NASD Rules of Fair Practice by entering into
settlement agreements with former customers which condition customers' ability
to cooperate with NASD investigations. The charges in the complaint were upheld
by the District Committee on this same date as well as the National Business
Conduct Committee of the NASD, and a fine of $20,000 was assessed and the
Underwriter was ordered to get the NASD's agreement on language used in certain
customer settlement agreements. The Underwriter also is required, if asked by
the NASD, to release customers from provisions in settlement agreements that
impose conditions on a customer's ability to provide information to the NASD.
The sanctions follow an appeal of findings that the firm used certain agreements
when settling customer complaints that precluded, restricted, or conditioned
customers' ability to cooperate with the NASD in connection with its
investigation of customer complaints. The Underwriter also failed to release a
customer from the restrictive provisions of such a settlement. This action had
been appealed to the Commission and the sanctions aren't in effect pending
consideration of the appeal. The Underwriter contests the charges and has
perfected an appeal to the Commission.
The Company has been advised by the Underwriter that the Commission
instituted an action on December 14, 1994 in the United States District Court
for the District of Columbia against the Underwriter. The complaint alleged that
the Underwriter was not complying with the March 17, 1994 Administrative Order
by failing to adopt the recommendations of an independent consultant. The
Administrative Order was previously consented to by the Underwriter, without
admitting or denying the findings contained therein, as settlement of an action
commenced against the Underwriter by the Commission in March 1992, which found
willful violations of the securities laws such that the Underwriter:
o engaged in fraudulent sales practices;
o engaged in and/or permitted unauthorized trading in customer
accounts;
o knowingly and recklessly manipulated the market price of a
company's securities by dominating and controlling the market for
those securities;
o made improper and unsupported price predictions with regard to
recommended over-the-counter securities; and
o made material misrepresentations and omissions regarding certain
securities and its experience in the securities industry.
Pursuant to an Administrative Order, the Underwriter was censured and
the Stratton Consultant was chosen by the Commission to advise and consult with
the Underwriter and to review and recommend new supervisory and compliance
procedures. The complaint sought:
o to enjoin the Underwriter from violating the Administrative
Order;
o an order commanding the Underwriter to comply with the
Administrative Order;
o to have a Special Compliance Monitor appointed to ensure
compliance with the Administrative Order; and
o the Underwriter claimed that the Stratton Consultant exceeded his
authority under the Administrative Order and had violated the
terms of the Administrative Order.
- 42 -
<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 District of Columbia suspended
the Underwriter's license pending the outcome of an investigation. The States of
North Carolina and Arkansas also have suspended the Underwriter's license
pending a resolution of the proceedings in those states. The States of
Minnesota, Vermont, and Nevada have served upon the Underwriter notices of
intent to revoke the Underwriter's license in such states. The State of Rhode
Island has served on the Underwriter a Notice of Intent to suspend its license
in that state. The State of Connecticut has served on the Underwriter a notice
of intent to suspend or revoke the Underwriter's registration in that state with
a notice of right to hearing. In the State of Mississippi, the Underwriter has
agreed to a suspension of its license pending resolution of certain claims and
review of its procedures and practices by the state authorities. In addition,
the Underwriter withdrew its registration in the State of New Hampshire (with
the right of reapplication) and in the State of Maryland. There may be further
administrative action against the Underwriter in Maryland. The Underwriter
withdrew its registration in Massachusetts with a right to reapply for
registration after two years, withdrew its registration in Delaware with a right
to reapply in three years and agreed to a temporary cessation of business in
Utah pending an on-site inspection and further administrative proceedings. The
Underwriter's license in the State of New Jersey was revoked by an
administrative judge pursuant to an administrative hearing, which revocation was
affirmed by the New Jersey Bureau of Securities, and an appeal has been filed
with the appellate division of the New Jersey Superior Court. The States of
Georgia, Alabama and South Carolina have lifted their suspensions and have
granted the Underwriter conditional licenses. Such conditional licenses were
granted pursuant to an order, which the Underwriter has proposed to various
states, which provides provisions for: (i) the suspension of revocation, (ii)
compliance with recommendations of the Consultant, (iii) an expedited claims
mediation arbitration process, (iv) resolution of claims seeking compensatory
damages, (v) restrictions on use of operating revenue, (vi) the limitation on
selling group members in offerings underwritten by the Underwriter and the
prohibition of participating as a selling group member in offerings underwritten
by certain other NASD member firms, (vii) the periodic review of the
Underwriter's agents, (viii) the retention of an accounting firm, and (ix)
supervision and training, restrictions on trading, discretionary accounts and
other matters. The State of Oregon, as a result of the Permanent Injunction, has
filed a notice of intent to revoke the Underwriter's license subject to the
holding of a hearing to determine definitively the Underwriter's license status,
and the Underwriter, in this proceeding as well as other proceedings, expects to
be able to demonstrate that the Permanent Injunction is not of a nature as to be
a lawful basis to revoke the Underwriter's license permanently. Finally, the
Underwriter has received an order limiting its license in the State of Nebraska.
Such proceedings, if ultimately successful, may adversely affect the market for
and liquidity of the Company's securities if additional broker-dealers do not
make a market in the Company's securities. Moreover, should investors purchase
any of the securities in this Offering from the Underwriter prior to a
revocation of the Underwriter's license in their state, such investors will not
be able to resell such securities in such state through the Underwriter but will
be required to retain a new broker-dealer firm for such purpose. The Company
cannot ensure that other broker-dealers will make a market in the Company's
securities. In the event that other broker-dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent
- 43 -
<PAGE>
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.
The Company has been advised by the Underwriter that Honorable John E.
Sprizzo, United States Judge for the Southern District of New York on May 6,
1994 denied the class certification motion in Paul Carmichael v. Stratton
Oakmont, Inc., et al., Civ. 0720 (JES), of the plaintiff Paul Carmichael. The
class action complaint alleges manipulation and fraudulent sales practices in
connection with a number of securities. The allegations were substantially
similar and involve much of the same time period as the Commission's civil
complaint (discussed above). The Company has further been informed that counsel
for the class action plaintiff sought to re-argue the motion for class
certification, which motion for re-argument was denied.
DETERMINATION OF INITIAL PUBLIC OFFERING PRICE
Prior to this Offering there has been no public market for the
securities of the Company. The initial public offering price for the securities
and the exercise price of the Class A Warrants have been determined by
negotiations between the Company and the Underwriter. Among the factors
considered in the negotiations were an analysis of the areas of activity in
which the Company is engaged, the present state of the Company's business, the
Company's financial condition, the Company's prospects, an assessment of
management, the general condition of the securities market at the time of this
Offering and the demand for similar securities of comparable companies. The
initial public offering price of the securities and the exercise price of the
Class A Warrants do not necessarily bear any relationship to assets, earnings,
book value or other criteria of value applicable to the Company.
EXPERTS
The Financial Statements as of and for the period ended December 31,
1995 included in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York,
New York 10022. Members of that firm own 75,000 shares of Common Stock. Certain
legal matters will be passed upon for the Underwriter by Bernstein & Wasserman,
LLP, 950 Third Avenue, New York, New York 10022.
PATENT COUNSEL
Legal matters in connection with the Company's licensed patents,
trademarks and related other proprietary assets are represented by Anderson,
Kill & Olick, P.C. incorporating the practices of Toren, McGeady & Associates,
521 Fifth Avenue, 21st Floor, New York, New York 10175. Such firms also
represent RIC and RILP in connection with such assets.
- 44 -
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the securities offered
hereby. This prospectus constitutes a part of the Registration Statement and
does not contain all the information set forth therein. Any statements contained
herein concerning the provisions of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
For further information regarding the Company and the securities offered hereby,
reference is made to the Registration Statement and to the exhibits thereto.
After consummation of this Offering, the Company will be subject to the
informational requirements of the Exchange Act, and in accordance therewith,
will be required to file reports, proxy statements and other information with
the Commission. These reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024 of the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission, such as the Company. The address of
such site is http://www.sec.gov. The Company intends to furnish holders of its
Units, Common Stock and Class A Warrants with annual reports containing audited
financial statements of the Company after the end of each fiscal year, and make
available such other periodic reports as the Company may deem appropriate or as
may be required by law.
- 45 -
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Accountants' Report.................................................................... F-2
Balance Sheets at June 30, 1996 (unaudited) and December 31, 1995.................................. F-3
Statements of Operations for the Six Months Ended June 30, 1996 (unaudited) and
the Period from October 10, 1995 (Inception) through
December 31, 1995............................................................................... F-4
Statement of Changes in Stockholders' Equity (Deficiency) for the Six Months
Ended June 30, 1996 (unaudited) and the Period from
October 10, 1995 (Inception) through December 31, 1995.......................................... F-5
Statements of Cash Flows for the Six Months Ended June 30, 1996 (unaudited) and
the Period from October 10, 1995 (Inception) through
December 31, 1995............................................................................... F-6
Notes to Financial Statements...................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To International Dispensing Corporation:
We have audited the accompanying balance sheet of International Dispensing
Corporation (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 International Dispensing
Corporation 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>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalent $ 5,168 $ 488,379
-------------- --------------
Total current assets: 5,168 488,379
Fixed assets:
Leasehold improvements 4,475 5,872
Office equipment 4,350 7,079
Accumulated depreciation and amortization (882) (1,322)
--------------- ---------------
Net fixed assets 7,943 11,629
Other assets 14,677 63,927
Deferred issuance costs -- 21,763
--------------- ---------------
Total assets: $ 27,788 $ 585,698
=============== ===============
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<S> <C> <C>
Current Liabilities:
Accrued expenses $ 45,806 $ 97,509
Due to affiliate 3,649,739 2,883,893
Convertible promissory notes 150,000 100,000
Promissory Notes -- 300,000
Bridge loans payable, current portion -- 1,050,000
--------------- ---------------
Total current liabilities: 3,845,545 4,431,402
Bridge loans payable 175,000 --
--------------- --------------
Total liabilities: 4,020,545 4,431,402
Commitments and contingencies (Note 11)
Stockholders' Equity (Deficiency):
Preferred Stock, $.001 par value; 2,000,000 shares
authorized; no shares issued or outstanding -- --
Common Stock $.001 par value; 20,000,000
shares authorized: 5,887,500 and 6,325,000
issued and outstanding as of December 31,
1995 and June 30, 1996, respectively 5,888 6,325
Additional paid-in capital 251,150 1,125,713
Deficit accumulated during the development stage (4,249,795) (4,977,742)
---------------- ----------------
Total stockholders' equity (deficiency) (3,992,757) (3,845,704)
--------------- ---------------
Total liabilities and stockholders'
equity (deficiency) $ 27,788 $ 585,698
=============== ===============
</TABLE>
The accompanying notes are an integral part of these balance sheets
F-3
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(October 10, 1995) (October 10, 1995)
through Six Months through
December 31, Ended June 30,
1995 June 30, 1996 1996
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and expenses:
General and administrative 244,768 451,491 696,259
Depreciation and amortization 882 441 1,323
--------------- ------------- -------------
Total costs and expenses 245,650 451,932 697,582
Loss from operations 245,650 451,932 697,582
Interest expense 4,145 26,015 30,160
--------------- ------------- -------------
Net loss before extraordinary loss $ 249,795 $ 477,947 $ 727,742
Extraordinary loss on retirement
of debt $ -- $ 250,000 $ 250,000
-------------- ------------ ------------
Net Loss $ 249,795 $ 727,947 $ 977,742
=============== ============= =============
Net loss per share before
extraordinary item $ (.03) $ (.06)
Extraordinary loss per share $ __ $ (.03)
Net loss per share $ (.03) $ (.09)
Weighted average shares outstanding 7,900,000 7,900,000
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Common Stock Paid in Development Stockholders'
Shares Amount Capital Stage Deficit
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 10, 1995 -- $ -- $ -- $ -- $ --
Issuance of commo
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 76,238 -- 77,188
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 -- -- -- (249,795 ) (249,795)
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 5,887,500 5,888 251,150 (4,249,795) (3,992,757)
Issuance of common
stock in private
placement 437,500 437 218,313 -- 218,750
Issuance of common stock
rights in private placement -- -- 656,250 -- 656,250
Net loss -- -- -- (727,947) (727,947)
------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 6,325,000 $6,325 $1,125,713 $ (4,977,742) $ (3,845,704)
(UNAUDITED)
==========================================================================================
</TABLE>
The accompanying notes are an integral part of this statement
F-5
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Period
from October 10, from October 10,
1995 (Inception) 1995 (Inception)
through Six Months through
December 31, Ended June 30,
1995 June 30, 1996 1996
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (249,795) $ (727,947) $ (977,742)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 882 441 1,323
Non-cash compensation 76,238 -- 76,238
Loss on retirement of debt -- 250,000 250,000
Changes in operating assets and
liabilities:
Increase in other assets (8,877) (71,013) (79,890)
Increase/(decrease) in accrued expenses 45,806 51,703 97,509
------------ ------------ ------------
Net cash used in operating activities (135,746) (496,816) (632,562)
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (8,825) (4,127) (12,952)
Purchase of license (350,261) (765,846) (1,116,107)
------------ ------------ ------------
Net cash used in investing activities (359,086) (769,973) (1,129,059)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement 350,000 1,750,000 2,100,000
Proceeds from issuance of convertible debt 150,000 -- 150,000
------------ ------------ ------------
Net cash provided from financing activities 500,000 1,750,000 2,250,000
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,168 483,211 488,379
Cash and cash equivalents, beginning of
period 0 5,168 0
------------ ------------ ------------
Cash and cash equivalents, end of period $ 5,168 $ 488,379 $ 488,379
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest -- -- --
Cash paid for income taxes -- -- --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock $ 5,800 -- $ 5,800
Purchase of license from affiliate $ 4,000,000 -- $ 4,000,000
</TABLE>
The accompanying notes are an integral part of these statements
F-6
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30, 1996
IS UNAUDITED)
1. THE COMPANY AND ORGANIZATION
International Dispensing Corporation, formerly known as ReSeal Food
Dispensing Systems, Inc. (the "Company"), was incorporated in the State of
Delaware in October 1995. The Company was formed primarily for the purpose of
commercializing and marketing certain proprietary and patented delivery and
dispensing technologies (the "Reseal Technologies") licensed from ReSeal
International Corporation ("RIC"). The Reseal Technologies are designed to
dispense a flowable product while maintaining the product's sterility, purity
and freshness without employing preservatives.
The Company is subject to a number of risks including the Company's
lack of prior operating history. The Company is also subject to the availability
of sufficient financing to meet its future cash requirements and the uncertainty
of future product development and regulatory approval and market acceptance of
existing and proposed products. In the event of bankruptcy of RIC, the status of
the continuing obligations of the various parties to and under the License
Agreement (Note 4) is unclear since a court in a bankruptcy proceeding may not
enforce such continuing obligations. Additionally, other risk factors such as
loss of key personnel, lack of manufacturing capabilities, difficulty in
establishing new intellectual property rights and preserving and enforcing
existing intellectual property rights as well as product obsolescence due to the
development of competing technologies could impact the future results of the
Company.
The Board of Directors of the Company has authorized the Company to
file a registration statement with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended, and to sell Units
consisting of two shares of common stock and two redeemable class A warrants of
the Company ("IPO Units"). Each warrant entities the holder to purchase one
share of common stock at a proposed price of $7.00 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>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
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) and convertible promissory notes (Note 7) had been paid at
the date of issuance, and assuming that 288,127 shares of common stock were
issued to pay such notes and $3,489 and $35,000 of interest expense was
eliminated for the periods ended December 31, 1995 and June 30, 1996,
respectively, as a result of such payments. Such supplementary net loss per
share for the period ended December 31, 1995 was $.03 and for the six months
ended June 30, 1996 was $.08.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
Interim Financial Information
The unaudited financial statements for the period ended June 30, 1996
include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for the fair presentation of such
financial statements.
3. GOING CONCERN
As reflected in the financial statements, the Company has experienced
net losses and negative cash flows from operations and maintains negative
working capital and negative equity. The Company's continuing existence is
dependent on its ability to raise additional capital and achieve and maintain
profitable operations. The Company continues to be in the development stage and
does not foresee operating revenue until fiscal year 1997. Management plans to
finance the Company by obtaining additional financing, through either the
proposed IPO or additional private placements of equity, until operations
commence in 1996.
4. LICENSE AGREEMENT
In October 1995, the Company entered into a License Agreement (the
"Agreement") with RIC, which was amended on June 17, 1996, pursuant to which the
Company obtained the right to commercialize and market the Reseal Technologies
to third parties for its implementation in the food and beverage industries. The
Reseal Technologies are licensed by RIC from its parent, Reseal International
Limited Partnership ("RILP"). The Agreement is royalty free and allows the
Company to grant sublicenses to third parties. Pursuant to the Agreement, the
Company issued 2,900,000 shares of its common stock to RIC and is committed to
make a payment to RIC of $750,000 on the earlier of April 10, 1996 or the
completion of a private placement (Note 5) and another payment of $3,250,000 on
the earlier of December 31, 1996 or the completion of the proposed initial
public offering. The cash paid and payable to RIC and the common stock issued
for this acquisition was charged directly to stockholders' equity and therefore
not reflected as an asset on the Company's Balance Sheet. The Company has
reflected such obligation as a current liability. The Agreement terminates at
the end of the Reseal Technologies useful economic life.
5. PRIVATE PLACEMENT
The Company has been involved in a private placement ("Bridge
Financing"). The Bridge Financing consists of promissory notes, common shares,
and rights ("Bridge Options") to acquire Units identical in form to
F-8
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
1996 IS UNAUDITED)
(CONTINUED)
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 had received gross
proceeds of $350,000 in connection with the Bridge Financing, which consisted of
$175,000 of promissory notes, 87,500 shares of common stock and rights to obtain
131,250 Units. As of June 30, 1996, the Company had received additional gross
proceeds of $1,750,000, which consisted of $875,000 of promissory notes, 437,500
shares of common stock and rights to obtain 656,250 Units. Upon completion of
the Bridge Financing, the Company had received an aggregate of $2,100,000 in
consideration for $1,050,000 in promissory notes, 525,000 common shares and
rights to obtain 787,500 Units. The Company has amended the Bridge Financing
agreements so that the 787,500 Units underlying the Bridge Options are
outstanding prior to the completion of the IPO, and all of such Units will be
registered in the proposed registration .
6. SETTLEMENT AGREEMENT
In October 1995, in connection with a settlement of actions and claims
against certain affiliates of RIC, the licensor of the Technology, the Company
agreed to issue (i) 2,900,000 shares of common stock to RIC, as partial
compensation under the License Agreement, (ii) an aggregate of 1,500,000 shares
of common stock (the "Investor Shares") to certain investors in RILP, and (iii)
an aggregate of 450,000 shares of common stock to certain individuals for
services rendered equal to the par value of such shares. Of the 1,500,000 shares
issued, 552,000 were issued to individuals who are now members of the board of
directors and of the 450,000 shares issued, 161,000 were issued to current
members of management and the board of directors.
Pursuant to such settlement, the holders of the Investor Shares may
require the Company to file a Registration Statement under the Securities Act
with respect to 25% of such shares of common stock, commencing one year from the
effective date of the Company's proposed IPO, subject to certain conditions and
limitation. Further, if the Company proposes to register any shares of common
stock under the Securities Act, other than pursuant to an initial public
offering or the previous sentence, then the holders of the Investor Shares are
entitled to include an additional 25% of their shares of common stock in such
registration.
7. CONVERTIBLE PROMISSORY NOTES
During 1995, two convertible promissory notes were issued for $100,000
and $50,000 (the "Convertible Notes") and are due on April 15, 1996 and December
20, 1996, respectively. These notes bear interest at 8% and each is convertible
at any time prior to the maturity date of the notes into 1,200,000 common
shares, subject to adjustments. The $100,000 note (the "Portenoy Note") converts
at a price of $.084 per common share, subject to adjustments, and the $50,000
note (the "ATG Note") converts at a price of $.042 per common share, subject to
adjustments.
On April 15, 1996, the Portenoy Note came due. On June 28, 1996, in
accordance with an agreement with the Company, the holder of the ATG Note, which
comes due on December 20, 1996 and contained the right to convert into 1.2
million shares of Common Stock, agreed to transfer such note to the Company for
cancellation in return for the Company agreeing to pay it $300,000. The amounts
owed by the Company to the holders of the Convertible Notes shall be paid out of
the proceeds of the proposed IPO. The Company has recorded an extraordinary loss
on retirement of debt of $250,000 in its June 30, 1996 unaudited financial
statements.
8. MANAGEMENT SHARES
In 1995, the Company issued an aggregate of 950,000 shares to
management at par as compensation for services rendered in incorporating the
Company. Such shares were issued at fair market value of the Company's common
stock, which was determined based upon the fair market value of the private
placement shares (see Note 5) and the convertible promissory notes. The
statement of operations reflects approximately $76,000 of compensation expense
related to such shares.
F-9
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
1996 IS UNAUDITED)
(CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company shares office space with certain affiliated companies,
including RIC and RILP. The Company also pays certain operating expenses,
including compensation of key personnel, on behalf of RIC and RILP. At December
31, 1995 and June 30, 1996, the Company had paid 85,261 and 332,794,
respectively, on behalf of RIC. The Company is entitled to be reimbursed for
these expenses and has offset such against the current liability related to the
License Agreement (Note 4) in the Company's balance sheet.
For both the period ended December 31, 1995 and the three months ended
June 30, 1996, the Company paid consulting fees to members of management in the
aggregate amount of $168,000.
10. INCOME TAXES
As a result of losses incurred during the year, there is no provision
for income taxes in the accompanying financial statements. The Company has
established a full valuation allowance against its net deferred tax assets as
realizability of such assets is predicated upon the Company achieving
profitability.
11. COMMITMENT AND CONTINGENCIES
The Company leases office space under a noncancellable operating lease,
expiring on November 30, 1997. Rental expense for the period ending December
31,1995 was $8,259. Future minimum lease payments under this lease agreement is
as follows:
Year Ending December 31
1996 $90,292
1997 84,571
--------
$174,863
12. SETTLEMENT OF PENDING LAWSUIT
In May 1996, in connection with the settlement of a lawsuit brought by
Banco Inversion, S.A. and Administratadora General de Patrimonios, S.A.
(collectively, "Banco") against certain affiliates of RIC, RIC entered into an
agreement pursuant to which it agreed, among other things, (i) to transfer an
aggregate of 300,000 of its shares of common stock (the "Settlement Shares") to
Banco, (ii) to pay Banco $50,000 at the closing of such settlement and $150,000
out of the licensing fees RIC receives from the proceeds of this Offering and
(iii) to exchange mutual releases with the parties of such lawsuit.
The number of Settlement Shares, subject to certain anti-dilution
adjustments, may be increased up to 600,000 shares in the event that 30 months
after the effective date of the registration statement the market value of the
300,000 Settlement Shares is less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the
right to register such shares along with shares registered by the Company in a
public offering, whether on behalf of the Company or other holders of common
stock, subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act.
F-10
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED JUNE 30,
1996 IS UNAUDITED)
(CONTINUED)
13. EMPLOYMENT AGREEMENTS
It is anticipated that the Company will enter into a three-year
employment agreement with Jon Silverman upon the closing of the proposed initial
public offering. Pursuant to such proposed employment agreement, Mr. Silverman
will receive a monthly salary of $15,000. In addition, the Company will be
obligated to pay the premium on his $1,000,000 life insurance policy, to which
his estate is the beneficiary. This insurance policy is in addition to the
$1,000,000 key-man life insurance policy maintained by the Company on the life
of Mr. Silverman. He will also be entitled to customary benefits and
perquisites.
F-11
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH SUCH 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 Analysis of
Results of Operations and Financial
Condition......................................
Business ...................................................
Management..................................................
Certain Relationships and
Related Transactions....................................
Principal Stockholders......................................
Description of Capital Stock................................
Shares Eligible for Future Sale.............................
Selling Securityholders.....................................
Underwriting................................................
Experts
Legal Matters...............................................
Patent Counsel..............................................
Available Information.......................................
Index to Financial Statements............................... F-1
-----------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
1,620,834 UNITS
INTERNATIONAL DISPENSING
CORPORATION
PROSPECTUS
STRATTON OAKMONT, INC.
_____________, 1996
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions), or
(iv) for any transaction from which a director derived an improper personal
benefit.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such director, officer, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal actions or
proceedings, had no reasonable cause to believe that his or her conduct was
unlawful. A Delaware corporation may indemnify directors and/or officers in an
action or suit by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
director or officer is adjudged to be liable to the corporation. Where a
director or officer is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him or her against
the expenses which such director or officer actually and reasonably incurred.
The Registrant's Restated Certificate of Incorporation, filed as Exhibit 3.1
to this Registration Statement, provides indemnification of directors and
officers of the Registrant to the fullest extent permitted by the DGCL.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriter has agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the Offering, including
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement (other
than the underwriting discounts and commission) will be as follows:
<TABLE>
<CAPTION>
Total*
<S> <C>
SEC registration fee ......................................................... $ 15,027.77
NASD filing fee .............................................................. $ 4,858.00
Nasdaq listing fee ........................................................... $ 1,000.00
Blue Sky fees and expenses (including counsel fees)........................... $ 50,000.00
Accounting fees and expenses.................................................. $ 100,000.00
Legal fees and expenses....................................................... $ 200,000.00
Printing and engraving expenses............................................... $ 25,000.00
Transfer Agent, Warrant Agent and Registrar fees
and expenses................................................................ $ 3,500.00
Miscellaneous................................................................. $ 20,614.23
--------------
Total..................................................................... $ 420,000.00
</TABLE>
==============
* 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 Technology, and RIC's
officers and directors, the Company agreed to issue (i) 2,900,000 shares of
Common Stock to RIC, as partial compensation under the Company License
Agreement, (ii) an aggregate of 1,500,000 shares of Common Stock (the "Investor
Shares") to certain investors in RILP, and (iii) an aggregate of 450,000 shares
of Common Stock to certain individuals for services rendered. Pursuant to such
settlement, the holders of the Investor Shares may require the Company to file a
Registration Statement under the Securities Act with respect to 25% of such
shares of Common Stock, commencing one year from the date of the prospectus (the
"Effective Date"), subject to certain conditions and limitations. Further, if
the Company proposes to register any shares of Common Stock under the Securities
Act, other than pursuant to an initial public offering or the previous sentence,
then the holders of the Investor Shares are entitled to include an additional
25% of their shares of Common Stock in such registration. See "Certain
Relationships and Related Transactions."
Between October 1995 and April 1996, the Company (i) sold an aggregate
of 525,000 shares of Common Stock to the Selling Securityholders for a total of
$1,050,000 (the "Private Placement") and (ii) entered into the Bridge Loan with
the Selling Securityholders in the aggregate amount of $1,050,000. Each Selling
Securityholder participated in both the Private Placement and the Bridge Loan.
The Bridge Loan bears interest at the rate of eight (8%) percent per annum and
will be repaid out of the proceeds of this Offering. As further consideration
for the Bridge Loan, the Selling Securityholders were given the right to
acquire, commencing on the Effective Date, the 787,500 Bridge Units which are
comprised of 1,575,000 shares of Common Stock and 1,575,000 Class A Warrants.
The Class A Warrants included in the Bridge Units are identical to the Class A
Warrants included in the Company Units. The Company and the Selling
Securityholders are in the process of amending the Bridge Loan agreements to
reflect that all of the 787,500 Bridge Units will be outstanding prior to this
Offering and all of the Bridge Units and their underlying securities shall be
registered under this Registration Statement. The Company will not receive any
of the proceeds from the sale of the securities being offered by the Selling
Securityholders. The Class A Warrants are redeemable upon certain conditions.
See "Certain Relationships and Related Transactions."
In November and December 1995, the Company issued to each of Ross
Portenoy and ATG Group, Inc. a convertible promissory note in the principal
amount of $100,000 and $50,000, respectively. The notes bear interest at an
annual rate of 8%. The $100,000 note came due on April 15, 1996 and the $50,000
note comes due on December 20, 1996. On June 28, 1996, in accordance with an
agreement with the Company, the holder of the $50,000 note, which contained the
right to convert into 1.2 million shares of Common Stock, agreed to transfer
such note to the Company for cancellation in return for the Company agreeing to
pay it $300,000. The amounts owed by the Company to the holders of these notes
shall be paid out of the proceeds of this Offering received by the Company. See
"Certain Relationships and Related Transactions."
In May 1996, in connection with the settlement of a lawsuit brought by
Banco Inversion, S.A. and Administratadora General de Patrimonios, S.A.
(collectively, "Banco") against certain affiliates of RIC, RIC entered into an
agreement pursuant to which it agreed, among other things, (i) to transfer an
aggregate of 300,000 of its shares of Common Stock (the "Settlement Shares") to
Banco, (ii) to pay Banco $50,000 at the closing of such settlement and $150,000
out of the licensing fees RIC receives from the proceeds of this Offering and
(iii) to exchange mutual releases with the parties of such lawsuit. The number
of Settlement Shares, subject to certain anti-dilution adjustments, may be
increased up to 600,000 shares in the event that 30 months after the Effective
Date the market value of the 300,000 Settlement Shares is less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the right to
register such shares along with shares registered by the Company in a public
offering, whether on behalf of the Company or other holders of Common Stock,
subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act. See "Certain Relationships and
Related Transactions."
Transactions by the Registrant involving the sales of these securities
set forth above were issued pursuant to the "private placement" exemption under
Section 4(2) of the Securities Act of 1933, as amended, as transactions by an
issuer not involving any public offering. The Registrant has been informed that
each person is able to bear the economic risk of his investment and is aware
that the securities were not registered under the Securities Act of 1933, as
amended, and cannot be re-offered or re-sold until they have been so registered
or until the availability of an exemption therefrom. The transfer agent and
registrar of the Registrant will be instructed to mark "stop transfer" on its
ledgers to assure that these securities will not be transferred absent
registration or until the availability of an exemption therefrom is determined.
II-2
<PAGE>
ITEM 27. EXHIBITS.
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 Certificate of Amendment to the Certificate of Incorporation.
3.3 By-laws of the Registrant.*
4.1 Specimen Common Stock Certificate.*
4.2 Form of Class A Warrant Agreement.
4.3 Form of Underwriter's Unit Purchase Option.
4.4 Escrow Agreement by and among the Registrant, the Underwriter and
American Stock Transfer & Trust Company, as escrow agent.
5.1 Opinion of Kramer, Levin, Naftalis & Frankel.
10.1 License Agreement by and between the Registrant and ReSeal
International Corporation, dated as of October 10, 1995, as amended.*
10.2 Form of Subscription Agreement.*
10.3 Form of Bridge Loan Agreement and Promissory Note.*
10.4 Form of Amendment to Bridge Loan Agreement.*
10.5 Agreement by and between the Registrant and Nologies, Inc., dated as
of March 5, 1996.*
10.6 Settlement Agreement, dated as of October 10, 1995, by and among
Hardee Capital Partners, L.P., Louis Simpson, Gregory Abbott, George
Kriste, David Brenman, Gerald Gottlieb, Marc Gottlieb, Joseph Koster,
Greg Pardes, Linda Poit, ReSeal Food Dispensing Systems, Inc., ReSeal
International Limited Partnership, ReSeal Technologies & Advancements,
Inc., ReSeal International Corporation, ReSeal Pharmaceutical Systems,
Ltd., Milton Stanson, Hilda Brown, Ann Hoopes, Townsend Hoopes, Robin
Smith and Eugene Sumner.*
10.7 Settlement Agreement, dated as of May 8, 1996, by and among Banco
Inversion, S.A., Administratadora General de Patrimonios, S.A., ReSeal
Pharmaceutical Systems, Ltd., ReSeal International Corporation, ReSeal
International Limited Partnership, Greg P. Pardes, Lawrence B.
Pentoney, Joseph D. Blau, Bernard Gerber, George DeBush, Michael
Secondo, Linda Poit, Samuel Tucker, Chungliang Al Huang and Rainer
Greeven.*
11.1 Calculation of Earnings Per Share.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the
opinion to be filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.*
- -----------------
* Previously Filed
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby further undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii)To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York, on September 18, 1996.
INTERNATIONAL DISPENSING CORPORATION
By:/s/ David W. Brenman
--------------------
David W. Brenman
(President)
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David W. Brenman President, Treasurer September 18, 1996
- ------------------------------------
David W. Brenman and Director
(Principal Executive Officer
and Principal Accounting
Officer)
/s/ Joseph F. Koster, Jr. Secretary and Director September 18, 1996
- ------------------------------------
Joseph F. Koster, Jr.
* Director September 18, 1996
- ------------------------------------
Gregory B. Abbott
* Director September 18, 1996
- ------------------------------------
George V. Kriste
</TABLE>
*David W. Brenman, as attorney-in-fact
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit Description of Document
Number ----------------------- Sequential
- ------- Page
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 Certificate of Amendment to the Certificate of Incorporation.
3.3 By-laws of the Registrant.*
4.1 Specimen Common Stock Certificate.*
4.2 Form of Class A Warrant Agreement.
4.3 Form of Underwriter's Unit Purchase Option.
4.4 Escrow Agreement by and among the Registrant, the Underwriter and American
Stock Transfer & Trust Company, as escrow agent.
5.1 Opinion of Kramer, Levin, Naftalis & Frankel.
10.1 License Agreement by and between the Registrant and ReSeal International
Corporation, dated as of October 10, 1995, as amended.*
10.2 Form of Subscription Agreement.*
10.3 Form of Bridge Loan Agreement and Promissory Note.*
10.4 Form of Amendment to Bridge Loan Agreement.*
10.5 Agreement by and between the Registrant and Nologies, Inc., dated as of
March 5, 1996.*
10.6 Settlement Agreement, dated as of October 10, 1995, by and among Hardee
Capital Partners, L.P., Louis Simpson, Gregory Abbott, George Kriste, David
Brenman, Gerald Gottlieb, Marc Gottlieb, Joseph Koster, Greg Pardes, Linda
Poit, ReSeal Food Dispensing Systems, Inc., ReSeal International Limited
Partnership, ReSeal Technologies & Advancements, Inc., ReSeal International
Corporation, ReSeal Pharmaceutical Systems, Ltd., Milton Stanson, Hilda
Brown, Ann Hoopes, Townsend Hoopes, Robin Smith and Eugene Sumner.*
10.7 Settlement Agreement, dated as of May 8, 1996, by and among Banco
Inversion, S.A., Administratadora General de Patrimonios, S.A., ReSeal
Pharmaceutical Systems, Ltd., ReSeal International Corporation, ReSeal
International Limited Partnership, Greg P. Pardes, Lawrence B. Pentoney,
Joseph D. Blau, Bernard Gerber, George DeBush, Michael Secondo, Linda Poit,
Samuel Tucker, Chungliang Al Huang and Rainer Greeven.*
11.1 Calculation of Earnings Per Share.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the
opinion to be filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.*
- -----------------
* To be filed by amendment.
833,334 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.)
INTERNATIONAL DISPENSING CORPORATION
UNDERWRITING AGREEMENT
New York, New York
____________, 1996
Stratton Oakmont, Inc.
1979 Marcus Avenue
Lake Success, New York 11042
International Dispensing Corporation, a Delaware corporation (the
"Company"), proposes to sell an aggregate of 833,334 Units, on a "best efforts"
all-or-none basis, to the public through you (the "Underwriter"). Each Unit
consists of two (2) shares of Common Stock, par value $.001 per share ("Common
Stock") and two (2) Class A Redeemable Common Stock Purchase Warrants ("Class A
Warrants"), each to purchase one share of Common Stock at $7.00 per share from
_____________, 1997 until _____________, 2001, subject to redemption, in certain
instances.
Unless the context otherwise requires, the aggregate of 833,334 Units
to be sold by the Company and the shares of Common Stock and the Warrants
comprising such Units, are herein called the "Units." The Common Stock to be
outstanding after giving effect to the sale of the Units are herein called the
"Shares." The Shares and Warrants included in the Units are herein collectively
called the "Securities."
You have advised the Company that you desire to sell the Units. The
Company confirms the agreements made by it with respect to the sale of the Units
by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-7915) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which
1
<PAGE>
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 first filed with the Commission pursuant to
Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant
to said Rule 424(b), such term means the prospectus included in the Registration
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement, the terms "Registration Statement" and "Prospectus"
shall include such registration statement and prospectus as so amended, and the
term "Prospectus" shall include the prospectus as so supplemented, or both, as
the case may be.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
Closing Date (as hereinafter defined)(i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and the
Rules and Regulations; and (ii) neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus on page 2 with
respect to stabilization, the paragraph under the heading "Underwriting"
relating to concessions to certain dealers, the two legends on page __ of the
Prospectus, all descriptions involving litigation of the Underwriter, the
"Underwriting" Section of the Prospectus and the identity of counsel to the
2
<PAGE>
Underwriter under the heading "Legal Matters" constitute for purposes of this
Section and Section 6(b) the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own its properties and
conduct its business as described in the Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
other jurisdiction in which the nature of its business or the character or
location of its properties requires such qualification, except where the failure
to so qualify will not materially adversely affect the Company's business,
properties, results of operations or condition (financial or otherwise).
(d) The authorized, issued and outstanding capital stock of the
Company, as of ____________, 1996 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and nonassessable; except as set forth in the Prospectus, no options,
warrants, or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company;
and the capital stock conforms to all statements relating thereto contained in
the Registration Statement and Prospectus.
(e) The Units, and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock,
except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right 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
3
<PAGE>
general equitable principles. The Warrants and Warrant Agreement conform to the
respective descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants and Common Stock contained in the
Purchase Option (as defined as the Underwriters' Purchase Option in the
Registration Statement) have been duly authorized and, when duly issued and
delivered, such Warrants will constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms(except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally or by general equitable principles and the
indemnification contained in paragraph 7 of the Purchase Option may be
unenforceable) and entitled to the benefits provided by the Purchase Option. The
shares of Common Stock included in the Purchase Option (and the shares of Common
Stock issuable upon exercise of the Warrants included therein) when issued and
sold, will be duly authorized, validly issued, fully paid and non-assessable and
free of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement and the Purchase Option have been duly and
validly authorized, executed, and delivered by the Company. The Company has full
power and authority to authorize, issue, and sell the Units to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or in connection
with the authorization, issuance, and sale of the Units or the Purchase Option,
except such as may be required under the Act or state securities laws or rules
of the National Association of Securities Dealers, Inc.
(the "NASD").
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company taken as a whole (a
"Material Adverse Effect"), the Company is not in material violation, breach, or
default of or under, and consummation of the transactions herein contemplated
and the fulfillment of the terms of this Agreement will not conflict with, or
result in a material breach or violation of, any of the terms or provisions of,
or constitute a material default under, or result in the creation or imposition
of any material lien, charge, or encumbrance upon any of the property or assets
of the Company pursuant to the terms of any material indenture, mortgage, deed
of trust, loan agreement, or other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company is subject, nor will such action result in any
violation of the provisions of the certificate of incorporation or the by-laws
of the Company, as amended, or any statute or any order, rule or regulation
applicable to the Company of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company.
(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described in
the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to their business; subject to the qualifications stated in
the Prospectus, all
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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 except as otherwise
disclosed or contemplated therein, (i) the Company has not incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, or entered into any transaction not in the ordinary course of
business, which would have a Material Adverse Effect, and (ii) there has not
been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any Material Adverse
Effect or any development involving, so far as the Company can now reasonably
foresee a prospective Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any Material Adverse Effect,
nor are there any actions, suits or proceedings related to environmental matters
or related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving
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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
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(p) On the Closing Date (as hereinafter defined) all transfer or
other similar taxes, including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be paid
in connection with the sale and transfer of the Units hereunder will have been
fully paid or provided for by the Company and all laws imposing such taxes will
have been complied with in all material respects.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no subsidiaries.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to
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compensation from the Company for services as a finder in connection with the
proposed public offering.
(t) Except as disclosed in the Prospectus, no officer, director,
or stockholder of the Company has any NASD affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Employment of the Underwriter; Payment and Delivery.
On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth:
(a) The Company hereby employs the Underwriter as its exclusive
agent to sell for its account 833,334 Units, on a "best efforts, all-or-none"
basis, at a price of $12.00 per Unit. The Underwriter agrees to use its best
efforts as agent, promptly after receipt of written notice of the Effective Date
to sell the 833,334 Units subject to the terms, provisions and conditions
hereinafter mentioned, for a period of not less than ninety (90) calendar days,
which may be extended up to an additional thirty (30) calendar days with the
consent of the Company and the Underwriter. The period during which the Units
are offered shall hereinafter be referred to as the "Offering Period." In the
event that less than 833,334 Units are sold during the Offering Period, this
offering will not be completed, will be withdrawn, none of the Units will be
sold during the Offering Period (as such may be extended) and all proceeds will
be promptly returned in full by the Escrow Agent (as defined below), without
interest or deduction to subscribers, not more than ten (10) business days
following the expiration of said Offering Period.
(b) All proceeds from subscriptions shall be deposited promptly
into a non-interest bearing escrow account to be maintained with Chemical Bank
which account is operated by American Stock Transfer & Trust Company ("Escrow
Agent"). All subscriber's checks shall be made payable to "American Stock
Transfer & Trust Company as Escrow Agent for International Dispensing
Corporation. All subscription proceeds will be transmitted to the Escrow Agent
no later than noon of the next business day following receipt for deposit into
the escrow account.
(c) If 833,334 Units are sold, the Company agrees to issue or
have the Units issued in such names and denominations as may be specified by the
Underwriter and to deliver the Units on the Closing Date against payment to the
Company at 10.98 per Unit, less the non-accountable expense allowance as set
forth below.
(d) If 833,334 Units are sold, the Underwriter shall be entitled
to receive as compensation (i) a commission of $1.02 per Unit, which
compensation the Underwriter shall be entitled to receive and retain from the
proceeds of the sale of the Units prior to transmittal of payment to the Company
by the Escrow Agent as indicated in paragraph (c) above; and (ii) $.36 per Unit
with respect to all
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Units sold as a non-accountable expense allowance, which compensation the
Underwriter shall be entitled to receive and have retained from the proceeds of
the sale of the Units prior to the transmittal of payment to the Company by the
Escrow Agent.
(e) You shall use your best efforts to require that payments
made by purchasers of Units to broker/dealers for Units sold shall be made
payable, in cash or by certified or official bank check, to "American Stock
Transfer & Trust Company as Escrow Agent for International Dispensing
Corporation and will thereafter be delivered to the escrow agent, by twelve
o'clock noon of the next business day following receipt at the full public
offering price of $12.00 per Unit, together with the name, social security or
employer identification number of, and number of Units purchased by, each
subscriber.
(f) Upon closing of the offering, the release of funds in the
Escrow Account shall be made by wire transfers or certified or official bank
checks against delivery of the Units and the Underwriter's Purchase Option to
the Underwriter. Such payment and delivery shall be made at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022 (or at such
other place as may be designated by agreement between the Underwriter and the
Company) at the earlier of (a) a mutually agreed upon date and time following
collection by the Escrow Agent of $10,000,000 in offering proceeds or (b) ten
(10) business days after the expiration of the Offering Period, such date and
time as fixed hereunder for such payment and delivery being herein called the
"Closing Date". Certificates for the Units, Common Stock, Warrants and
Underwriter's Purchase Option so to be delivered will be in such denominations
and registered in such names as you request not less than five (5) full business
days prior to the Closing Date, and will be made available to you for
inspection, checking and packaging at your offices, not less than one (1) full
business day prior to the Closing Date.
3. Covenants of the Company. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise the Underwriter and will not at any time,
whether before or after the effective date, file any amendment to the
Registration Statement or supplement to the Prospectus of which the Underwriter
shall not previously have been advised and furnished with a copy or to which the
Underwriter or its counsel shall have reasonably objected in writing or which is
not in compliance with the Act and the Rules and Regulations. At any time prior
to the later of (A) the completion by the Underwriter of the distribution of the
Units contemplated hereby (but in no event more than nine months after the date
on which the Registration Statement shall have become or been declared
effective) and (B) 25 days after the date on which the Registration Statement
shall have become or been declared effective, the Company will prepare and file
with the Commission, promptly upon the Underwriter's request, any amendments or
supplements to the
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Registration Statement or Prospectus which, in the opinion of counsel to the
Company and the Underwriter, may be reasonably necessary or advisable in
connection with the distribution of the Units.
As soon as the Company is advised thereof, the Company will
advise the Underwriter, and provide the Underwriter copies of any written
advice, of the receipt of any comments of the Commission, of the effectiveness
of any post-effective amendment to the Registration Statement, of the filing of
any supplement to the Prospectus or any amended Prospectus, of any request made
by the Commission for an amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the Units
for offering in any jurisdiction, or of the institution of any proceedings for
any of such purposes, and will use its best efforts to prevent the issuance of
any such order, and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to the Underwriter copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Units for such period as in the opinion of
counsel to the Underwriter and the Company the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriter or
dealer of any event of which the Company has knowledge and which has a Material
Adverse Effect on the Company or the securities of the Company, or which in the
opinion of counsel for the Company and counsel for the Underwriter should be set
forth in an amendment of the Registration Statement or a supplement to the
Prospectus in order to make the statements therein not then misleading, in light
of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units or in case it shall be necessary to amend
or supplement the Prospectus to comply with the law or with the Rules and
Regulations, the Company will notify the Underwriter promptly and forthwith
prepare and furnish to the Underwriter copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as the
Underwriter may reasonably request, in order that the Prospectus, as so amended
or supplemented, will not contain any untrue statement of a material fact or
omit to state any material facts necessary in order to make the statements in
the Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be attached
to the Prospectus shall be without expense to the Underwriter, except that in
case the Underwriter is required, in connection with the sale of the Units to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense of
the Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
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<PAGE>
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.
(b) The Company will furnish such information as may be required
and to otherwise cooperate and use its best efforts to qualify to register the
Units for sale under the securities or "blue sky" laws of such jurisdictions as
the Underwriter may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent of service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Units. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the counsel to the Company and the Underwriter
deem reasonably necessary.
(c) If the sale of the Units provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the accountable out of pocket
expenses of the Underwriter up to $150,000 (including the reasonable fees and
expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify the
Underwriter in writing immediately upon the effectiveness of such registration
statement, and (ii) obtain and keep current a listing in the Standard & Poors or
Moody's OTC Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to the Underwriter during the period ending five
(5) years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, but no earlier than the filing of such information with the
Commission, a balance sheet of the Company at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company for
such fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, but no earlier than the filing of such information with the
Commission, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly available, a
copy of all reports (financial or other) mailed to security holders; (iv) as
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
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<PAGE>
information as you may from time to time reasonably request. Notwithstanding the
above, reports provided by the Company to the Commission shall be deemed
satisfactory for the foregoing purposes.
(f) INTENTIONALLY OMITTED
(g) The Company will deliver to the Underwriter at or before the
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to the
Underwriter as soon as it is practicable to do so but in no event later than 90
days after the end of twelve months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the effective date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Units, and will use its best efforts to cause the same to become effective as
promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Warrants and Purchase Option and Warrants thereunder outstanding
from time to time.
(l) (1) For a period of twenty four (24) months from the Closing
Date, no shareholder prior to the offering will, directly or indirectly, offer,
sell (including any short sale),
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grant any option for the sale of, acquire any option to dispose of, or otherwise
dispose of any shares of Common Stock (other than with respect to the Selling
Securities) without the prior written consent of the Underwriter, other than as
set forth in the Registration Statement. In order to enforce this covenant, the
Company shall impose stop-transfer instructions with respect to the shares owned
by every shareholder prior to the offering (other than with respect to the
Selling Securities) until the end of such period (subject to any exceptions to
such limitation on transferability set forth in the Registration Statement). If
necessary to comply with any applicable Blue-sky Law, the shares held by such
shareholders will be escrowed with counsel for the Company or otherwise as
required. This section shall not apply to the sale of the Selling Securities.
(2) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of twenty four (24)
months following the Closing Date, directly or indirectly, offer, sell, issue or
transfer any shares of its capital stock, or any security exchangeable or
exercisable for, or convertible into, shares of the capital stock, without the
prior written consent of the Underwriter.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Units, Common Stock, and Warrants on the NASD OTC Bulletin Board,
and will use its best efforts to effect and maintain such listing or a listing
on a national securities exchange for at least five years from the date of this
Agreement to the extent that the Company has at least 300 record holders of
Common Stock.
(n) Except for the transactions contemplated by this Agreement
or as otherwise permitted by law, the Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of the Units, Shares,
or the Warrants or to facilitate the sale or resale of the Securities.
(o) On the Closing Date and simultaneously with the delivery of
the Units, the Company shall execute and deliver to you the Purchase Option. The
Purchase Option will be substantially in the form filed as an Exhibit to the
Registration Statement.
(p) Intentionally Omitted
(q) Upon the Closing Date, the Company will have in force key
person life insurance on the life of Mr. Silverman in an amount of not less than
$1,000,000.00, payable to the Company, and will use its best efforts to maintain
such insurance for a three year period.
(r) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the
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Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to the
Underwriter and each dealer as many copies of each such Prospectus as such
Underwriter or dealer may reasonably request. The Company shall not call for
redemption any of the Warrants unless a registration statement covering the
securities underlying the Warrants has been declared effective by the Commission
and remains current at least until the date fixed for redemption.
(s) For a period of one (1) year from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders,
provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission.
(t) For the three (3) year period commencing on the Closing
Date, the Underwriter shall have the right to appoint an observer who will be
able to attend all meetings of the Board of Directors. However, if the Board of
Directors determines that confidential information is to be discussed during any
part of any meeting attended by such observer, it shall have the right to
exclude the observer from the meeting during such discussion. The Underwriter
shall also have the right to obtain copies of the minutes, if requested, from
all Board of Directors meetings for three (3) years following the Effective Date
of the Registration Statement, whether or not a nominee of the Underwriter
attends or participates in any such Board meeting. The Company agrees to
reimburse the Underwriter immediately upon the Underwriter's request therefor of
any reasonable travel and lodging expenses directly incurred by the Underwriter
in connection with its representative attending Company Board meetings on the
same basis as other Board members.
(u) The Company agrees to pay to the Underwriter a finder's fee
of 5.0% of the first $3,000,000.00, 4.0% of the next $3,000,000.00, 3.0% of the
next $2,000,000.00, 2% of next $2,000,000.00 and 1% of the excess, if any, over
$10,000,000.00, of the aggregate consideration received by the Company with
respect to any transaction (including, but not limited to, mergers,
acquisitions, joint ventures, and any other capital business transaction for the
Company) introduced to the Company by the Underwriter and consummated by the
Company (an "Introduced Consummated Transaction") during the five (5) year
period commencing on the Closing Date. The entire amount of any such finder's
fee due and payable to the Underwriter shall be paid in full by certified funds
or cashier's check payable to the order of the Underwriter or in cash, in each
case in the discretion of the Company, at the first closing of the Introduced
Consummated Transaction for which the finder's fee is due. For the purposes
hereof, a party shall not be deemed to be introduced by the Underwriter unless
and until (a) a written disclosure of the identity of such prospective party
shall have been given by the Underwriter and received by the Company during the
period; (b) such party was not previously known to the Company; and (c) such
party shall have commenced
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<PAGE>
substantive negotiations with the Company relating to a Introduced Consummated
Transaction during such five (5) year period.
(v) The Company agrees to pay the Underwriter a warrant
solicitation fee of 4.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Underwriter
and the Underwriter was designated by the holder of the Warrant in writing as
having solicited the exercise of the Warrant, (c) the Warrant is not held in a
discretionary account, (d) disclosure of the compensation arrangement is made
upon the sale and exercise of the Warrants, (e) soliciting the exercise is not
in violation of Rule 10b-6 under the Exchange Act, and (f) solicitation of the
exercise is in compliance with the NASD Notice to Members 81-38 (September 22,
1981).
4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to perform its obligations hereunder, are subject to the accuracy
(as of the date hereof, and as of the Closing Date) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 a.m., New York time,
on the day following the date of this Agreement, or at such later time or on
such later date as to which the Underwriter may agree in writing; on or prior to
the Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or to the knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission; and no stop
order shall be in effect denying or suspending effectiveness of such
qualification nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened. If required, the Prospectus shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act.
(b) At the Closing Date, you shall have received the legal
opinions, dated as of the Closing Date, of (i) patent counsel to the Company, in
form and substance satisfactory to counsel for the Company, and (ii) Kramer,
Levin, Naftalis & Frankel, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, substantially to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own its properties and conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to do business as
a foreign corporation and is in good standing in each other jurisdiction in
which the ownership or leasing of
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<PAGE>
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 as contemplated by this Agreement gives
rise to any registration rights other than those which have been waived or
satisfied for or relating to the registration of any shares of Common Stock or
as otherwise being exercised in connection with the concurrent offering;
(iii) this Agreement, the Purchase Option, and the
Warrant Agreement have been duly and validly authorized, executed, and delivered
by the Company;
(iv) the certificates evidencing the shares of
Common Stock comply with the Delaware General Corporation Law; the Warrants will
be exercisable for shares of Common Stock in accordance with the terms of the
Warrants and Warrant Agreement and at the prices therein provided for;
(v) except as otherwise disclosed in the
Registration Statement, such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which would materially
adversely affect the business, property, financial condition, or operations of
the Company or which question the validity of the Securities, this Agreement,
the Warrant Agreement, or the Purchase Option, or of any action taken or to be
taken by the Company pursuant to this Agreement, the Warrant Agreement, or the
Purchase Option; to
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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 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
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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
(xi) the Units, Common Stock and Warrants have been
duly authorized for quotation on the NASD OTC Bulletin Board.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the laws of
the United States or of the States of Delaware and New York upon opinions of
counsel satisfactory to the Underwriter, in which case the opinion shall state
that they have no reason to believe that the Underwriter and they are not
entitled to so rely.
(c) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(d) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the Closing
Date from Arthur Andersen LLP, independent public accountants for the Company,
substantially in the form reasonably acceptable to the Underwriter.
(e) At the Closing Date, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing Date
and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given, no Material
Adverse Effect, or to the Company's knowledge, any development involving a
prospective Material Adverse Effect from that
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<PAGE>
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company shall not have
incurred any material liabilities or entered into any material agreement not in
the ordinary course of business other than as referred to in the Registration
Statement and Prospectus; (iv) except as set forth in the Prospectus, no action,
suit, or proceeding at law or in equity shall be pending or threatened against
the Company which would be required to be set forth in the Registration
Statement, and no proceedings shall be pending or threatened against the Company
before or by any commission, board, or administrative agency in the United
States or elsewhere, wherein an unfavorable decision, ruling, or finding would
have a Material Adverse Effect, (v) the Underwriter shall have received, at the
Closing Date, a certificate signed by the President of the Company, dated as of
the Closing Date, evidencing compliance with the provisions of this subsection
(e) and (vi) the Underwriter shall have received, at the Closing Date, such
opinions, certificates, letters and other documents as it reasonably requests.
(f) Intentially Omitted.
(g) All proceedings taken at or prior to the Closing Date in
connection with the sale and issuance of the Units shall be reasonably
satisfactory in form and substance to the Underwriter, and the Underwriter and
Bernstein & Wasserman, LLP, counsel to the Underwriter, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties, or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to either of
the Closing Date, for members of the NASD to execute transactions (as principal
or agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be cancelled at, or at any time prior to, the Closing Date by the Underwriter
notifying the Company of such cancellation in writing or by telegram at or prior
to the Closing Date. Any such cancellation shall be without liability of the
Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation of
the Company to sell and deliver the Units is subject to the following
conditions:
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(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.
(b) At the Closing Date, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages, or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages, or liabilities; insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the omission
or alleged omission to state in the Registration Statement, any Preliminary
Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the Company
will not be required to indemnify the Underwriter and any controlling person or
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto, provided, further
that the indemnity with respect to any Preliminary Prospectus shall not be
applicable on account of any losses, claims, damages, liabilities, or litigation
arising from the sale of Units to any person if a copy of the Prospectus was not
delivered to such person at or prior to the written confirmation of the sale to
such person. This indemnity will be in addition to any liability which the
Company may otherwise have.
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<PAGE>
(b) The Underwriter will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages, or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer, or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Units of any applicable state or federal law or
any rule, regulation or instruction thereunder relating to violations based on
unauthorized statements by Underwriter or its representative, provided that such
violation is not based upon any violation of such law, rule, or regulation or
instruction by the party claiming indemnification or inaccurate or misleading
information furnished by the Company or its representatives, including
information furnished to the Underwriter as contemplated herein. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to 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
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<PAGE>
such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the indemnified
party). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnifying party. If it
is ultimately determined that indemnification is not permitted, then an
indemnified party will return all monies advanced to the indemnifying party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which the indemnification provided in
Section 6 hereof is requested but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case,
then the Company and the Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages,
or liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon and the Company shall be responsible for the remaining
portion, 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
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person who controls the Underwriter shall be entitled to contribution from the
Company and the Company, its officers, directors, and controlling persons shall
be entitled to contribution from the Underwriter to the full extent permitted by
law. The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale
of the Units by the Underwriter is consummated, the Company will pay all costs
and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing, and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus, and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Units contemplated hereby;
all expenses, including reasonable fees (which does not include blue sky filing
fees) and disbursements of counsel to the Underwriter, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Underwriter shall designate; the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, this Agreement, and the Blue Sky Memorandum, any fees relating
to the listing of the Units, Common Stock, and Warrants on The Nasdaq Stock
Market or any other securities exchange; the cost of printing the certificates
representing the securities comprising the Units; fees for bound volumes and
prospectus memorabilia; and the fees of the transfer agent and warrant agent.
The Company shall pay any and all taxes (including any transfer, franchise,
capital stock, or other tax imposed by any jurisdiction) on sales of the Units
hereunder. The Company will also pay all costs and expenses incident to the
furnishing of any amended Prospectus or of any supplement to be attached to the
Prospectus as called for in Section 3(a) of this Agreement except as otherwise
set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at
the Closing Date pay to the Underwriter a non-accountable expense allowance of
$300,000. In the event the transactions contemplated hereby are not consummated
by reason of any action by the Underwriter (except if such prevention is based
upon a breach by the Company of any covenant, representation, or warranty
contained herein or because any other condition to the Underwriter's obligations
hereunder required to be fulfilled by the Company are not fulfilled) the Company
shall not be liable for any expenses of the Underwriter, including the
Underwriter's legal fees. In the event the transactions contemplated hereby are
not consummated by reason of the Company being unable to perform its obligations
hereunder in all material respects, the Company shall be liable for the actual
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<PAGE>
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. The time of the initial public offering shall mean the
time of release by the Underwriter of the first newspaper advertisement with
respect to the Units, or the time when the Units are first generally offered by
the Underwriter to dealers by letter or telegram, whichever shall first occur.
This Agreement may be terminated by the Underwriter at any time before it
becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13,
14, and 15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated
at any time prior to the Closing Date, and the option referred to in Section
2(b) hereof, if exercised, may be cancelled at any time prior to the Option
Closing Date, by the Underwriter if in the Underwriter's judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriter
for the resale of the Units agreed to be purchased hereunder by reason of (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident, or other calamity, or from any labor
dispute or court or government action, order, or decree, which has caused a
Material Adverse Effect, (ii) trading in securities on the New York Stock
Exchange or the American Stock Exchange having been suspended or limited, (iii)
material governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof), (iv) a banking
moratorium having been declared by federal or New York state authorities, (v) an
outbreak of major international hostilities involving the United States or other
substantial national or international calamity having occurred, (vi) a pending
or threatened legal or governmental proceeding or action relating generally to
the Company's business, or a notification having been received by the Company
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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 consideration of $83.33, 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 83,333 Units. In the event of conflict in the terms of this
Agreement and the Purchase Option with respect to language relating to the
Purchase Option, the language of the Purchase Option shall control.
12. Representations and Warranties of the Underwriter. The Underwriter
represents and warrants to the Company that it is registered as a broker-dealer
in all jurisdictions in which it is offering the Units and that it will comply
with all applicable state or federal laws relating to the sale of the Units
including but not limited to, violations based on unauthorized statements by the
Underwriter or its representatives.
13. Intentionally Omitted.
14. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect until
three years from the date of this Agreement, regardless of any investigation
made by or on behalf of the Underwriter, the Company, or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
15. Notice. Any communications specifically required hereunder to be
in writing, if sent to the Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Stratton Oakmont , Inc., 1979 Marcus Avenue, Lake
Success, New York 11042, with a copy sent to Bernstein
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& Wasserman, LLP, 950 Third Avenue, New York, New York 10022, Attention: Hartley
T. Bernstein, Esq., or if sent to the Company, will be mailed, delivered, or
telecopied and confirmed to it at 342 Madison Avenue, Suite 1034, New York, New
York 10173, Attention: Jon D. Silverman, with a copy sent to Kramer, Levin,
Naftalis & Frankel, 919 Third Avenue, New York, New York 10022, Attention: Scott
S. Rosenblum, Esq. Notice shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication.
16. Parties in Interest. The Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company, any person controlling the
Company or the Underwriter, and directors of the Company, nominees for directors
(if any) named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from the Underwriter of the Units.
17. Applicable Law. This Agreement will be governed by, and construed
in accordance with, of the laws of the State of New York applicable to
agreements made and to be entirely performed within New York.
18. Counterparts. This agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
19. Entire Agreement; Amendments. This Agreement constitutes the
entire agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing, signed by the
Underwriter and the Company.
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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,
INTERNATIONAL DISPENSING
CORPORATION
By: __________________________
Its
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
STRATTON OAKMONT, INC.
By:__________________________
Its
The Undersigned are executing this Agreement solely
to be bound by the provisions of Section 3(1) and Section 13 hereof.
- ----------------------- ------------------------
Harvey Bibicoff Calvin Caldwell
- ----------------------- ------------------------
Edward Ferree Andre Van Gils
- ----------------------- ------------------------
Daryl Hagler Irving Kraut
26
<PAGE>
- ----------------------- ------------------------
David Landua Steven Madden
- ----------------------- ------------------------
Roger Oppenheimer Douglas Preston
- ----------------------- -------------------------
Raphael Schneiderman Harry Shuster
ROTANES, INC.
_______________________ By:____________________
Lloyd Solomon Its:
ARMSTRONG INDUSTRIES PLUS ONE FINANCE LTD.
By:____________________ By:_______________________
Its: Its:
27
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.
INTERNATIONAL DISPENSING CORPORATION
833,334 UNITS
CONSISTING OF
1,666,668 SHARES OF COMMON STOCK
AND
1,666,668 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_____________________, 1996
Dear Sirs:
1. Stratton Oakmont, Inc., named as the Underwriter in the enclosed
Preliminary Prospectus (the "Underwriter"), proposes to offer on a "best efforts
all-or-none basis" subject to the terms and conditions and execution of the
Underwriting Agreement, 833,334 units of International Dispensing Corporation
(the "Company") each consisting of two (2) shares of common stock par value
$.001 per share (the "Common Stock") and two (2) Class A Redeemable Common Stock
Purchase Warrants (the "Warrants"), each to purchase one share of Common Stock.
The Units are more particularly described in the enclosed Preliminary
Prospectus, additional copies of which as well as the Prospectus (after
effective date) will be supplied in reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy Units upon the terms and
conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission (the "Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. (the "NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. Units are to be offered to the public at a price of
$12.00 per Unit. Selected Dealers will be allowed a concession of not
1
<PAGE>
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 sell may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Units has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Sell below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Units set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable.
4. You will advise us upon request of the Units to be sold by you
remaining unsold, and we shall have the right to repurchase such Units upon
demand at the public offering price less the concession as set forth in
paragraph 2 above.
5. All payments from customers shall be made payable to "American Stock
Transfer & Trust Company as Escrow Agent for International Dispensing
Corporation." and shall be transmitted to the Escrow Agent by noon of the next
business day. Certificates for the securities shall be delivered as soon as
practicable at the offices of Stratton Oakmont, Inc., 1979 Marcus Avenue, Lake
Success, New York, New York 11042.
6. A registration statement covering the offering has been filed with
the Commission in respect to the Units. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or by
the Underwriter to give any information or to make any representations other
than those contained in the Prospectus in connection with the sale of the Units.
Nothing contained herein shall render the Selected Dealers a member of the
underwriting group or partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Units in any state.
2
<PAGE>
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.
10. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("Association") and registered
as a broker-dealer or are not eligible for membership under Section I of the
By-Laws of the Association who agree to make no sales within the United States,
its territories, or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's interpretation
with respect to free-riding and withholding. Your attention is called to the
following: (a) Rules 2730, 2740, 2420 and 2750 of the NASD Conduct Rules of the
Association and the interpretations of said Section promulgated by the Board of
Governors of such Association including the interpretation with respect to
"Free-Riding and Withholding"; (b) Section 10(b) of the 1934 Act and Rules 10b-6
and 10b-10 of the general rules and regulations promulgated under said Act; (c)
Securities Act Release #3907; (d) Securities Act Release #4150; and (e)
Securities Act Release #4968 requiring the distribution of a Preliminary
Prospectus to all persons reasonably expected to be purchasers of Shares from
you at least 48 hours prior to the time you expect to mail confirmations. You,
if a member of the Association, by signing this Agreement, acknowledge that you
are familiar with the cited law, rules, and releases, and agree that you will
not directly and/or indirectly violate any provisions of applicable law in
connection with your participation in the distribution of the Shares.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Units or its
component securities in the open market or otherwise make a market in such
securities or otherwise attempt to induce others to purchase such securities in
the open market. Nothing contained in this paragraph 11 shall, however, preclude
you from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. Intentionally omitted.
13. Intentionally omitted.
14. You agree that (i) you shall not recommend to a customer the
purchase of Units unless you shall have reasonable grounds to believe that the
recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the
3
<PAGE>
customer's investment objectives, financial situation and needs, and any other
information known to you, (ii) in connection with all such determinations, you
shall maintain in your files the basis for such determination, and (iii) you
shall not execute any transaction in Units in a discretionary account without
the prior specific written approval of the customer.
15. All communications from you should be directed to us at the office
of the Underwriter, Stratton Oakmont, Inc., 1979 Marcus Avenue, Lake Success,
New York 11042. All communications from us to you shall be directed to the
address to which this letter is mailed.
Very truly yours,
STRATTON OAKMONT, INC.
By: ______________________________
Its
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1996
[Name of Dealer]
By: ______________________________
Its
4
<PAGE>
To: Stratton Oakmont, Inc.
1979 Marcus Avenue
Lake Success, New York 11042
We hereby subscribe to sell _____________ Units of International
Dispensing Corporation, each Unit consisting of two (2) shares of common stock,
par value $.001 per share (the "Common Stock") and two (2) Class A Redeemable
Common Stock Purchase Warrants (the "Class A Warrants"), each to purchase one
share of Common Stock, in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Prospectus referred to in
the first paragraph thereof relating to said Units. We further state that in
selling said Units we have relied upon said Prospectus and upon no other
statement whatsoever, whether written or oral. We confirm that we are a dealer
actually engaged in the investment banking or securities business and that we
are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. We hereby agree to comply with the
provisions of Rule 2740 of the NASD Conduct Rules, and if we are a foreign
dealer and not a member of the NASD, we also agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
we were a member of the NASD, with the provisions of Rules 2730 and 2750 of the
NASD Conduct Rules.
[Name of Dealer]
----------------------------------
By: ______________________________
Address
----------------------------------
----------------------------------
Dated _____________________, 1996
1
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
RESEAL FOOD DISPENSING
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 Article First thereof and by substituting in lieu of
said paragraph the following new paragraph:
"FIRST: The name of the Corporation is International Dispensing
Corporation (the "Corporation")."
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 September 11, 1996.
/s/ David Brenman
--------------------
David Brenman,
(President)
WARRANT AGREEMENT
AGREEMENT, dated as of this __th day of ______ 1996, by and between
INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation ("Company"), and
American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 833,334 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 83,333 additional Units, (the "Purchase Option"),
and (ii) to certain bridge lenders 787,500 Bridge Units consisting of two (2)
shares of Common Stock and two (2) Warrants, the Company will issue up to
3,408,334 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:
1
<PAGE>
(a) "Common Stock" shall mean the common stock of the Company
of which at the date hereof consists of 40,000,000 authorized shares, $.001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (i) only shares of such class designated
in the Company's Certificate 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 40 Wall
Street, New York, New York 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (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
2
<PAGE>
hereof, which price shall be $7.00 per share (except as set forth in paragraph
2(e)hereof), subject to adjustment from time to time pursuant to the provisions
of Section 9 hereof, and subject to the Company's right, in its sole discretion,
upon thirty (30) days written notice, to reduce the Purchase Price upon notice
to all warrant holders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American 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
3
<PAGE>
an Assistant Secretary, the Warrant Certificates shall be countersigned, issued,
and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 3,408,334 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed, or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Purchase
Option; and (vi) those issued at the option of the Company, in such form as may
be approved by the its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, Stratton may
purchase up to 83,333 Units which include up to 166,666 Class A Warrants. The
Class A Warrants underlying the Purchase Option are exercisable at $11.55 per
share.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers, or other marks of
identification or designation and such legends, summaries, or endorsements
printed, lithographed, or engraved thereon as the Company may deem appropriate
and as are not
4
<PAGE>
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage or to the requirements of Section 2(b). The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange, or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the
Company by its President, or any Vice President and by its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be counter signed by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent
5
<PAGE>
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five (5) business days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a certificate for any remaining
unexercised Warrants of the Registered Holder), unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants. Upon the
exercise of any Warrant and clearance of the funds received, the Warrant Agent
shall promptly remit the payment received for the Warrant (the "Warrant
Proceeds") to the Company or as the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will, to the extent the Purchase Price is less than
the Market Price (as hereinafter defined), in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or
6
<PAGE>
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
7
<PAGE>
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed on the Registered Holder
by the Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be 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
8
<PAGE>
indemnity satisfactory to them, and (in the case of mutilation) upon surrender
and cancellation thereof, the Company shall execute and the Warrant Agent shall
(in the absence of notice to the Company and/or Warrant Agent that the Warrant
Certificate has been acquired by a bona fide purchaser) countersign and deliver
to the Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a substitute
Warrant Certificate shall comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provisions of paragraph 2(e) hereof, on not
less than thirty (30) days notice given at any time after (1) year from the
Initial Warrant Exercise Date, the Warrants may be redeemed, at the option of
the Company, at a redemption price of $0.05 per Warrant, provided that the
Market Price (defined below) of the Common Stock receivable upon exercise of the
Warrant shall equal or exceed $8.00 (the "Target Price") subject to adjustment
as set forth in Section 8(f) below. Market Price for the purpose of this Section
8 shall mean (i) the average closing bid price for any twenty (20) consecutive
ending within ten (10) days prior to the date of the notice of redemption, which
notice shall be mailed no later than five (5) days thereafter, of the Common
Stock as reported by Nasdaq or (ii) the last reported sale price, for twenty
(20) consecutive trading days ending within ten (10) days of the date of the
notice of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(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.
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(c) The notice of redemption shall specify (i) the re demption
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 busi ness day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrants shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the Redemption Date and
upon the deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and become
void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the Redemption Price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, the
Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
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9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price of the Common Stock (as defined in Section 8) on the
date of the sale or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision, or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received (determined as
provided in subsection 9(f) below) for the issuance of such additional shares
would purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as
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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 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
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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 each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to
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<PAGE>
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
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per share for which Common Stock is issuable upon the exercise of such rights,
warrants, or options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate consideration
payable to the Company upon the exercise of such rights, warrants, or options,
plus the consideration received by the Company for the issuance or sale of such
rights, warrants, or options, plus, in the case of such Convertible Securities,
the minimum aggregate amount of additional consideration, if any, other than
such Convertible Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants, or options or upon the conversion or exchange
of such Convertible Securities issuable upon the exercise of such rights,
warrants, or options) is less than the fair market value of the Common Stock on
the date of the issuance or sale of such rights, warrants, or options, then the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such rights,
warrants, or options) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of
any Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value of
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
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(v) In case the Company shall modify the rights of
conversion, exchange, or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase Price
to be in effect after such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
multiplied by the market price on the date prior to the modification plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities affected by the modification would purchase at
the market price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion, exchange, or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date upon
which such modification shall take effect.
(vi) n 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
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<PAGE>
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
(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;
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(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 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
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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 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:
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(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 reclassifica tion 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
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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.
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
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or whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order,
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the 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
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execution of its duties and powers hereunder except losses, expenses, and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
thirty (30) days prior written notice to the Company. At least fifteen (15) days
prior to the date such resignation is to become effective, the Warrant Agent
shall cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of fifteen (15) days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of competent
jurisdiction in the State of New York for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After 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
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warrant agent under this Agreement without any further act, provided that such
corporation is eligible for appointment as successor to the Warrant Agent under
the provisions of the preceding paragraph. Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed to
the Company and to the Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
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
24
<PAGE>
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.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INTERNATIONAL DISPENSING CORPORATION
By: ______________________________
Its
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Its
Authorized Officer
26
<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. W ________Class A Warrants
VOID AFTER ________ __, 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
INTERNATIONAL DISPENSING CORPORATION
THIS CERTIFIES THAT FOR VALUE RECEIVED ___________________
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as herein after defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of INTERNATIONAL DISPENSING
CORPORATION, a Delaware corporation (the "Company"), at any time between the
Initial Warrant Exercise Date (as herein defined) and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of AMERICAN STOCK TRANSFER & TRUST COMPANY as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $7.00
(the "Purchase Price") in lawful money of the United States of America in cash
or by official bank or certified check made payable to INTERNATIONAL DISPENSING
CORPORATION.
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.
1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean ________ __, 1997.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on
________ __, 2001, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expira tion 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 state ment 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 connec tion therewith, for
registration of transfer of this Warrant Certifi cate at such office, a new
Warrant Certificate or Warrant Certifi cates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limi tations provided in the Warrant Agreement.
2
<PAGE>
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stock holder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant at any time after two (2) years from the
Effective Date, provided the Market Price (as defined in the Warrant Agreement)
for the securities issuable upon exercise of such Warrant shall equal or exceed
$8.00 per share. Notice of redemption shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
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: _____________
INTERNATIONAL DISPENSING CORPORATION
By ______________________________
Name:
Title:
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert taxpayer identification or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
1
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, ___________________________hereby sells, assigns,
and transfers unto
--------------------------------------------
(please insert taxpayer identification or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
_____________of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints _________________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
- -------------------------- --------------------------------
(Date) Signature
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
1
Option to Purchase
83,333 Units
INTERNATIONAL DISPENSING CORPORATION
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
INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), at the prices and during the periods as
hereinafter specified, up to 83,333 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 $11.55 per share (the "Class A Warrants"). The Warrants are exercisable
until __________, 2001.
The Units have been registered under a Registration Statement on Form
SB-2 (File No. 333-7915) declared effective by the Securities and Exchange
Commission on _________, 1996 (the "Registration Statement"). This Option (the
"Option") to purchase 83,333 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 833,334 Units (the
"Public Units") through the Underwriter, in consideration of $83.33 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
1
<PAGE>
"Description of Capital Stock" in the Registration Statement, and the Warrants
shall be governed by the terms of the Warrant Agreement dated as of ______,
1996, executed in connection with such public offering (the "Warrant
Agreement"), and except that (i) the Holder shall have registration rights under
the Securities Act of 1933, as amended (the "Act"), for the Option, the Units,
the Common Stock and the Warrants included in the Units, and the shares of
Common Stock underlying the Warrants, as more fully described in paragraph 6 of
this Option and (ii) the exercise price of the Warrants contained in this Option
is $11.55. 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
$19.80 per Unit(subject to adjustment pursuant to paragraph 8 hereof) (the
"Exercise Price").
(b) After ____________, 2001 (five (5) years from the
Effective Date), the Holder shall have no right to purchase any Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the applicable Exercise Price then in effect for the number of Units
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s)' designated in the purchase form to the effect
that such person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. This Option shall be
deemed to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the
2
<PAGE>
earliest date this Option is surrendered and payment is made in accordance with
the foregoing provisions of this paragraph 2, and the person or persons in whose
name or names the certificates for shares of Common Stock and Warrants shall be
issuable upon such exercise shall become the Holder or Holders of record of such
Common Stock and Warrants at that time and date. The Common Stock and Warrants
and the certificates for the Common Stock and Warrants so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten (10) days,
after the rights represented by this Option shall have been so exercised.
3. For a period of one (1) year from the Effective Date, this Option
shall not be transferred, sold, assigned, or hypothecated, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder during such period. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under this
paragraph 3 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.
3
<PAGE>
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, by written notice at least
thirty (30) days prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of five
years from the effective date of the Registration Statement, upon the request of
the Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Option, all or any of the Units underlying the Option, the Common Stock or
Warrants included in the Units or the Common Stock issuable upon the exercise of
the Warrants (the "Registrable Securities"). The Company shall supply
prospectuses and such other documents as the Holder may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder reasonably designates;
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action; and do any and all other acts and
things which may be reasonably necessary or desirable to enable such Holder to
consummate the public sale or other disposition of the Registrable Securities,
and furnish indemnification in the manner provided in paragraph 7 hereof. The
Holder shall furnish information and indemnification as set forth in paragraph
7, except that the maximum amount which may be recovered from the Holder shall
be limited to the amount of proceeds received by the Holder from the sale of the
Registrable Securities. The Company shall use its best efforts to cause the
managing underwriter or underwriters 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
4
<PAGE>
Registrable Securities shall be eliminated, reduced, or limited to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, if any, recommended by such managing underwriter or
underwriters (any such reduction or limitation in the total amount of
Registrable Securities to be included in such offering to be borne by the
Holders of Registrable Securities proposed to be included therein pro rata). The
Holder will pay its own legal fees and expenses and any underwriting discounts
and commissions on the securities sold by such Holder and shall not be
responsible for any other expenses of such registration.
(b) If any 50% Holder (as defined below) shall give notice to
the Company at any time during the period set forth in paragraph l(a) hereof to
the effect that such Holder desires to register under the Act this Option, the
Units, or any of the underlying securities contained in the Units underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved then the Company will
promptly, but no later than sixty (60) days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Option, the
Units, and/or any of the securities underlying the Units may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective for a
period of 120 days (including the taking of such steps as are reasonably
necessary to obtain the removal of any stop order); provided that such Holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% Holder (which for
purposes hereof shall mean any direct or indirect transferee of such Holder)
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act
with respect to the Registrable Securities on only one occasion during the term
of this Option. The Holder may at its option request the registration of the
Option and/or any of the securities underlying the Option in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
Units issuable upon exercise of the Option and even though the Holder has not
given notice of exercise of the Option. The 50% Holder may, at its
5
<PAGE>
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 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
6
<PAGE>
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,
7
<PAGE>
and each underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter, against any losses, claims, damages, or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder 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
8
<PAGE>
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus, or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder for use in the preparation thereof; and
will reimburse the Company or any such director, officer, or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
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,
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<PAGE>
or (iii) combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Notwithstanding anything to the contrary contained in the Warrant Agreement, in
the event an adjustment to the Exercise Price is effected pursuant to this
Subsection (a) (and a corresponding adjustment to the number of Option Units is
made pursuant to Subsection (f) below), the exercise price of the Warrants shall
be adjusted so that it shall equal the price determined by multiplying the
exercise price of the Warrants by a fraction, the denominator of which shall be
the number of shares of Common Stock outstanding immediately after giving effect
to such action and the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such action. In such event, there
shall be no adjustment to the number of shares of Common Stock or other
securities issuable upon exercise of the Warrants. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all Holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option Unit by
the product of the Exercise Price in effect immediately prior to the date of
such issuance multiplied by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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, International Dispensing Corporation. 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.
INTERNATIONAL DISPENSING CORPORATION
By: ______________________________
Name:
Title:
(Corporate Seal)
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
Units of International Dispensing Corporation, each Unit consisting of
two shares of $.001 Par Value Common Stock and two Class A Redeemable Common
Stock Purchase Warrants and herewith makes payment of $______________ therefor,
and requests that the Warrants and certificates for shares of Common Stock be
issued in the name(s) of, and delivered to ________________________ whose
address(es) is (are)_________________________________________.
Dated:
1
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase Units
represented by the foregoing Option to the extent of _______ Units and appoints
_________________________________ attorney to transfer such rights on the books
of International Dispensing Corporation with full power of substitution in the
premises.
Dated:
By: ______________________________
Address:
------------------------------
------------------------------
------------------------------
In the presence of:
1
ESCROW AGREEMENT
AGREEMENT made this ____ day of August, 1996, by and among ReSeal Food
Dispensing Systems, Inc., a Delaware corporation with its principal offices at
342 Madison Avenue, Suite 1034, New York, NY 10173 (the "Corporation"), and
Stratton Oakmont, Inc., with its principal offices at 1979 Marcus Avenue, Lake
Success, NY 11042 (the "Underwriter") and American Stock Transfer & Trust
Company, with offices at 40 Wall Street, New York, NY 10005 (the "Escrow
Agent").
W I T N E S S E T H
WHEREAS, the Escrow Agent has been advised that the Corporation is
organized under the laws of the State of Delaware.
WHEREAS, the Escrow Agent has been advised that the Corporation is
authorized to issue 40,000,000 shares of common stock, $.001 par value (the
"Common Stock");
WHEREAS, the Escrow Agent has been advised that the Corporation has
filed with the Securities and Exchange Commission (the "SEC") a registration
statement on Form SB-2 (The "Registration Statement") pursuant to the Securities
Act of 1933, as amended (the "Act"), covering a proposed offering (the
"Offering") of up to 833,334 units (the "Units");
WHEREAS, the Escrow Agent has been advised that the Underwriter
proposes to offer 833,334 Units, as agent for the Corporation, for sale to the
public on a "best efforts, all-or-none basis;"
WHEREAS, in compliance with Rule 240-15C2-4 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, the
Corporation and the Underwriter propose to establish an escrow account with the
Escrow Agent; and
WHEREAS, the Escrow Agent is willing to establish an escrow account on
the terms and subject to the conditions hereinafter set forth;
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<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereby agree as follows:
1. Establishment of Escrow Account. Prior to the date on which the
Registration Statement is declared effective (the "Effective Date") by the SEC,
the parties hereto shall establish, and by execution of the Agreement hereby
agree to establish, a non-interest-bearing escrow account with Chemical Bank
which escrow account shall be titled the American Stock Transfer & Trust Company
Trust Account for International Dispensing Corporation.
2. Deposits Into the Escrow Account. The Underwriter shall deposit all
monies received from prospective purchasers of the Units (the "Fund") in the
Escrow Account by twelve o'clock noon of the next business day following receipt
thereof. Simultaneously with each such deposit, the Underwriter shall inform the
Escrow Agent, by confirmation slip or other writing, of the name and address of
each prospective purchaser. In this regard, the Escrow Agent shall have the
right to rely fully on the confirmation slips or other writings so furnished to
it by the Underwriter. Promptly after the SEC shall declare the Registration
Statement effective, the Corporation shall advise the Escrow Agent in writing of
the Effective Date. Escrowed funds will be invested only in investments
permissible under Rule 15c2-4.
3. Disbursements from the Escrow Account.
(a) In the event that the Escrow Agent does not receive a
minimum of $10,000,000 (the "Minimum") CLEARED FUNDS (which represents the
proceeds from the sale of 833,334 Units) from the Underwriter for deposit in the
Escrow Account within 90 business days from the effective date of the
Registration Statement which may be extended for an additional 30 days by the
mutual consent of the Corporation and the Underwriter, upon the furnishings of
written notice thereof to the Escrow Agent jointly signed by the Corporation and
the Underwriter, either period to be extended further by an eight-day collection
period), the Escrow Agent shall promptly refund to each prospective purchaser
the amount actually received from such purchaser, without interest thereon or
deduction therefrom (except as provided below), and the Escrow Agent shall
notify the Underwriter and the Corporation of its distribution of the Fund. Such
refunds shall be made by the Escrow Agent promptly following expiration of the
offering period (ninety (90) days or
2
<PAGE>
one hundred twenty (120) days, if extended).
(b) In the event that the Escrow Agent receives the Minimum
from the Underwriter for deposit in the Escrow Account within 90 business days
from the Effective Date (which period may be extended for an additional 30
business days pursuant to (a) above), the Escrow Agent shall notify the
Corporation of such fact in writing within a reasonable time. The Escrow Agent
shall hold such monies in escrow, until given instructions in writing by the
Corporation and the Underwriter as to the disposition of the Fund.
(c) Upon the disbursement of the Fund pursuant to either (a)
or (b) above, the Escrow Agent will be under no further responsibility with
respect to the Agreement. In this regard it expressly is agreed and understood
that in no event shall the aggregate amount of payments made by the Escrow Agent
exceed the amount of the Fund.
4. Rights, Duties and Responsibilities of Escrow Agent. It is
understood and agreed that the duties of the Escrow Agent are purely ministerial
in nature. It is further agreed that:
(a) The Escrow Agent shall not be required to enforce any of
the terms or conditions of the underwriting agreement or any other agreement
between the Underwriter and the Corporation, nor shall the Escrow Agent be
responsible for the performance by the Underwriter or the corporation of their
respective obligations under this Agreement;
(b) The Escrow Agent shall not be required to accept from the
Underwriter any confirmation slips or other writings issued to prospective
purchasers hereunder unless the same are accompanied by cash, checks, drafts or
other instruments for the payment of money, nor shall the Escrow Agent by
required to keep records of any information on checks, drafts or other
instruments received or collected by the Escrow Agent from the Underwriter
within a reasonable time, by wire or otherwise, of any discrepancy between the
amount set forth on any such confirmation slip or other writing and sum, or
sums, delivered to the Escrow Agent by the Underwriter therewith;
(c) The Escrow Agent shall be under no duty or responsibility
to enforce collection of any check, draft or other
3
<PAGE>
instrument for the payment of money delivered to it hereunder, but the Escrow
Agent, within a reasonable time, shall return to the Underwriter any check,
draft or other instrument which is dishonored, together with the confirmation
slip of other writing, if any, which accompanied such check, draft or other
instrument;
(d) The Escrow Agent shall be protected in acting upon any
notice, request, certificate, approval, consent, confirmation slip or other
paper believed by it to be genuine and to be signed by the proper party or
parties, it being understood that all notices, requests, certificates,
approvals, consents or other papers (except lists of subscribers or
confirmations issued to subscribers, delivered to the Escrow Agent on behalf of
the Underwriter) shall be signed by the same person who has signed this
instrument on behalf of the Underwriter;
(e) In the event that the Escrow Agent shall receive
instructions with respect to the Fund from the Corporation and the Underwriter
which, in its sole opinion, are in conflict with other instructions received by
it or any provision of the Agreement, it shall be entitled to hold the Fund, or
a portion thereof, in the Escrow Account pending the resolution of such conflict
to the Escrow Agent's sole satisfaction, by final judgement of a court or courts
of competent jurisdiction or otherwise, or the Escrow Agent, at its option, may
deposit the Fund in the registry of a court of competent jurisdiction is a
proceeding to which all parties in interest are joined;
(f) The Escrow Agent shall not be liable for any action taken
or omitted hereunder except is the case of its willful misconduct or gross
negligence nor shall it be liable for the default or misconduct of any employee,
agent or attorney appointed by it. The Escrow Agent shall be entitled to consult
with counsel of its own choosing by it in accordance with the advice of such
counsel; and
(g) The Escrow Agent shall have no responsibility at any time
to ascertain whether or not any security interest exists in the Fund or any part
thereof or to file any financing statement under the Uniform Commercial Code
with respect to the Fund or any part thereof.
5. Amendment; Resignation. This Agreement may be altered or
4
<PAGE>
amended only with the written consent of the Corporation, the Underwriter and
the Escrow Agent. Should the Corporation and/or the Underwriter attempt to
change the Agreement in a manner which, in the Escrow Agent's sole opinion, is
undesirable, the Escrow Agent may resign as Escrow Agent upon five (5) business
days' written notice to the Corporation and the Underwriter; otherwise, it may
resign as Escrow Agent at any time upon thirty (30 days) written notice to the
Corporation and the Underwriter. In the case of the Escrow Agent's resignation
its only duty shall be to hold and dispose of the Fund in accordance with the
original provisions of this Agreement until a successor Escrow Agent shall be
appointed and written notice of the name and address of such successor Escrow
Agent shall be given to the Escrow Agent by the Corporation and the Underwriter,
whereupon the Escrow Agent's only duty shall be to pay over to the successor
Escrow Agent, the Fund, less any portion thereof previously paid out in
accordance with this agreement.
6. Warranties. The Corporation and the Underwriter warrant to and agree
with the Escrow Agent that, unless otherwise expressly set forth in this
Agreement:
(a) No party other than the parties hereto and the prospective
purchasers have, or shall have ,any lien, claim or security interest in the Fund
or any part thereof;
(b) As of the date of this Agreement, the Registration
Statement has not been declared effective by the SEC; and
(c) No financing statement under the Uniform Commercial Code
is on file in any jurisdiction claiming a security interest in or describing
(whether specially or generally) the Fund or any part thereof.
7. Fees and Expenses. The Escrow Agent shall be entitled to a fee equal
to $1,000 for acting as Escrow Agent.
8. Indemnification and Contribution.
(a) The Corporation and the Underwriter (collectively referred
to as the "Indemnitor") jointly and severally agree to indemnify the Escrow
Agent and its officers, agents, directors and stockholders (jointly and
severally the "Indemnities") against, and hold them harmless of and from, any
and all loss, liability, cost,
5
<PAGE>
damage and expense, including, without limitation, reasonable counsel fees,
which the Indemnities may suffer of incur by reason of any action, claim or
proceeding brought against the Indemnities, arising out of or relating in any
way to this Agreement or any transaction to which this Agreement relates whether
or not any action, claim or proceeding is the result of the negligence of the
Indemnities. If any person shall assert any claim (whether or not by the
institution of any action, suit or other proceeding), against any of the
Indemnities arising out of this Agreement or any transaction to which this
Agreement relates, whether or not such claim ultimately is established, the
Indemnitor shall pay all costs and expenses of the defense of such claim,
including, without limitation, reasonable counsel fees. There shall be included
in the loss, liability, cost, damage and expense against which the Indemnities
are indemnified hereunder all sums which any of the Indemnities may pay in
settlement of any such claim with approval of the Indemnitor.
(b) If the indemnification provided for in this Section 8 is
applicable, but for any reason is held to be unavailable, the Indemnitor shall
contribute such amounts as are just and equitable to pay (or to reimburse the
Indemnities for ) the aggregate of any and all losses, liability, costs, damages
and expenses, including reasonable counsel fees, actually incurred by the
Indemnities as a result of or in connection with, and any amount paid in
settlement of, any action, claim or proceeding arising out of or relating in any
way to any acts or omissions of the Indemnitor.
(c) Any Indemnitee which proposes to assert the right to be
indemnified under this Section 8, promptly after receipt of notice of
commencement of any action, suit or proceeding against the Indemnitor under this
Section 8, will notify the Indemnitor of the commencement of such action, suit
or proceeding, enclosing a copy of all papers served, but the omission so to
notify the Indemnitor of any such action, suit or proceeding shall not relieve
the Indemnitor from any liability which they may have to any Indemnitee
otherwise than under this Section 8. In case any such action, suit or proceeding
shall be brought against any Indemnitee and it shall notify the Indemnitor or
the commencement thereof, the Indemnitor shall be entitles to participate in
and, to the extent that they shall wish, to assume the defense thereof, with
counsel satisfactory to such Indemnitee, and after notice from the
6
<PAGE>
Indemnitor to such Indemnitee of their election so to assume the defense
thereof, the indemnitor shall not be liable to such Indemnitee for any legal or
other expenses, other than reasonable costs of investigation subsequently
incurred by such Indemnitee in connection with the defense thereof. The
Indemnitee shall have the right to employ its counsel in any such action, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee
unless (i) the employment of counsel by such Indemnitee has been authorized by
the Indemnitor, (ii) the Indemnitee shall have reasonably concluded that there
may be a conflict of interest among the Indemnitor and the Indemnitee in the
conduct of the defense of such action (in which case the (Indemnitor shall not
have the right to direct the defense of such action on behalf of the Indemnitee)
or (iii) the Indemnitor in fact shall not have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of counsel
shall be borne by the Indemnitor.
9. Governing Law and Assignment. This agreement shall be construed in
accordance with and governed by the laws of the State of New York and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that any assignment or transfer by any party of its rights
under this Agreement or with respect to the Fund shall be void as against the
Escrow agent unless:
(a) written notice thereof shall be given to the Escrow Agent,
and;
(b) the Escrow agent shall have consented in writing to such
assignment or transfer.
10. Notices. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, and addressed to: the Corporation at 342 Madison Avenue, Suite 1034,
New York, NY 10173, the Underwriter at 1979 Marcus Avenue, Lake Success, NY
11042, and the Escrow Agent at 40 Wall Street, New York, NY 10005.
11. Severability. If any provision of the Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of the Agreement or the application of
such provision to persons or circumstances other than those to which it held
invalid or
7
<PAGE>
unenforceable shall not be affected thereby and shall be valid and enforceable
to the fullest extent permitted by the law.
12. Execution in Several Counterparts. This agreement may be executed
in several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
13. Pronouns. All pronouns and any variation thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the context may
require.
14. Captions. All captions are for convenience only and shall not limit
or define the text hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:________________________________
INTERNATIONAL DISPENSING CORPORATION
By:________________________________
STRATTON OAKMONT, INC.
By:________________________________
8
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, N.Y. 10022-3852
(212) 715-9100
ARTHUR H. AUFSES III RICHARD MARLIN SHERWIN KAMIN
THOMAS D. BALLIETT THOMAS E. MOLNER ARTHUR B. KRAMER
JAY G. BARIS THOMAS H. MORELAND MAURICE N. NESSEN
SAUL E. BURIAN ELLEN R. NADLER FOUNDING PARTNERS
BARRY MICHAEL CASS GARY P. NAFTALIS COUNSEL
THOMAS E. CONSTANCE MICHAEL J. NASSAU -----
MICHAEL J. DELL MICHAEL S. NELSON MARTIN BALSAM
KENNETH H. ECKSTEIN JAY A. NEVELOFF JOSHUA M. BERMAN
CHARLOTTE M. FISCHMAN MICHAEL S. OBERMAN JULES BUCHWALD
DAVID S. FRANKEL PAUL S. PEARLMAN RUDOLPH DE WINTER
MARVIN E. FRANKEL SUSAN J. PENRY-WILLIAMS MEYER EISENBERG
ALAN R. FRIEDMAN BRUCE RABB ARTHUR D. EMIL
CARL FRISCHLING ALLAN E. REZNICK MAXWELL M. RABB
MARK J. HEADLEY SCOTT S. ROSENBLUM JAMES SCHREIBER
ROBERT M. HELLER MICHELE D. ROSS COUNSEL
PHILIP S. KAUFMAN MAX J. SCHWARTZ -----
PETER S. KOLEVZON MARK B. SEGALL M. FRANCES BUCHINSKY
KENNETH P. KOPELMAN JUDITH SINGER DEBORA K.GROBMAN
MICHAEL PAUL KOROTKIN HOWARD A. SOBEL CHRISTIAN S. HERZECA
KEVIN B. LEBLANG JEFFREY S. TRACHTMAN PINCHAS MENDELSON
DAVID P. LEVIN D. GRANTVINGOE LYNN R. SAIDENBERG
EZRA G. LEVIN HAROLD PL WEINBERGER JONATHAN M. WAGNER
LARRY M. LOEB E. LISK WYCKOFF, JR. SPECIAL COUNSEL
MONICA C. LORD -----
FAX
(212) 715-8000
WRITER'S DIRECT NUMBER
(212) 715-9100
September 18, 1996
International Dispensing Corporation
342 Madison Avenue
Suite 1034
New York, New York 10173
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to International Dispensing Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing of a Registration Statement on Form SB-2 (Registration No. 333-7915) (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering (i) the issuance and sale by the Company of 909,091
units (the "Company Units"), (ii) the offering by certain selling
securityholders of 787,500 units (together with the Company Units, the "Units"),
and (iii) the issuance and sale by the Company to Stratton Oakmont, Inc. (the
"Underwriter") of an option (the "Underwriter's Option") to purchase up to
90,909 Units, each Unit consisting of two shares of the Company's Common Stock,
par value $0.001 per share (the "Common Stock"), and warrants to purchase two
shares of Common Stock (the "Warrants").
As such counsel, we have examined the originals, photocopies or
conformed copies of all such records of the Company and all such agreements and
certificates of public officials, certificates of officers and representatives
of the Company and such other documents as we have deemed relevant and necessary
as a basis for the opinions hereinafter expressed. In such examinations, we have
assumed (i) the genuineness of all signatures on
<PAGE>
KRAMER, LEVIN, NAFTALIS & FRANKEL
International Dispensing Corporation
September 18, 1996
Page 2
original documents, (ii) the authenticity of all documents submitted to us as
originals, and (iii) the conformity to the originals of all copies submitted to
us as conformed copies or photocopies and the authenticity of the originals of
such copies. As to various questions of fact material to our opinion, we have
relied, without independent investigation or verification, upon statements and
representations of representatives of the Company, certificates of officers of
the Company and certificates of public officials.
Based upon the foregoing, it is our opinion that:
(i) the shares of Common Stock included in the Units have been
validly authorized for issuance and sale and will, when sold in
accordance with the terms described in the prospectus forming a
part of the
Registration Statement (the "Prospectus"), be validly issued, fully
paid and non-assessable;
(ii) the Warrants included in the Units have been validly authorized
for issuance and sale and will, when sold in accordance with the
terms and conditions of the Prospectus, be validly issued and
fully paid;
(iii) the shares of Common Stock to be issued upon the exercise of the
Warrants included in the Units have been validly authorized for
issuance and sale and will, when sold in accordance with the
terms and conditions of the Warrants, be validly issued, fully
paid and non-assessable;
(iv) the Underwriter's Option to be sold by the Company pursuant to an
Underwriting Agreement between the Company and the Underwriter
has been validly authorized for issuance and sale and will, when
sold in accordance with the terms of the Prospectus, be validly
issued and fully paid;
<PAGE>
KRAMER, LEVIN, NAFTALIS & FRANKEL
International Dispensing Corporation
September 18, 1996
Page 3
(v) the shares of Common Stock included in the Units to be issued
upon the exercise of the Underwriter's Option have been validly
authorized for issuance and sale and will, when sold in
accordance with the terms and conditions of the Underwriter's
Option, be validly issued, fully paid and non-assessable;
(vi) the Warrants included in the Units to be issued upon the exercise
of the Underwriter's Option have been validly authorized for
issuance and sale and will, when sold in accordance with the
terms and conditions of the Underwriter's Option, be validly
issued and fully paid; and
(vii) the shares of Common Stock to be issued upon the exercise of the
Warrants included in the Units to be issued upon the exercise of
the Underwriter's Option have been validly authorized for
issuance and sale and will, when sold in accordance with the
terms and conditions of the Underwriter's Option and the
Warrants, be validly issued, fully paid and non-assessable.
We call your attention to the fact that we are admitted to practice law
only in the State of New York, and in rendering the foregoing opinions, we do
not express any opinion as to any laws other than the laws of the State of New
York, the General Corporation Law of the State of Delaware, and the Federal laws
of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations promulgated
thereunder.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
KRAMER, LEVIN, NAFTALIS & FRANKEL
INTERNATIONAL DISPENSING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Six Months
Period Ended Ended
December 31, June 30,
1995 1996
------ -----
Historical Earnings Per Share
Net Loss $ 249,795 $ 727,947
Weighted average shares
outstanding:
Common Stock(1) 6,325,000 6,325,000
Stock Rights(2) 1,575,000 1,575,000
----------- -----------
7,900,000 7,900,000
----------- -----------
Historical net loss per share $ 0.03 $ 0.09
(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 $6.00 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 $6.00.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement on (File No.
333-7915).
New York, New York
September 17, 1996
