<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-28868
LEADING EDGE PACKAGING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3432883
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
176 Northfield Ave., Bldg. 409, Raritan Ctr., Edison, NJ 08837
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 225-6868
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the $1.25 last sales price reported by NASDAQ/NMS on
April 13, 1999, was $1,796,875.
<PAGE>
As of June 30, 1999 the registrant had issued and outstanding 5,562,500 shares
of Common Stock, which include 2,250,000 shares of common stock which are
currently held in the name of Bondy & Schloss LLP, the Company's counsel,
subject to direction by the officers of the Company and are deemed non-voting.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or indicated portions thereof, have been
incorporated herein by reference:
(1) Information in the Registrant's definitive proxy material for its 1999
Annual Meeting of Stockholders is incorporated by reference as Part III hereof,
which definitive proxy material shall be filed not later than 120 days after the
Registrant's fiscal year ended March 31, 1999.
2
<PAGE>
PART I
Item 1. Business
General
Leading Edge Packaging, Inc. ("Leading Edge"), together with its
subsidiaries described below (collectively, the "Company"), manufactures and
distributes packaging products used primarily in the sale of luxury consumer
goods. Its packaging products include metal and plastic jewelry cases, optical
cases, pouches and bags, and paper gift boxes. The Company also sells display
units for retail merchandising of jewelry, watches, eyeglasses, pens, cosmetics
and gold coins. The Company manufactures its products primarily in its
manufacturing facility in China and distributes them in North America, Europe,
Asia and the Middle East. The Company's customers are mainly wholesalers and
distributors of packaging products and consumer product manufacturers. Leading
Edge purchases substantially all of its inventory from LEPI China Limited
("LEPI-China"), a Hong Kong company and the Company's wholly-owned subsidiary.
LEPI-China is the direct parent of LEPI (Zhong Shan) Manufacturing Company
Limited ("LEPI Manufacturing"), the Company's China-based wholly-owned
manufacturing subsidiary.
As part of its marketing strategy, the Company's goal is to consolidate
the process by which high-end packaging products are distributed in North
America and, through its subsidiaries, in Europe, Asia and the Middle East. The
Company intends to accomplish this by purchasing and customizing high quality
packaging products from the Company's low-cost Asian manufacturing subsidiaries
and distributing the products in North America and, through its distribution
subsidiaries, in Europe, Asia and the Middle East.
To effect this strategy in North America, the Company leases a 2,000
square-foot office and showroom in the Empire State Building in New York City,
and a 35,000 square-foot warehouse and distribution center in Raritan Center,
Edison, New Jersey, for the Company's warehousing, customization and
distribution operations. The Company believes that its warehousing and
customizing capabilities located in the United States, coupled with its Asian
low-cost manufacturing supply, give it an advantage over its competitors in the
North American market by enabling the Company to fill orders and customize
products on a "just in time" basis. The Company also believes that its
manufacturing facilities in Asia allow it to capitalize on lower production
costs obtainable overseas, while maintaining the high quality of its products.
The Company follows industry practice regarding its general working
capital and inventory. The Company maintains an inventory of finished goods in
its New Jersey warehouse of between $2 million and $3 million to cover an
adequate inventory level for the packaging products it intends to distribute to
the North American retail market. This is generally adjusted upwards or
downwards and the composition revised in accordance with market demand. Its
inventory level of raw materials and components are targeted at a minimum of $6
million and will increase as its turnover increases. Management's objective
is to maintain a 5-6 times turnaround on its inventory. The Company has
approximately $2.3 million in confirmed backlog orders.
3
<PAGE>
Historically, the Company has maintained trade terms in line with the
industry and sold on COD, letter-of-credit and 30-90 days credit terms based on
the financial standing and history of each customer. Where the Company is
promoting a certain category of packaging products or when it is promoting the
sale of a certain type of material, the Company will consider extended payment
terms on a case by case basis. The Company currently purchases most of its raw
materials on either a COD, letter of credit or cash basis and is operating with
virtually no banking facilities. This, coupled with the terms being extended to
its customers, results in working capital shortfalls. The Bank of Central Asia
discounts the Company's bills receivable on a case by case basis, but management
does not believe that the Company can rely on this.
In the United States, the Company is attempting to phase out its reliance
upon customers who themselves are distributors of packaging products and has
embarked on a more aggressive direct marketing campaign to OEM customers. The
Company hopes to establish more direct distribution channels to the consumer
product manufacturers who use its packaging and other products. The Company
cannot be certain that it will succeed in this attempt to reach the OEM market
directly or that doing so will automatically increase its sales. In addition, as
a result of the recent disruption in production of the Company's packaging
products (which is discussed in greater detail below), the Company may have
difficulty reestablishing the OEM customer base which it has thus far developed.
The Company's Subsidiaries
LEPI China Holdings, Inc.
LEPI China Holdings, Inc. ("LEP Holdings") is a Delaware corporation and
Leading Edge's wholly-owned subsidiary. LEP Holdings serves solely as a holding
company for the Company's overseas subsidiaries.
4
<PAGE>
LEPI China Limited
LEPI China Limited ("LEPI-China") is a wholly-owned subsidiary of LEPI
Holdings and is incorporated in Hong Kong. LEPI-China coordinates the
distribution of packaging products produced by its subsidiary to its customers
throughout Europe, the Middle East, and Asia and, through Leading Edge, to North
America. LEPI-China has a sales force in Hong Kong to deal directly with its
Asian and European customers. The packaging products distributed by LEPI-China
are essentially the same types of products distributed by Leading Edge in North
America. LEPI- China owns 100% of the capital stock of LEPI Manufacturing.
LEPI (Zhong Shan) Manufacturing Company Limited
LEPI (Zhong Shan) Manufacturing Company Limited ("LEPI Manufacturing") is
a wholly foreign owned enterprise in the People's Republic of China, formed
under China's Wholly Foreign Owned Enterprise Law. LEPI Manufacturing operates
the Company's factory located in China's National Zhongshan Torch Hi-Tech
Industrial Developmental Zone. The factory, which occupies approximately 230,000
square feet, can employ approximately 2,500 workers and is managed with a focus
on worker safety and welfare. Currently, the Company has approximately 1,880
workers at the factory. It is a fully integrated plant which is equipped with
computerized injection molding machines, automatic printing equipment, automatic
stamping presses, an automatic vacuum forming machine, high precision paper
cutters, CNC wire cutters, a high precision milling machine, a lathe, sewing
machines and heating conveyor systems to air dry all products. The Company
believes that it is the only plant in the industry which has its own fully
equipped laboratory including a spectrometer, gas chromatograph, ph
microprocessor, colorimeter, hardness tester, bonding/stress tester and a
titration system which enables the testing of all raw materials to meet specific
standards. The plant is designed to improve productivity and efficiency over
that of the Company's prior joint venture factory. The Company believes that
this is important in order for it to remain competitive in the industry and
position the Company for future growth.
LEP Products, Inc.
LEP Products, Inc. was engaged in the sale and distribution of watches and
plastic gift bags and was the exclusive distributor of Hang TenTM brand watches
in the United States. In October 1998, the Company ceased distribution of Hang
TenTM watches when the licensee from whom it sub-licensed these watches entered
liquidation in Hong Kong. As a result of the termination of its sub-license,
this subsidiary currently conducts no operations.
5
<PAGE>
LEP Marketing & Sales, Inc. and LEP Distributors, Inc.
In addition to its operating subsidiaries described above, the Company has
two wholly-owned subsidiaries in the United States, each of which is
incorporated in Delaware. These are LEP Marketing & Sales, Inc. and LEP
Distributors, Inc. To date, neither LEP Marketing & Sales nor LEP Distributors,
Inc. has commenced operations.
Justrite Investments Limited
Justrite Investments Limited previously served as the investment holding
company for the Company's other overseas operating subsidiaries. Justrite has
ceased its activities due to the liquidation of all of its operating
subsidiaries. See "Recent Developments".
Leading Edge Packaging Limited (Hong Kong)
Leading Edge Packaging Limited ("LEP-Hong Kong") was formerly the primary
operating subsidiary of Justrite. LEP-Hong Kong is currently in liquidation in
Hong Kong. See "Recent Developments".
Breakspear Limited
Breakspear Limited was the holding company for the Company's interest in
its joint venture in China. Because of the liquidation of the joint venture,
Breakspear Limited currently conducts no operations. See "Recent Developments".
Recent Developments
The past year has been a tumultuous one for the Company in which it has
faced many challenges, including the cessation of operations of its China joint
venture manufacturing facility, establishment of a new, wholly owned
manufacturing subsidiary in China, litigation with its former majority
stockholder, liquidation of a major subsidiary and establishment of a new
corporation to fulfill the functions of that subsidiary. The Company's stock was
delisted from trading on the Nasdaq National Market effective April 14, 1999. In
addition, the Company received an investment of capital from a preferred
stockholder which now holds a controlling interest. It has been a year of
unanticipated changes and of rebuilding and reshaping the Company's business.
Share Exchange Agreement
On January 23, 1998, Leading Edge entered into a Share Exchange Agreement
(the "Share Exchange Agreement") with its then corporate parent, Chung Hwa
Development Holdings Limited, a Bermuda company ("Chung Hwa"). Chung Hwa is
currently undergoing a creditors' restructuring. Pursuant to the Share Exchange
Agreement, the Company received all of the issued and outstanding shares of
Justrite Investments Limited, then a wholly owned subsidiary of Chung Hwa, in
exchange for 2,250,000 shares of Leading Edge's common stock, which at the time
was valued at $6.00 per share for purposes of the transaction (the "Exchange").
6
<PAGE>
Justrite was the parent corporation of Leading Edge Packaging Limited
(f/k/a Rich City International Packaging Limited), a Hong Kong company
("LEP-Hong Kong"), which had previously been the Company's supplier of packaging
products for distribution in North America. LEP-Hong Kong distributed its own
packaging products in other parts of the world, including Europe, the Middle
East and Asia. Justrite also owned several other subsidiaries, including
Breakspear Limited, a British Virgin Islands company, which in turn held a 60%
interest in a joint venture in the People's Republic of China. The Company
believed that the acquisition would enable it to consolidate the manufacture and
distribution of its packaging products and to expand its sales into additional
territories.
After the closing of the Exchange, the Company discovered certain
liabilities incurred by Chung Hwa in the name of LEP-Hong Kong which were not
settled. Pursuant to a letter agreement by and between Leading Edge and Chung
Hwa, the 2.25 million shares due Chung Hwa under the Share Exchange Agreement
were issued in the name of Chung Hwa but were delivered, along with executed
stock powers, to Company counsel for safe keeping. The letter agreement
contemplated that the shares would be disposed of and the proceeds used to
satisfy the debt owed by Chung Hwa to LEP- Hong Kong. The Company has explored
various possibilities for disposing of the shares, but it has not disposed of
them to date. The letter agreement also placed the shares under the control of
the Company's management. These shares are currently held in the name of the
Company's counsel subject to instructions from the Company's officers.
Dispute with China Joint Venture Partner; Cessation of Production and
Establishment of New Production Facility
The failure of Chung Hwa to pay its debt to LEP-Hong Kong
led to a working capital shortfall in the China joint venture factory. The
Company's management discussed with Chung Hwa the possibility of disposing of
all of its interest in the Company, including shares held by it prior to the
Exchange, but such a disposition never occurred. In addition, the Company
entered negotiations with its China joint venture partner for a buy-out by the
Company of the joint venture partner's interest in the joint venture. This would
have placed the factory under the control of a wholly foreign-owned enterprise
which in turn would have been under the exclusive control of the Company. This
would have saved the Company the expense of the management fees it was required
to pay to the joint venture partner.
7
<PAGE>
However, in November 1998, these negotiations collapsed as the joint
venture partner alleged that the Company owed it $300,000 in unpaid wages. The
joint venture partner unilaterally acted to seize the factory and its assets,
including its inventory of finished packaging products, 60% of which belonged to
the Company. This action by the joint venture partner resulted in the cessation
of production at the factory. Because this factory was the Company's sole source
of supply for its packaging products, the cessation of production caused a major
disruption in the Company's business and a significant loss of revenue. The
Company instructed its legal counsels in both Hong Kong and China to file claims
on the assets of the joint venture to which it is entitled by virtue of its 60%
interest in the joint venture. The Company continues to pursue litigation
against its former joint venture partner with assistance from the Commercial
Services division of the U.S. Consul General in Guangzhou, China. While the
Company is pursuing these claims, the probability of reclaiming the assets it
lost in the seizure by its joint venture partner is highly uncertain due to the
complexity of Chinese law.
The disruption in the Company's business was compounded by the non-payment
of the debt owed by Chung Hwa. This was a major setback for the Company. The
Company learned that Chung Hwa was insolvent. In December 1998, the Company's
management determined that it was in the best interests of the Company to
appoint liquidators to wind up LEP-Hong Kong and let the liquidators collect the
debt owed by Chung Hwa to LEP-Hong Kong. Leading Edge is a creditor in the
liquidation because of certain trade advances that it made to LEP-Hong Kong in
the approximate amount of $6.8 million.
The Company formed LEPI China Limited, a Hong Kong company ("LEPI-China"),
in December 1998 to assume the functions which LEP-Hong Kong had previously
provided for the Company in coordinating the manufacture and distribution of the
packaging products. In addition, in January 1999, the Company formed LEPI (Zhong
Shan) Manufacturing Company Limited ("LEPI Manufacturing"), a wholly owned
foreign enterprise under the Wholly Owned Foreign Enterprise Law of the Peoples
Republic of China. The Company, through LEPI Manufacturing, has established a
new factory located in China's National Zhongshan Torch Hi-Tech Industrial
Developmental Zone. The lease on the plant was executed by mid January 1999. In
February, the Company commenced improvements to the factory and recruitment and
training of workers. The factory was fully completed and operational by early
April 1999. The Company hosted a grand opening ceremony on April 20, 1999, which
was attended by customers and suppliers from around the world, officials from
the U.S. Consulate General of Guangzhou and various Chinese government officials
and dignitaries.
8
<PAGE>
The factory occupies approximately 230,000 square feet, can employ
up to approximately 2,500 workers and is managed with a focus on worker safety
and welfare. It is a fully integrated plant which is equipped with computerized
injection molding machines, automatic printing equipment, automatic stamping
presses, automatic vacuum forming machine, high precision paper cutters, CNC
wire cutters, a high precision milling machine, a lathe, sewing machines and
heating conveyor systems to air dry all products. The Company believes that it
is the only plant in the industry which has its own fully equipped laboratory
including a spectrometer,gas chromatograph, ph microprocessor, colorimeter,
hardness tester, bonding/stress tester and a titration system which enables the
testing of all raw materials to meet specific standards. The plant is designed
to improve productivity and efficiency over that of the Company's prior joint
venture factory. The Company believes that this is important in order for it to
remain competitive in the industry and position the Company for future growth.
Issuance of Preferred Stock
In order to solve its liquidity problems, the Company sought help from its
regular banker. The bank orally notified the Company that it planned to suspend
its lines of credit and requested more collateral. The Company's management
turned to other sources and secured a verbal commitment from BroadAsia LLC, an
affiliate of Broadmark Capital Corporation, to provide it with funds to finance
the new factory. BroadAsia agreed in principle to provide financing, but, in
exchange, it required preferred stock and some assurance as to the continuity of
the Company's management. Specifically, BroadAsia required that the preferred
stock have supervoting rights in all matters to be voted on by the stockholders.
In addition, the preferred stockholders are entitled to elect two
representatives to the Company's board of directors and any successors of their
representatives.
The Company considered the proposal by BroadAsia, and, on December 7,
1998, the Company's board of directors voted unanimously to designate the
Preferred Stock and to issue it in accordance with the terms negotiated with
BroadAsia. The officers then proceeded, on direction from the board of
directors, to complete the negotiations with BroadAsia. The Company created
three series of preferred stock, Series A, B and C 8% Redeemable Preferred
Stock, for issuance to BroadAsia and other investors. BroadAsia at that time had
agreed to purchase 1,000,000 shares of the Series A 8% Redeemable Preferred
Stock. In accordance with BroadAsia's proposal, the voting rights of each series
were as follows: Series A, ten votes per share, Series B, five votes per share,
and Series C, three votes per share.
9
<PAGE>
While the details of the issuance were finalized, BroadAsia advanced the
Company the purchase price of $750,000 to deal with the situation in China,
which at that time had become critical. The provincial leaders in Dongguan
Province, where the Company's former joint venture was located, had begun to
damage the Company's reputation in Zhong Shan, where the Company was attempting
to establish a wholly owned foreign enterprise and to obtain a lease for factory
space. The Company needed to show the authorities in Zhong Shan that it had
sufficient funds on account to satisfy the obligations it would incur by
establishing the new production facility. To address this need while the details
of the Preferred Stock issuance were finalized, BroadAsia advanced the purchase
price of the Preferred Stock to the Company, in two separate installments,
pursuant to two demand notes. The Company and BroadAsia had an understanding
that the Company would not spend the proceeds until the issuance of the
Preferred Stock was complete. The shares were finally issued as of January 25,
1999.
On January 8, 1999, the Company had to make an earnest money payment on
its lease to the Zhong Shan authorities. Notwithstanding the cuts it had made to
costs in its U.S. operations, the Company was also struggling to meet its
obligations for its New York and New Jersey facilities and to its creditors. The
Company was coming under increasing pressure from its bankers to pay down its
loans or offer more collateral, neither of which was possible. Although it had
agreed not to use the proceeds until the Series A Preferred Stock was issued,
the Company, with the consent of BroadAsia, of necessity used $100,000 of the
proceeds on deposit from BroadAsia.
The Company has filed a new Certificate of Designations designating Series
A, B and C 8% Cumulative Redeemable Preferred Stock, which is intended to
replace the originally designated Series A, B and C 8% Redeemable Preferred
Stock. The Company has issued 500,000 shares of Series B 8% Cumulative
Redeemable Preferred Stock to BroadAsia and 500,000 shares of Series C 8%
Cumulative Redeemable Preferred Stock to two other investors. The Series B
shares were funded in February 1999 and the Series C in March 1999. In addition,
BroadAsia is exchanging the 1,000,000 shares of Series A 8% Redeemable Preferred
Stock for 1,000,000 shares of Series A 8% Cumulative Redeemable Preferred Stock.
Once the exchange of the Series A shares is complete, the Company plans to file
a Certificate Eliminating Reference to the original Series A, B and C 8%
Redeemable Preferred Stock from its certificate of incorporation.
Dispute with Chung Hwa
In addition to the dispute with the Company's joint venture partner, Chung
Hwa began sending threatening letters to management in late November and
December 1998. The letters suggested that Chung Hwa would try to unwind the
Share Exchange Agreement. Management believed that Chung Hwa was attempting to
"build" its own balance sheet, at the Company's expense, in order to salvage its
own business which was facing severe financial difficulties in Hong Kong.
10
<PAGE>
As of December 3, 1998, ABSA Asia Limited ("ABSA"), a creditor of Chung
Hwa, obtained voting control over the 1,875,000 shares then held in the name of
Chung Hwa and also had the power to transfer such shares into its own name, both
by operation of a certain Share Mortgage, dated December 3, 1998. Under the
Share Mortgage, Chung Hwa had pledged the 1,875,000 shares as collateral to
ABSA.
On December 12, 1998, the directors and officers of the Company began
receiving notices from Chung Hwa that it had taken action on December 10,
purportedly as majority stockholder, to oust the board and install its own slate
of directors, who in turn had elected replacement officers. Chung Hwa no longer
had the right to vote as the majority stockholder on December 10, 1998. In
addition to its Share Mortgage in favor of ABSA, Chung Hwa had also pledged back
to the Company the 2,250,000 shares of the Company's Common Stock, which it had
received in the share exchange, which were intended to be sold and the proceeds
used to pay the debt to LEP-Hong Kong (now in liquidation). As a result, Chung
Hwa had no voting rights in the Company's stock. Nevertheless, Chung Hwa brought
an action in Delaware Chancery Court to determine who were the proper directors
and officers of the Company. The action was subsequently dismissed. Because of
this action by Chung Hwa, in the midst of the turmoil in China and management's
negotiation of the terms of the Preferred Stock issuance, the Company had to
devote time and resources to defending the baseless suit. This exacerbated the
Company's troubles.
Nasdaq De-Listing
Effective April 14, 1999 the Company's securities are no longer listed on
the Nasdaq National Market. In a letter received by the Company from Nasdaq, the
Nasdaq staff indicated that the Company's securities were removed from listing
due to its inability to regain compliance with certain maintenance criteria
required for listing on the National Market. The letter also referred to the
Company's financing activities described above which were intended to provide
liquidity for its continuing operations. The Company's officers are working with
counsel to address these compliance issues and possibly to secure listing of the
Company's Common Stock on an alternative trading market. There can be no
assurance that the Company will be able either to regain compliance or to obtain
listing on another market.
11
<PAGE>
Competition
The Company is aware of 20 substantial foreign-based manufacturers and of
ten North American distributors whose products are in direct competition with
various of its packaging products. The Company believes that the cost of
manufacturing packaging products in North America and Europe is relatively high,
causing manufacturers to seek out overseas suppliers to fill their orders.
The Company believes that it will be able to compete by having the
flexibility to respond quickly to orders and catering to changes in customers'
design specifications; by endeavoring to offer a wider range of products than
its competitors; and by capitalizing on lower production costs obtainable in
Asia, while maintaining the high quality of its products. The Company believes
it can offer its North American customers a quick response time on short orders
because of its customization facilities in the United States.
There is substantial competition in the packaging products industry. The
Company competes with distributors and manufacturers of packaging products based
in the U.S. and overseas. Many of the Company's competitors have name
recognition in the market and longer operating histories and in many cases are
substantially larger and better financed than the Company. Such competitors may
use their economic strength to influence the market to continue to buy their
existing or newly developed products. New competitors may arise and may market
products which compete with the Company's products. The Company believes that
several companies currently distribute products in North America in direct
competition with the Company's packaging products, including International
Packaging Inc., Gem Case Inc., Fuller Corporation, Rocket Jewelry Box Inc.,
Noble Inc., Jewel Case Factory, Unique Packaging Inc. and Gunther Mele Inc. Some
of the Company's current customers presently, or at some future point may,
compete with the Company.
Competition in the packaging products industry has recently intensified in
Asia as a result of the economic crisis which has plagued the region over the
past several months. This has caused demand for packaging products in Asia to
decline. In addition, it has caused other Asian producers and distributors of
packaging products in Asia to lower their prices in order to maintain liquidity.
Significant Customers
Two customers, Rocket Jewelry Box Inc. and Gatto L. & C. Astucci Srl.,
accounted for 35%, and 17%, respectively, of the Company's sales for the year
ended March 31, 1999. Because Rocket Jewelry Box Inc is itself a distributor of
packaging products, the Company has reduced its business with Rocket during the
current fiscal year as it moves forward with its direct marketing strategy.
These two customers' percentages are mainly based on North American sales during
the fiscal year because all international sales, except for those conducted
through LEPI China after the liquidation of LEP-Hong Kong (which were
insignificant), were not accounted for in the Company's financial statements due
to the unavailability of records for them. The Company believes that inclusion
of international sales would significantly reduce the percentage for Rocket and
slightly increase the percentage for Gatto L. & C. Astucci Srl. For the year
ended March 31, 1998, two customers, Rocket Jewelry Box Inc. and Talbot's
(Birmingham) Limited, each accounted for 10% of the Company's revenues.
12
<PAGE>
Government Regulation: Import/Export
China currently enjoys Normal Trade Relations ("NTR") status (formerly
known as "Most Favored Nation" status) granted by the United States, which
results in imports into the United States from China being subject to the lowest
applicable tariffs. The United States annually reconsiders the renewal of NTR
trading status for China. There can be no assurance, however, that the China's
NTR status will be renewed in future years. The Company believes that the
non-renewal of NTR trading status would adversely affect the pricing of any
inventory of the Company consisting of products manufactured within China.
Failure by the United States to renew China's NTR status, could cause an
increase in the cost to import packaging products to Hong Kong from China, and,
after transfer of sovereignty over Hong Kong, from Hong Kong to the United
States.
At current rates an import duty of between 5% and 20% will be payable by
the Company on the import price of metal and plastic cases imported into the
U.S. and Canada. If the PRC were to lose NTR status, then the Company's products
may be subject to higher tariffs and import duties in the U.S. Although it is
not possible to quantify the potential impact of higher tariffs and duties, the
Company believes that, due to the comparatively low cost of production in China,
it would be able to withstand an increase in tariffs while still being able to
compete profitably in the U.S. market.
Raw Materials
The Company historically has obtained raw materials for the packaging
products mainly from the United States, Korea, Japan and other countries in
Europe and Asia. In order to save shipping and other costs, the Company has
recently begun to shift its raw materials purchases to sources located in China.
The Company has never experienced a shortage of materials as it attempts to
maintain an alternative source for each material it uses. For example, Styrene,
velour and ecosuede can all be sourced form the United States, Europe or Taiwan;
steel can be sourced from Korea, Japan or China; and plastic resins can be
sourced from Taiwan, Thailand or Japan.
Employees
As of March 31, 1999, the Company employed approximately 2,000 employees
(including employees of LEPI-China). These employees include 16 staff in the
United States, 11 staff in Hong Kong and the balance at the Company's facilities
in China. In the United States, the Company has five management level employees,
six marketing and sales personnel, four accounting, administrative and
supervisory personnel and three light assembly and distribution workers.
LEPI-China currently has approximately 2,000 employees, including 18 employees
at the management level, 100 administrative, accounting and supervisory
employees and approximately 1,880 employees who make and distribute the
packaging products.
13
<PAGE>
Financial Information about Foreign and Domestic Operations and Export Sales
Justrite is engaged in one business segment which is the manufacture, sale
and distribution of packaging products. An analysis of sales by geographic
destination for the years ended March 31, 1998, 1998 and 1997 follows:
- --------------------------------------------------------------------------------
Net sales: 1999 1998 1997
- --------------------------------------------------------------------------------
North America $ 6,067 $11,309 $12,987
- --------------------------------------------------------------------------------
Europe 303 5,177 5,908
- --------------------------------------------------------------------------------
Asia and others 45 5,782 4,984
- --------------------------------------------------------------------------------
6,415 22,268 23,880
- --------------------------------------------------------------------------------
(In Thousands)
14
<PAGE>
The following are the Company's operating data by geographic area:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales:
North America $ 6,067 $ 11,309 $ 12,987
- --------------------------------------------------------------------------------
Hong Kong and other
parts of China 348 10,959 10,893
- --------------------------------------------------------------------------------
6,415 22,268 23,880
- --------------------------------------------------------------------------------
Operating (loss) income:
North America (12,842) 1,611 3,359
- --------------------------------------------------------------------------------
Hong Kong and other
parts of China (5,342) 2,042 1,802
- --------------------------------------------------------------------------------
(18,184) 3,653 5,161
- --------------------------------------------------------------------------------
Assets at end of year:
North America 4,358 8,568 13,867
- --------------------------------------------------------------------------------
Hong Kong and other
parts of China 3,085 21,044 29,740
- --------------------------------------------------------------------------------
7,443 29,612 43,607
- --------------------------------------------------------------------------------
(In Thousands)
Item 2. Properties
Leases
Leading Edge leases a 2,000 square-foot space for its offices and showroom
in the Empire State Building, 350 Fifth Avenue, Suite 3922, New York, New York
for a five-year period commencing July 1, 1996 at an annual rent of $42,096. The
Company also has leased for the warehousing and customization of its products a
33,000 square-foot facility in Raritan, New Jersey, for a period of five years
commencing November 1, 1996, at an annual rent of $150,336 plus 30% of certain
common charges for the building in which the facility is located. The facility
was expanded for a time to 65,000 square feet, but effective July 1, 1999, the
Company has surrendered its lease for the additional space.
LEPI China leases approximately 3,400 square feet of office space and
approximately 4,000 square feet of warehouse space in Hong Kong at an aggregate
annual rent of approximately $89,620.92. LEPI Manufacturing leases factory space
of approximately 226,000 square feet for its manufacturing facility in
Zhongshan, China at an annual rent of approximately $317,800.20. In addition,
LEPI Manufacturing leases residential spaces near the factory in Zhongshan for
workers' dormitories. Leases on this space total approximately $182,326.56 in
aggregate annual rent.
15
<PAGE>
Item 3. Legal Proceedings
United States
The Company has filed a complaint against Boxco Ltd. for non-payment of
invoices for goods sold to Boxco in the amount of $97,666 plus interest and
consequential damages. The Company has made full provision for
non-recoverability of this debt in its financial statements. In addition, the
Company has filed a motion for summary judgment in lieu of complaint against
Astucci U.S. Limited for a claim in the amount of $154,272.20 plus interest and
fees. The claim arises out of a prior Settlement Agreement under which Astucci
had agreed to pay certain amounts in settlement of invoices for goods sold. The
Company has not yet received a response to its motion, which response was due
July 13, 1999.
On December 12, 1998, the directors and officers of the Company began
receiving notices from Chung Hwa that it had taken action on December 10,
purportedly as majority stockholder, to oust the board and install its own slate
of directors, who in turn had elected replacement officers. Chung Hwa no longer
had the right to vote as the majority stockholder on December 10, 1998. In
addition to its Share Mortgage in favor of ABSA, Chung Hwa had also pledged back
to the Company the 2,250,000 shares of the Company's common stock, which it had
received in the share exchange, which were intended to be sold and the proceeds
used to pay the debt to LEP-Hong Kong (now in liquidation). As a result, Chung
Hwa had no voting rights in the Company's stock. Nevertheless, Chung Hwa brought
an action in Delaware Chancery Court to determine who were the proper directors
and officers of the Company. The action was dismissed on January 18, 1999. No
further action has been taken on this matter. See "Item 1. Business--Recent
Developments".
China and Hong Kong
In November 1998, the Company's China joint venture partner alleged that
the Company owed it $300,000 in unpaid wages. The joint venture partner
unilaterally acted to seize the factory and its assets, including its inventory
of finished packaging products 60% of which belonged to the Company. This action
by the joint venture partner resulted in the cessation of production at the
factory. Because this factory was the Company's sole source of supply for its
packaging products, the cessation of production caused a major disruption in the
Company's business and a temporary but significant loss of revenue. The Company
instructed its legal counsels in both Hong Kong and China to file claims on the
assets of the joint venture to which it is entitled by virtue of its 60%
interest in the joint venture. The Company estimates that these assets had a
value of approximately $6,100,000. The Company continues to pursue litigation
against its former joint venture partner, but whether it will ever recover the
amount owed it is uncertain. See "Item 1. Business--Recent Developments".
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The range of the high and low sales prices per share of the Leading Edge's
Common Stock during the last fiscal year, as reported by the National Market, is
set forth below:
High Low
---- ---
Fiscal 1997
3rd Quarter .................................... 7 6.25
4th Quarter .................................... 7 5
Fiscal 1998
1st Quarter .................................... 6.5 5.125
2nd Quarter .................................... 6.438 5
3rd Quarter .................................... 6.438 6.25
4th Quarter .................................... 6.875 5.25
Fiscal 1999
1st Quarter .................................... 5.282 5.056
2nd Quarter .................................... 2.292 2.138
3rd Quarter .................................... 1.203 1.104
4th Quarter .................................... 1.017 .912
Effective April 15, 1999, Leading Edge's shares were delisted from the
Nasdaq National Market. No public market currently exists for trading Leading
Edge's stock.
As of June 18, 1999, there were approximately 351 beneficial holders of
record of Leading Edge's Common Stock.
Leading Edge has never paid cash dividends on its Common Stock. Payment of
dividends, if any, will be within the discretion of the Leading Edge's Board of
Directors and will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company. At the
present time, the Company's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings, if any, in order to finance
the development of its business.
17
<PAGE>
Item 6. Selected Financial Data
The selected financial data for the three years ended March 31, 1999 is
qualified by and should be read in conjunction with the Company's combined
financial statements and notes thereto and "Management's Discussion and Analysis
of financial Condition and Results of Operations" appearing elsewhere herein.
================================================================================
Fiscal Year ended March 31,
(In thousands, except selected operating data)
----------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement
Data:
- ---------------------------------------------------------------------------------------
Net sales $ 6,415 $ 22,268 $ 23,880 $ 21,972 $ 16,692
- ---------------------------------------------------------------------------------------
Gross (loss)
profit (70) 10,601 11,144 9,868 7,038
- ---------------------------------------------------------------------------------------
Operating
(loss) income (18,184) 3,653 5,161 4,792 2,139
- ---------------------------------------------------------------------------------------
(Loss) income
before income
taxes (18,311) 3,388 5,079 4,693 2,076
- ---------------------------------------------------------------------------------------
Income taxes (1,560) 125 1,329 192 (110)
- ---------------------------------------------------------------------------------------
Net income (16,751) 3,263 3,750 4,501 2,186
- ---------------------------------------------------------------------------------------
Net (loss)
income per
common share $ (3.01) $ 0.59 $ 0.82 $ 2.00 $ 0.97
- ---------------------------------------------------------------------------------------
Weighted
average
common shares
outstanding 5,562,500 5,562,500 4,597,603 2,250,000 2,250,000
=======================================================================================
Balance Sheet
Data:
- ---------------------------------------------------------------------------------------
Working
Capital
(deficiency) $ (2,130) $ 11,508 $ 22,309 $ 11,013 $ 6,443
- ---------------------------------------------------------------------------------------
Total assets 7,443 29,612 43,607 28,597 18,230
- ---------------------------------------------------------------------------------------
Total
liabilities 9,366 13,224 16,243 11,013 6,188
- ---------------------------------------------------------------------------------------
Minority
Interests -- 1,550 1,552 1,554 1,554
- ---------------------------------------------------------------------------------------
Stockholders
equity (1,923) 14,838 25,812 14,990 10,488
=======================================================================================
</TABLE>
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto contained elsewhere herein. All
statements, trend analysis and other information contained in this report
relative to markets for the Company's products and trends in the Company's
operations or financial results, as well as other statements including words
such as "anticipate", "believe", "plan", "estimate", "expect", "intend", and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995, and such statements are
subject to certain risks and uncertainties.
The Company has faced a number of major unanticipated setbacks during the
past fiscal year, which have had a strong impact on its results of operations
and financial condition. The temporary cessation of production of its packaging
products due to the closing of its joint venture factory in China caused a major
disruption in sales for the third and fourth quarters of the fiscal year. In
addition, the Company's wholly-owned subsidiary in Hong Kong, Leading Edge
Packaging Limited ("LEP-Hong Kong"), entered voluntary liquidation. Because of
the liquidation of both LEP-Hong Kong and the China joint venture, certain books
and records of the Company were not accessible at year end to enable the Company
and its auditors to determine the net asset value of these subsidiaries in
liquidation and their results of operations for the period from April 1, 1998 to
the date of their entry into liquidation. Therefore, the financial statements
for the year ended March 31, 1999 have been prepared as if these subsidiaries
had been equity accounted as an unconsolidated subsidiary up to September 30,
1998, the latest date for which information was available, and a loss calculated
as of that date representing the Company's interest in the net assets of these
subsidiaries. Thus these financial statements reflect a drastic reduction in
sales and a net operating loss. The Company does not expect any residual value
from the subsidiaries in liquidation and is writing off any remaining assets to
the income statement.
Results of Operations
Comparison of Year Ended March 31, 1999 to Year Ended March 31, 1998
Net Sales decreased $15,853,309 (71%) from $22,267,966 in fiscal 1998 to
$6,414,657 in fiscal 1999. This decrease was primarily due to the
discontinuation of operations at the Company's joint venture factory in China
and the liquidation of LEP-Hong Kong.
19
<PAGE>
Cost of Sales decreased $5,182,370 (44%) from $11,666,712 in fiscal 1998
to $6,484,342 in fiscal 1999. This decrease corresponded to the decrease in net
sales and the cost savings from lost sales.
Gross (Loss) Profit decreased $10,670,939 (100.7%) from a gross profit of
$10,601,254 in fiscal 1998 to a gross loss of $(69,685) in fiscal 1999. This
decrease resulted from a decrease in net sales due to discontinuation of
operations at the Company's joint venture factory in China and the liquidation
of LEP-Hong Kong.
Selling, General and Administrative Expenses increased $354,817 (5.3%)
from $6,574,704 in fiscal 1998 to $6,929,521 in fiscal 1999. This increase
resulted from fixed marketing and sales expenses that do not decrease with the
value of sales. Certain additional marketing staff and advertising expenditures
were already committed and could not be reduced due to the unexpected disruption
in production as could the cost of sales.
Equity in Profit of Subsidiaries Closed represented the unaudited results
up to September 30, 1998 based on financial information available up to that
date.
Operating (Loss) Income decreased $ 21,836,900 (598%) from income of
$3,652,622 in fiscal 1998 to a loss of $(18,184,278) in fiscal 1999. This
decrease resulted almost entirely from the reduction in net sales, and, to a
lesser extent, from higher selling, general and administrative expenses.
(Loss) Income before Taxes decreased $21,698,131 (641%) from income of
$3,387,181 in fiscal 1998 to a loss of $(18,310,950) in fiscal 1999. This
decrease resulted from lower operating income, which in turn resulted primarily
from the decrease in net sales.
Net (Loss) Income, as a result of the above, decreased $20,013,549 (613%)
from net income of $3,262,599 in fiscal 1998 to a net loss of $(16,750,950) in
fiscal 1999. This decrease resulted almost entirely from lower net sales due to
the closing of the joint venture factory in China and the liquidation of
LEP-Hong Kong, and, to a lesser extent, to an increase in selling, general and
administrative expenses.
Comparison of Fiscal 1998 to Fiscal 1997
Net Sales decreased $1,611,857 (6.7%) from $23,879,823 in fiscal 1997 to
$22,267,966 in fiscal 1998. This decrease resulted from fewer sales. Certain of
the companies competitors reduced their prices to maintain liquidity in the wake
of the Asian economic crisis. Management decided not to react to pressure from
customers to compete by lowering the Company's prices without an acceptable
profit. The Company intends to gauge the developments in Asia before
strategically repricing its products.
20
<PAGE>
Cost of Sales decreased $1,069,505 (8.4%) from $12,736,217 in fiscal 1997
to $11,666,712 in fiscal 1998. This decrease corresponded to the decrease in net
sales.
Gross Profit decreased $542,352 (4.9%) from $11,143,606 in fiscal 1997 to
$10,601,254 in fiscal 1998. This decrease resulted from a decrease in net sales
and the corresponding cost of sales. As a percentage of net sales, gross profit
remained relatively stable.
Selling, General and Administrative Expenses increased $592,099 (9.9%)
from $5,982,605 in fiscal 1997 to $6,574,704 in fiscal 1998. This increase
resulted from the impact of the fully realized costs of maintaining the
Company's U.S. operations for the full fiscal year and higher marketing
expenses, the benefit of which may not be realized during the current fiscal
year.
In addition, the Company had a non-recurring expense of $373,928 resulting
from the misappropriation of cash by a manager of its China factory. The manager
has agreed to re-pay the amount over three years. The Company has fully provided
for the amount in the financial statements and intends to account for any
recoveries on a cash basis. The Company has since reviewed its security system
and implemented more stringent control to avoid the recurrence of such a
misappropriation.
Operating Income decreased $1,508,379 (29.2%) from $5,161,001 in fiscal
1997 to $3,652,622 in fiscal 1998. This decrease resulted from lower net sales,
higher selling, general and administrative expenses, and the non-recurring
expense described above.
Income before Taxes decreased $1,691,351 (33.3%) from $5,078,532 in fiscal
1997 to $3,387,181 in fiscal 1998. This decrease resulted from lower operating
income coupled with a higher interest expense.
Income Taxes decreased $1,204,046 (91.0%) from $1,328,628 in fiscal 1997
to $124,582 in fiscal 1998. This decrease resulted from lower operating income
coupled with a write-back of an over provision for overseas taxes in previous
years.
Net Income, as a result of the above, decreased $487,305 (13.0%) from
$3,749,904 in fiscal 1997 to $3,262,599 in fiscal 1998. This decrease resulted
from lower net sales, an increase in selling, general and administrative
expenses, and the non-recurring expense described above.
21
<PAGE>
Percentage Comparison as a Factor of Sales
Fiscal
1999 1998 1997
---- ---- ----
Net sales (compared to
previous year) (71%) (7%) 8.7%
Cost of sales
(% of net sales) 101% 52% 53.3%
Gross (loss) profit
(% of net sales) (1%) 48% 47%
Selling, general and
administrative expenses
(% of net sales) 108% 30% 25%
Non-recurring expenses
(% of net sale) N/A 2% N/A
Operating (loss)income
(% of net sales) (283%) 16% 22%
Income (loss) before taxes
(% of net sales) (285%) 15% 21%
Income taxes (% of net sales) 24.3% 0.5% 5.6%
Net (loss) income
(% of net sales) (261%) 15% 16%
1998 net income is 1% less than 1997. This is a result of a higher selling,
general and administrative expenses (5%), a non-recurring expense (2%) offset by
a tax provision write-back giving a net decrease (5%) and a marginal improvement
in gross profit (1%) in 1998 compared to 1997.
Liquidity and Capital Resources
The Company's primary sources of working capital are its outstanding bank
debt and the new infusion of capital attributable to the issuance of preferred
stock. The Company had negative working capital of approximately $(2,129,202) at
March 31, 1999 compared with positive working capital of $11,508,218 at March
31, 1998, respectively. During fiscal 1999 the Company's operating activities
used $2,840,702 in cash compared with $10,475,413 during fiscal 1998. The
Company's operations consumed $187,910 for inventories and $364,080 in income
taxes payable. At March 31, 1999, the Company had no short-term borrowing
reflected on its balance sheet. The Company's debt included long-term debt of
$27,923 in fiscal 1999. At March 31, 1999, the Company's credit facilities were
terminated and it had borrowings under previously available facilities.
Historically, the Company has maintained trade terms in line with the
industry and sold on COD terms, letter-of-credit terms and 30-90 days credit
terms based on the financial standing and history of each customer. Where the
Company is promoting a certain category of packaging products or when it is
promoting the sale of a certain type of material, the Company will consider
extended payment terms on a case by case basis. The Company currently purchases
most of its raw materials on either a COD, letter of credit or cash basis and is
operating with virtually no banking facilities. This, coupled with the terms
being extended to its customers, results in working capital shortfalls. The Bank
of Central Asia discounts the Company's bills receivable on a case by case
basis, but management does not believe that the Company can rely on this.
22
<PAGE>
Management anticipates that it will have to supplement its cash flows from
operating activities with funds from the issuance of additional debt or equity
in order to support the Company's current business program and seasonal working
capital needs for the foreseeable future. The Company anticipates that it will
need to raise significant funds in order to fund its operations in the near
term. However, the Company cannot ensure that it will be able to raise funds or
that if it is able to raise funds, that they will suffice for operation of its
business. The Company has received non-binding letters of continuing support
from its majority preferred stockholder, BroadAsia LLC, and its financial
advisor, Broadmark Capital Corporation.
Seasonality
Generally, the Company's business depends on the buying seasons of the
luxury goods which are sold using its packaging products, with a significant
portion of its sales and most of its income generated during the second and
third fiscal quarters ending March 31. The Company has historically experienced
lower net sales in each of its first and fourth quarters. The bulk of sales in
the jewelry and watch packaging category occur from July to November, with most
other sales occurring between February and June. December and January tend to be
slow months for jewelry and watch packaging sales. In the optical case category,
the highest number of sales occur from September to January, the second highest
number of sales occurring between February and June, and the lowest number in
July and August. During the fiscal year ended March 31, 1999, however, the
seasonal trend was affected by the disruption in production due to the closing
of the joint venture factory in China and the liquidation of LEP-Hong Kong. This
caused a downturn in sales in the third and fourth quarters. The Company has
opened a new manufacturing facility and is taking steps to rebuild its
relationships with its customer base. As it does so, management anticipates that
the affect of the disruption in production will continue to affect its seasonal
trends in the upcoming fiscal year. A variety of other factors may also affect
the revenue results of the Company, including U.S. and international economic
conditions, the retail sales environment and the Company's ability to otherwise
execute its business and marketing strategy.
23
<PAGE>
Item 8. Financial Statements and Supplementary Data
See Item 14, Exhibits, Financial Statement Schedules, and Reports on Form 8K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Incorporated by reference to the Company's Proxy Statement for its Annual
Meeting to be held on August 13, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are being filed as a part of this report:
(a) (1) Financial Statements
(2) Financial Statement Schedules
All other schedules are omitted since the required information is
either not present or not present in amounts sufficient to require
submission of the schedule
(b) Exhibits
3.1 Certificate of Incorporation, as amended, is hereby incorporated by
reference to Amendment No. 2 to the Company's Registration
Statement, which was filed with the SEC on November 13, 1996.
3.2 Amended and Restated By-laws are hereby incorporated by reference to
Amendment No. 2 to the Company's Registration Statement, which was
filed with the SEC on November 13, 1996.
3.3 Certificate of Amendment to Certificate of Incorporation, dated
November 12, 1998, as filed with the Delaware Secretary of State on
November 17, 1998.
3.4 Certificate of Designations, dated January 19, 1999, as filed with
the Delaware Secretary of State on January 19, 1999, designating
Series A, B and C 8% Redeemable Preferred Stock.
24
<PAGE>
3.5 Certificate of Designations, dated June 9, 1999, as filed with the
Delaware Secretary of State on June 11, 1999, designating Series A,
B and C 8% Cumulative Redeemable Preferred Stock.
3.6 Second Amended and Restated By-laws.
3.7 Third Amended and Restated By-laws.
4.1 Specimen Certificate for Shares of Common Stock is hereby
incorporated by reference to Amendment No. 2 to the Company's
Registration Statement, which was filed with the SEC on November 13,
1996.
4.2 Representative's Warrant Agreement and Certificate are hereby
incorporated by reference to Amendment No. 2 to the Company's
Registration Statement, which was filed with the SEC on November 13,
1996. (Expired)
4.3 1996 Incentive Stock Option Plan is hereby incorporated by reference
to Amendment No. 1 to the Company's Registration Statement, which
was filed with the SEC on October 10, 1996.
4.4 1997 Associate Stock Option Plan is hereby incorporated by reference
to the Company's Proxy Statement as filed with the SEC on Schedule
14A on July 7, 1997.
4.5.1 Specimen Certificate for Shares of Series A 8% Redeemable Preferred
Stock;
4.5.2 Specimen Certificate for Shares of Series A 8% Cumulative Redeemable
Preferred Stock;
4.5.3 Specimen Certificate for Shares of Series B 8% Cumulative Redeemable
Preferred Stock;
4.5.4 Specimen Certificate for Shares of Series C 8%Cumulative Redeemable
Preferred Stock
10.1 Assignment and Distribution Agreement is hereby incorporated by
reference to the Company's Registration Statement, which was filed
with SEC on September 27, 1996. (Rescinded)
10.2 Employment Agreement between the Company and Lip-Boon Saw is
incorporated by reference to the Company's Registration Statement,
which was filed with the SEC on September 27, 1996. (Lapsed)
25
<PAGE>
10.3 Employment Agreement between the Company and Peter Yu-Siu Chu is
incorporated by reference to the Company's Registration Statement,
which was filed with the SEC on September 27, 1996. (Rescinded)(No
longer employed with the Company)
10.4 Employment Agreement between the Company and Dan Ben-Moshe is
incorporated by reference to the Company's Registration Statement,
which was filed with the SEC on September 27, 1996. (Rescinded)(No
longer employed with the Company)
10.5 Employment Agreement between the Company and Casey K. Tjang is
incorporated by reference to the Company's Registration Statement,
which was filed with the SEC on September 27, 1996.(Lapsed)
10.6 Lease between the Company and Empire State Building Company is
incorporated by reference to the Company's Registration Statement,
which was filed with the SEC on September 27, 1996.
10.7 Lease between the Company and Center Realty, L.P. are incorporated
by reference to the Company's Registration Statement, which was
filed with the SEC on September 27, 1996.
10.8 Form of Distribution Agreement, dated July 28, 1997, by and between
the Company and HBL, Limited is hereby incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the three months
ended June 30, 1997. (Terminated)
10.9 Loan and Security Agreement, dated September 25, 1997, by and
between the Company and First Union National Bank.
10.10 Agreement between LEPI China Limited and Hang Seng Real Estate
Management Limited (for lease of office and warehouse space in Hong
Kong)
10.11 Form of Lease agreement respecting factory and dormitory space in
Zhongshan, China
10.12 Space Reduction Agreement between the Company and Federal Storage
Warehouse, Inc. (Successor in interest to Center Realty, L.P.)
(reducing the warehouse space to approximately 33,000 square feet).
10.13 Form of Contract on Dormitory Lease in Zhongshan, China.
On July 17, 1998, the Company filed a Report on Form 8-K disclosing the
completion of the Share Exchange by which it acquired Justrite Investment
Limited and its subsidiaries from the Company's former parent, Chung Hwa
Development Holdings Limited, in exchange for 2.25 million shares of the common
stock of Leading Edge. This report was amended on September 11, 1999.
26
<PAGE>
On January 28, 1999, the Company filed a Report on Form 8-K discussing the
following:
The change in control of the Company resulting from the issuance of
1,000,000 shares of Preferred Stock to BroadAsia LLC;
The threatened de-listing of the Company's securities from the Nasdaq
National Market; and
The closing of the Company's joint venture factory in China and the
planned opening of a new factory under the Company's "wholly owned foreign
enterprise" subsidiary.
(c) See Item 14(a)(3), above
(d) Not applicable
27
<PAGE>
LEADING EDGE PACKAGING, INC.
----------------------------
Consolidated Financial Statements
For the year ended March 31, 1999
<PAGE>
Leading Edge Packaging, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F - 1
Consolidated Balance Sheets F - 3
Consolidated Statements of Operations F - 4
Consolidated Statements of Shareholders' Equity (Deficit) F - 5
Consolidated Statements of Cash Flows F - 6
Notes to Consolidated Financial Statements F - 7
<PAGE>
Leading Edge Packaging, Inc.
INDEPENDENT AUDITORS' REPORT
The Shareholders and The Board of Directors
Leading Edge Packaging, Inc.
We have audited the accompanying consolidated balance sheets of Leading Edge
Packaging, Inc. and its subsidiaries as of March 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended March 31, 1999.
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 audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1(i) to the financial statements, disputes with minority
shareholders of a subsidiary of Justrite Investments Limited ("Justrite"), have
resulted in the closure on liquidation of its two principal operating
subsidiaries, Leading Edge Packaging Limited and Dongguan Walford Ornaments
Packaging Co. Ltd.. Because of this situation, we have been unable to obtain
access to the complete accounting records of Justrite for the year ended March
31, 1999 and, thus we have been unable to satisfy ourselves as to the amounts
designated as "Equity in profit to date of closure of $798,000" and "Loss on
closure of $11,983,072" in the consolidated statement of operations for the year
ended March 31, 1999.
F-4
<PAGE>
Leading Edge Packaging, Inc.
INDEPENDENT AUDITORS' REPORT - continued
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to gather sufficient
evidence regarding the classification of the caption "Loss on closure of
subsidiaries" in the statement of operations for the year ended March 31, 1999
referred to in the preceeding paragraph, the financial statements referred to in
the first paragraph above present fairly, in all material respects, the
financial position of Leading Edge Packaging, Inc. and its subsidiaries as of
March 31, 1999 and 1998 and the results of their operations and their cash flows
for each of the three years in the period ended March 31 1999 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements for the year ended March 31, 1999 have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company's loss in the
current year and the resulting deficiency of shareholders' equity raise
substantial doubt as to its ability to continue as a going concern. Managements'
plans with respect to this matter are also discussed in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Deloitte Touche Tohmatsu
Hong Kong
June 25, 1999
F-5
<PAGE>
Leading Edge Packaging, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 226,785 $ 951,167
Accounts receivable, net of allowance for doubtful
accounts - 1999, $1,324,425; 1998, $218,560; 750,986 2,295,719
Bills receivable (Note 4) 54,363 935,564
Inventories (Note 5) 2,608,496 6,589,704
Receivable from Chung Hwa Group (Note 13) -- 12,746,138
Income taxes receivable (Note 7) 1,602,798 --
Prepaid expenses and other current assets 215,058 505,353
----------- -----------
Total current assets 5,458,486 24,023,645
Property, plant and equipment, net of accumulated
depreciation - 1999, $238,480; 1998, $3,160,360 (Note 6) 1,984,653 5,588,272
----------- -----------
Total assets $ 7,443,139 $ 29,611,917
----------- -----------
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Short-term borrowings (Note 8) $ 5,194,774 $ 5,865,232
Current portion of long-term debt (Note 9) 10,128 273,395
Bills payable (Note 4) -- 1,250,727
Accounts payable 295,490 2,424,570
Amount payable to a related company (Note 13) 420,521 --
Accrued liabilities 1,647,651 2,154,250
Income taxes payable (Note 7) -- 547,253
Dividend payable 19,124 --
----------- -----------
Total current liabilities 7,587,688 12,515,427
----------- -----------
Long-term liabilities:
Deferred income taxes -- 51,095
Long-term debt (Note 9) 27,923 656,784
----------- -----------
Total long-term liabilities 27,923 707,879
----------- -----------
Minority interests -- 1,550,387
----------- -----------
Commitments and contingencies (Note 15)
Redeemable Preferred Stock, Authorized 5,000,000 shares:
Series A, $0.01 par value, with a redemption and liquidation
value of $0.75 per share; 1,000,000 shares issued and
outstanding 750,000 --
Series B, $0.01 par value, with a redemption and liquidation
value of $1.00 per share; 500,000 issued and outstanding 500,000 --
Series C, $0.01 par value, with a redemption and liquidation
value of $1.00 per share; 500,000 issued and outstanding 500,000 --
----------- -----------
1,750,000 --
----------- -----------
Common shareholders' equity:
Leading Edge:
Common stock, $0.01 par value. Authorized 8,000,000
shares; 5,562,500 shares issued and outstanding 55,625 33,125
Justrite:
Common stock, $1.00 par value. Authorized 50,000 shares;
(1999: no shares issued and outstanding; 1998: 100 shares) -- 100
----------- -----------
55,625 33,225
Additional paid-in capital 7,298,288 7,320,688
(Deficit) retained earnings (9,276,385) 7,493,689
Foreign currency translation adjustment -- (9,378)
----------- -----------
Total common shareholders' (deficit) equity (1,922,472) 14,838,224
----------- -----------
Total liabilities and shareholders' (deficit) equity $ 7,443,139 $ 29,611,917
----------- -----------
</TABLE>
F-6
<PAGE>
Leading Edge Packaging, Inc.
See accompanying Notes to Consolidated Financial Statements
F-7
<PAGE>
Leading Edge Packaging, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $ 6,414,657 $ 22,267,966 $ 23,879,823
Cost of sales 6,484,342 11,666,712 12,736,217
------------ ------------ ------------
Gross (loss) profit (69,685) 10,601,254 11,143,606
Loss on closure of subsidiaries (Note 1)
Equity in profit to date of closure 798,000 -- --
Loss on closure (11,983,072) -- --
------------ ------------ ------------
(11,185,072) -- --
------------ ------------ ------------
Selling, general and administrative expenses 6,929,521 6,574,704 5,982,605
Non-recurring expense (Note 12) -- 373,928 --
------------ ------------ ------------
Operating (loss) income (18,184,278) 3,652,622 5,161,001
Interest expense (187,138) (530,946) (353,468)
Interest income 20,750 102,305 37,675
Other income 39,716 163,200 233,324
------------ ------------ ------------
(Loss) income before income taxes (18,310,950) 3,387,181 5,078,532
Income taxes (Note 7) 1,560,000 (124,582) (1,328,628)
------------ ------------ ------------
Net (loss) income (16,750,950) $ 3,262,599 $ 3,749,904
Cumulative preferred stock dividend (19,124) -- --
------------ ------------ ------------
Net (loss) income attributable to common stock
shareholders $(16,770,074) $ 3,262,599 $ 3,749,904
------------ ------------ ------------
Basic and diluted (loss) earnings per share $ (3.01) $ 0.59 $ 0.82
------------ ------------ ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-8
<PAGE>
Leading Edge Packaging, Inc.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------
Leading Edge
Packaging, Inc. Justrite Foreign
shareholders' Investments Additional currency Total
Shares Limited paid-in Retained translation Comprehensive Shareholders'
equity Shares Amount capital earnings adjustments income (loss) Equity
--------- ------ ------- ------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1996 1,500 100 $ 1,600 $ 258,988 $ 14,729,891 $ -- $ 14,990,479
Issuance of common stock
and share split 1,873,500 -- 17,250 -- -- -- 17,250
Contribution by Rich City
of part of accounts
payable to Rich City * -- -- -- 481,250 -- -- 481,250
Issuance of common stock
in a public offering 1,437,500 -- 14,375 6,580,450 -- -- 6,594,825
Net income for the year -- -- -- 3,749,904 -- $ 3,749,904 $ 3,749,904 3,749,904
Translation adjustments -- -- -- -- (21,600) (21,600) (21,600) (21,600)
----------- ------------
Comprehensive income $ 3,728,304
--------- ---- ------- ---------- ------------ ------------ -----------
Balance at March 31, 1997 3,312,500 100 33,225 7,320,688 18,479,795 (21,600) 25,812,108
Net income for the year -- -- -- 3,262,599 -- 3,262,599 $ 3,262,599 3,262,599
Translation adjustments -- -- -- -- 12,222 12,222 12,222 12,222
----------- ------------
Comprehensive income $ 3,724,821
-----------
Dividend paid by Justrite
to Chung Hwa -- -- -- -- (14,248,705) -- (14,248,705)
--------- ---- ------- ---------- ------------ ------------ ------------
Balance at March 31, 1998 3,312,500 100 33,225 7,320,688 7,493,689 (9,378) 14,838,224
Issuance of common stock in
exchange for shares in
Justrite (Note 1) 2,250,000 (100) 22,400 (22,400) -- -- --
Net loss -- -- -- -- (16,770,074) $(16,770,074) $(16,770,074) (16,770,074)
Adjustment on closure of
Justrite (Note 1(i)) -- -- -- -- -- 9,378 9,378 9,378
------------ ------------
Comprehensive loss $(16,760,696)
--------- ---- ------- ---------- ------------ ------------ ------------
Balance at March 31, 1999 5,562,500 -- $55,625 $7,298,288 $ (9,276,385) $ -- $ (1,922,472)
--------- ---- ------- ---------- ------------ ------------ ------------
</TABLE>
* Rich City International Packaging Limited ("Rich City") was the former
holding company of Leading Edge Packaging, Inc.
See accompanying Notes to Consolidated Financial Statements
F-9
<PAGE>
Leading Edge Packaging, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(16,750,950) $ 3,262,599 $ 3,749,904
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
Deferred income taxes -- (13,954) (13,596)
Depreciation 139,379 643,941 619,169
Loss on closure of subsidiaries 11,185,072 -- --
Loss on sale of property, plant and equipment 573 -- --
Provision for doubtful accounts 3,244,982 -- 218,560
Changes in operating assets and liabilities:
Long-term receivable -- -- 566,000
Accounts receivable 133,863 6,638,517 (5,786,665)
Bills receivable 548,129 958,576 (1,516,988)
Inventories (187,910) (750,709) (81,204)
Income taxes receivable (1,602,798) -- --
Prepaid expenses and other current assets 191,472 (133,756) 143,749
Accounts payable 72,857 51,255 701,753
Bills payable (1,059,166) 988,237 110,470
Accrued liabilities 1,607,875 326,552 335,841
Income taxes payable (364,080) (1,495,845) 1,339,309
------------ ------------ ------------
Net cash (used in) provided by operating activities (2,840,702) 10,475,413 386,302
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,781,501) (182,055) (583,061)
------------ ------------ ------------
Cash flows from financing activities:
Bank loan raised 5,194,774 4,594,476 143,376
Repayments of long-term borrowings -- (246,541) (458,476)
Net proceeds from issuance of preferred stock 1,750,000 -- --
Net proceeds from issuance of common stock -- -- 7,093,325
Payment of capital lease obligations (7,029) (1,057) (28,679)
Repayments from Chung Hwa Group -- 15,716,978 3,219,763
Advances from a related company 420,521 -- --
Advances to Chung Hwa Group -- (34,515,488) (4,923,208)
Advances to Justrite (3,460,445) -- --
------------ ------------ ------------
Net cash provided by (used in) financing activities 3,897,821 (14,451,632) 5,046,101
------------ ------------ ------------
Effect of exchange rate changes on cash and cash
equivalents -- 9,715 (24,114)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (724,382) (4,148,559) 4,825,228
Cash and cash equivalents at beginning of year 951,167 5,099,726 274,498
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
Leading Edge Packaging, Inc.
<TABLE>
<S> <C> <C> <C>
Cash and cash equivalents at end of year $ 226,785 $ 951,167 $ 5,099,726
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Interest paid $ 187,138 $ 530,946 $ 352,421
Income taxes paid 20,750 1,634,381 2,915
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-11
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Leading Edge Packaging, Inc ("Leading Edge" or "the Company") is a limited
company incorporated in Delaware engaged in the sale, manufacture and
distribution of packaging products in North America. On December 2, 1996,
Leading Edge issued 1,437,500 shares in a public offering in the United
States.
On January 23, 1998, Leading Edge entered into a Share Exchange Agreement
(the "Agreement") with its former ultimate holding company, Chung Hwa
Development Holdings Limited ("Chung Hwa"). Chung Hwa is a Bermuda company
and its shares are listed on The Stock Exchange of Hong Kong Limited.
Pursuant to the Agreement, Leading Edge received all of the issued and
outstanding shares of Justrite Investments Limited ("Justrite"), a wholly
owned subsidiary of Chung Hwa incorporated in the British Virgin Islands,
in exchange for 2,250,000 shares of Leading Edge's common stock valued at
$6.00 per share. Justrite was engaged in the manufacture, sale and
distribution of packaging products. Leading Edge and Chung Hwa completed
the transaction on March 13, 1998.
As Leading Edge and Justrite were under common control during the period
ended March 31, 1998, the financial statements at March 31, 1998 and for
the two years' then ended have been prepared using the
pooling-of-interests method to reflect the combined financial position,
results of operations and cash flows of Leading Edge and Justrite for all
the periods presented at historical cost as if the structure of the
Company resulting from the above transactions had been in existence for
the periods presented.
(i) Loss on closure of Justrite
Through Justrite, the Company had two principal subsidiaries,
Leading Edge Packaging, Limited ("LEP HK") in Hong Kong, an
international trading company, and a manufacturing joint venture,
Dongguan Walford Ornaments Packaging Co. Ltd., ("Dongguan Walford"),
in China. The Company held a 60% interest in Dongguan Walford and
the other 40% interest was held by a Chinese joint venture partner,
Hua Nam Enterprises Limited ("Hua Nam") since 1994. On November 24,
1998, Hua Nam unilaterally acted to seize the factory and its assets
as a result of management fees owed to it. The assets of the joint
venture company were subsequently sold by the liquidators in the
PRC. This action by the joint venture partner resulted in the
cessation of production at the factory. Because this factory was the
Company's sole source of supply for its packaging products, the
cessation of production caused a major disruption in the Company's
business and a significant loss of revenue. On December 14, 1998,
LEP HK filed for a voluntary liquidation and other subsidiaries
holding properties associated with LEP HK were also placed into
liquidation which included the receivable from Chung Hwa (Note 13).
As a consequence of the above events the Company is unable to obtain
access to the accounting and other records of Justrite and its
subsidiaries.
F-12
<PAGE>
Leading Edge Packaging, Inc.
The Company has accounted for its interest in Justrite and its
subsidiaries by the equity method as an unconsolidated subsidiary
for the period up to September 30, 1998, the latest available date
for which financial information was available, and recorded a loss
on the closure of Justrite, representing the net asset values of the
Justrite at that date. Management does not believe there will be any
return of assets arising from the liquidation and all amounts have
been written off.
F-13
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION - continued
(ii) In addition to Justrite and its subsidiaries, at March 31, 1999, the
Company had the following principal subsidiaries:
Percentage of Place of
Name of subsidiary shareholding incorporation
------------------ ------------ -------------
LEPI China Limited 100% Hong Kong
LEPI (Zhongshan) Manufacturing 100% Other region of the
Company Limited People's Republic
of China ("PRC")
All significant intra-group transactions and balances have been
eliminated on consolidation.
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America and are presented in U.S. dollars as the
Company's sales are predominantly denominated in U.S. dollars.
2. GOING CONCERN
The consolidated financial statements have been prepared on the going
concern basis of accounting which assumes the Company will realize its
assets and discharge its liabilities in the normal course of business. The
Company is currently operating at a loss and has a deficiency in
shareholders' equity. Should the Company be unable to continue as a going
concern it may be required to realize its assets and settle its
liabilities at amounts substantially different from the current carrying
values. The Company's ability to continue as a going concern is dependent
on the continued financial support of its principal controlling
shareholder.
F-14
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents - Cash and cash equivalents include cash on
hand, demand deposits, interest bearing savings accounts, and time
certificate of deposits with an original maturity of three months or less.
Property, plant and equipment - Property, plant and equipment is stated at
cost. Depreciation is provided to write off the cost of property, plant
and equipment over its estimated useful lives using the straight line
method, at the following rates per annum:
Land held on long-term leases Over the terms of the leases
Land held on medium-term leases 2.5% or over the terms of the
respective leases whichever is
shorter
Buildings 2.5% or over the terms of the
respective leases whichever is
shorter
Leasehold improvements 10% - 20% or over the terms of the
respective leases whichever is
shorter
Furniture, fixtures and equipment 10% - 33 1/3%
Plant and machinery 10%
Molds 10%
Motor vehicles 20%
Leased assets - Leases that transfer substantially all the rewards and
risks of ownership of assets to the Company are accounted for as capital
leases. At the inception of a capital lease, the cost of the leased asset
is capitalized at the present value of the minimum lease payments and
recorded together with the obligation, excluding the interest element, to
reflect the purchase and financing. Assets held under capital leases are
included in property, plant and equipment and are depreciated over their
estimated useful lives.
Inventories - Inventories held for resale are stated at the lower of cost,
determined by the first-in, first-out method, or value determined by the
market. Finished goods inventories consist of raw materials, direct labor,
and overhead associated with the manufacturing process.
Valuation of long-lived assets - The Company periodically evaluates the
carrying value of long-lived assets to be held and used, including
goodwill and other intangible assets, when events and circumstances
warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such
asset is separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying
value exceeds the fair market value of the
F-15
<PAGE>
Leading Edge Packaging, Inc.
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in
a similar manner, except that fair market values are reduced for the costs
to dispose.
F-16
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Net sales - Net sales represent the invoiced value of products sold less
discounts and returns. Sales are recognized when products are shipped to
customers or when title passes, if later.
Income taxes - The Company has adopted the liability method of accounting
for income taxes, as set forth in Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under the
liability method, deferred taxes are determined based upon the difference
between the financial statement and tax bases of assets and liabilities at
enacted tax rates in effect in the years in which the differences are
expected to reverse. Deferred tax expense (benefit) represents the change
in the deferred tax balances.
Foreign currency translation - Assets and liabilities of foreign
operations are translated using period-end exchange rates. Revenues and
expenses of foreign operations are translated using average monthly
exchange rates. The impact of exchange rate changes is shown as "Foreign
Currency Translation Adjustment" in shareholders' equity. Gains or losses
from foreign currency transactions, which are immaterial for all periods
presented, are included in net income.
Employee benefits - The Company does not provide any post retirement
benefits other than the defined contribution plan, and post employment
benefits, if any, are not material.
Earnings per share - Earnings per common share are based on the weighted
average number of shares of common stock outstanding as if the shares
pursuant to the Agreement in note 1 had been issued on April 1, 1995. The
weighted average number of shares of common stock outstanding, including
2,250,000 shares issued during the year ended March 31, 1999 under the
Agreement, during each of the three years ended March 31, 1999, 1998 and
1997, was 5,562,500, 5,562,500 and 4,597,603, respectively. The Company
has adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". This pronouncement provides for the calculation of
basic and diluted earnings per share which is different from the current
calculation of primary and fully diluted earnings per share. Common stock
equivalents had no material dilutive effect on earnings per share.
Effects of recent accounting standards - In 1998 the Company adopted SFAS
No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" and SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post retirement
Benefits". The adoption of these new standards had no significant impact
on the Company.
SFAS No. 130, requires that an enterprise reports, by major components and
as a single total, the change in its net assets during the period from
non-owner
F-17
<PAGE>
Leading Edge Packaging, Inc.
sources. The Company has presented its comprehensive income (loss) in the
consolidated statements of changes in shareholders' equity (deficit).
F-18
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
SFAS No. 131, which superseded SFAS No. 14, "Financial Reporting for
Segments of Business Enterprise", established standards for the way that
public enterprises report information about operating segments in
financial statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas and
major customers. The adoption of SFAS No. 131 did not require any changes
to the Company's existing financial statement disclosures.
SFAS No. 132 amends the disclosure requirements for pensions and other
post-retirement benefits. The adoption of SFAS No. 132 had no significant
impact on the Company's current financial statement disclosures.
New accounting standards not yet adopted - The Financial Accounting
Standards Board has issued a new standard SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Management has not yet
completed the analysis of the impact this would have on the financial
statements of the Company.
Use of estimates - The preparation of financial statements in conformity
with general accepted accounting principles requires the use of estimates.
Actual results could differ from those estimates.
4. BILLS RECEIVABLE AND PAYABLE
Bills receivable and payable represent accounts receivable and payable in
the form of bills of exchange, whose acceptances and settlements are
handled by banks.
During each of the years ended March 31, 1999, 1998 and 1997, the Company
had factored gross bills receivable of $Nil, $5,475,381 and $7,671,466,
respectively, with financial institutions with recourse to the Company.
The net proceeds after discounts during each of these years amounted to
$Nil, $5,319,333 and $7,452,829. There were no repurchase terms except for
the recourse under the terms of the factoring agreement in the event of
customer default.
5. INVENTORIES
Inventories by major categories are summarized as follows:
March 31,
---------
1999 1998
---- ----
Raw materials $1,021,460 $2,647,834
F-19
<PAGE>
Finished goods 1,587,036 3,941,870
---------- ----------
$2,608,496 $6,589,704
---------- ----------
F-20
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31,
---------
1999 1998
---- ----
Leasehold land and buildings $ -- $3,271,049
Leasehold improvements 523,533 1,078,705
Furniture, fixtures and equipment 574,810 1,113,802
Plant and machinery 606,453 3,237,710
Molds 478,047 --
Motor vehicles 40,290 47,366
---------- ----------
Total 2,223,133 8,748,632
Less: Accumulated depreciation 238,480 3,160,360
---------- ----------
Net book value $1,984,653 $5,588,272
---------- ----------
Included in property, plant and equipment of the Company are assets
acquired under capital leases with the following net book value:
March 31,
---------
1999 1998
---- ----
At cost:
Furniture, fixtures and equipment $ 47,889 $ 7,599
Less: Accumulated depreciation (7,616) (1,900)
---------- ----------
$ 40,273 $ 5,699
---------- ----------
Depreciation of capital lease assets included in depreciation expense in
the accompanying consolidated statements of income was $5,716, $1,520 and
$380 for the years ended March 31, 1999, 1998 and 1997, respectively.
F-21
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The components of income (loss) before income taxes are as follows:
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
United States $(12,731,952) $1,556,450 $ 3,433,307
Foreign subsidiaries operating in:
Hong Kong (245,062) (186,033) (1,003,243)
Others (5,333,936) 2,016,764 2,648,468
------------ ---------- -----------
$(18,310,950) $3,387,181 $ 5,078,532
------------ ---------- -----------
The Company is subject to Hong Kong taxation on its activities conducted
in Hong Kong. During the three years ended March 31, 1999, the Company's
manufacturing operations were outside Hong Kong and the majority of income
was not subject to tax in Hong Kong or in other jurisdictions. During the
year ended March 31, 1997, the Company established operations in the
United States and revenues derived from the Company's U.S. operations were
subject to income tax in the United States and income tax expense has been
computed using a rate of 38% for U.S. Federal and State income taxes.
The provision for income taxes expense (credit) attributable to the
Company consists of the following:
Year ended March 31,
--------------------
1999 1998 1997
----------- ----------- -----------
Current
Hong Kong $ -- $ -- $ --
U.S. Federal (1,560,000) 549,000 1,130,324
U.S. State -- 107,000 211,900
Overseas -- (517,464) --
Deferred
Hong Kong -- (13,954) (13,596)
----------- ----------- -----------
$(1,560,000) $ 124,582 $ 1,328,628
----------- ----------- -----------
F-22
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES - continued
A reconciliation between the provision for income taxes computed by
applying the statutory tax rates in the United States for 1999, 1998 and
1997 to income before income taxes and the actual provision for income
taxes is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
US statutory rate 34% 34% 34%
----------- ----------- -----------
Provision for income taxes at statutory
rate on income for the period $(6,225,723) $ 1,151,641 $ 1,726,701
State income taxes -- 107,000 211,900
International rate differences 44,111 32,556 175,568
Loss (income) not subject to taxation 1,813,538 (685,700) (900,479)
Prior years' overprovision -- (517,464) --
Increase in valuation allowance 2,845,846 -- --
Other (37,772) 36,549 114,938
----------- ----------- -----------
Income tax (credit) provision $(1,560,000) $ 124,582 $ 1,328,628
----------- ----------- -----------
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the amounts of assets and liabilities for income tax purposes
compared with the respective amounts for financial statement purposes. At
March 31, 1998 and 1999 deferred income taxes comprised the following:
<TABLE>
<CAPTION>
At March 31,
------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets (liabilities):
Excess of tax over financial reporting depreciation $ (6,059) $(58,566)
Net operating loss carryforwards 2,863,898 70,559
----------- --------
2,857,839 11,993
Valuation allowance (2,857,839) (11,993)
----------- --------
$ -- $ --
----------- --------
</TABLE>
F-23
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. SHORT-TERM BORROWINGS
These include borrowings in the form of trade acceptances, loans and
overdrafts with various banks:
March 31,
---------
1999 1998
---- ----
Credit facilities available at end of year $ Nil $8,389,516
Utilized at end of year 5,194,774 5,865,232
Weighted average interest rate on borrowings
at end of year 8% 12%
The Company previous maintained short-term bank credit lines in the
countries in which it operates, however, such facilities were terminated
as at March 31, 1999. Interest rates are generally based on the banks'
prime lending rates.
9. LONG-TERM DEBT
March 31,
---------
1999 1998
---- ----
Long-term debt consists of:
Mortgage loan bearing interest at March 31, 1998
ranging from 10.75% to 12.5% repayable
over 6 years in monthly instalments and
secured on leasehold land and buildings
with an aggregate net book value of
$2,008,932 $ -- $ 537,793
Capital lease obligation, interest ranging
from 3.980% to 7.861% 38,051 4,789
Other long-term borrowing -- 387,597
--------- ----------
Total 38,051 930,179
Current portion of long-term debt (10,128) (273,395)
--------- ----------
Long-term debt, less current portion $ 27,923 $ 656,784
--------- ----------
Maturities of long-term debt as at March 31, 1999 are as follows:
Year ending March 31
2000 $ 10,128
2001 10,589
2002 10,701
2003 6,633
----------
Total $ 38,051
----------
F-24
<PAGE>
Leading Edge Packaging, Inc.
10. CAPITAL STOCK
(i) Common stock
In connection with the public offering on December 2, 1996, the
Company agreed to issue and sell to the Underwriter and/or its
designees, at the closing of the underwriting, for nominal
consideration, five year Underwriter's Warrants (the "Underwriter's
Warrants") to purchase 125,000 shares of common stock. The
Underwriter's Warrants are exercisable at a price of $8.40 per share
of common stock at any time during a period of four years from
December 2, 1997 and are restricted from sale, transfer, assignment
or hypothecation for a period of twelve months from the date of the
offering, except to officers of the Underwriter. The Underwriter's
Warrants contain anti-dilution provisions providing for adjusting of
the number of shares of common stock and exercise price under
certain circumstances. The Underwriter's Warrants grant to the
holders thereof and to the holders of the underlying securities
certain rights of registration of the underlying securities certain
rights of registration of the securities underlying the
Underwriter's Warrants. The fair value of the Underwriter's Warrants
is not material.
(ii) Preferred stock
Pursuant to the authority granted to the board of directors of the
Company, in the fourth quarter of 1999 the board of directors
created three series of Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), of the Company. The shares of Preferred
Stock are designated in the following series and number of shares
constituting each series:
(i) 1,000,000 shares of Series A 8% cumulative redeemable Preferred
Stock;
(ii) 500,000 shares of Series B 8% cumulative redeemable Preferred
Stock and
(iii) 500,000 shares of Series C 8% cumulative redeemable Preferred
Stock.
All shares of each series are identical.
Holders of each share of Preferred Stock are entitled to vote
together with the holders of shares of common stock as a single
class on all matters submitted for a vote of stockholders.
Each holder of Series A Preferred Stock is entitled to cast ten
votes for each share of Series A Preferred Stock. Each holder of
Series B Preferred Stock and Series C Preferred Stock for each share
of Preferred Stock is entitled to cast five votes and three votes,
respectively.
F-25
<PAGE>
Leading Edge Packaging, Inc.
The holders of each series of Preferred Stock are entitled to
receive cumulative dividends in the amount per share of eight
percent per annum of the original issue price.
The Company shall, at the option of any holder of shares, redeem the
shares from time to time on or after February 15, 2000 and March 15,
2000 for Series B and Series C Preferred Stock, respectively.
F-26
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCENTIVE STOCK OPTION PLAN
In 1997, the Company established the 1997 Incentive Stock Option Plan (the
"1997 Plan") in addition to the 1996 Incentive Stock Option Plan ("1996
Plan"). The 1997 Plan contains terms substantially the same as the 1996
Plan. Options under both Plans may be granted to directors and officers of
the Company permitting the purchase in the aggregate of not more than
400,000 shares of the Company's common stock, par value, $0.01 per share
provided that until December 5, 1998 the number of share issuable pursuant
to options granted under the 1997 Plan shall not, when aggregated with the
shares issuable pursuant to options granted under the Company's 1996 Plan,
exceed 312,500 shares. On December 11, 1996, options (the "1996 Options")
to purchase up to 250,000 shares of Common Stock in the aggregate were
granted to officers and directors of the Company and 100,000 options were
cancelled in 1998. One-third of the 1996 Options become exercisable after
each of 12 months, 30 months and 60 months, respectively. The stock
options granted under the 1996 Plan are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended. The per share option price of the Common Stock
subject to each of the 1996 and 1997 options was $7.15, which was equal to
one hundred ten percent (110%) of the fair market value of a share of
Common Stock on the date that the options were granted. Shares of Common
Stock issued in exchange for options under the Plan will be restricted
against resale as necessary to qualify for exemption from registration
under the Securities Act of 1933, as amended (the "Securities Act"),
unless and until the Company deems it appropriate to register such shares
under the Securities Act. No further options have been granted and none
have been exercised save as mentioned above.
A summary of stock option transactions for the three year ended March 31,
1999 is as follows:
Shares
under option
------------
Outstanding at Mach 31, 1996 --
Granted 250,000
--------
Outstanding at March 31, 1997 250,000
Granted 162,500
Canceled (100,000)
--------
Outstanding at March 31, 1998 and 1999 312,500
--------
F-27
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCENTIVE STOCK OPTION PLAN - continued
The Company has elected to continue to apply Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" to account for
stock options granted under the plan. If the fair value method specified
in Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation" had been used, net income and earnings per
share for the years ended March 31, 1999, 1998 and 1997 would have been as
follows:
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
HK$ HK$ HK$
Net (loss) income:
As Reported $(16,770,074) $3,262,599 $3,749,904
Pro Forma (16,791,140) 3,241,533 3,714,794
Net income (loss) per share:
Basic and diluted
As Reported $ (3.01) $ 0.59 $ 0.82
Pro Forma (3.02) 0.58 0.81
The fair value of the options granted in the year ended March 31, 1996 and
1997 were estimated as $118,500 using the Black-Scholes option pricing
model with the following assumptions: risk-free interest free-5,87%;
expected life of options- 3 years; expected volatility - 15.5%; expected
dividend yield - Nil.
12. NON-RECURRING EXPENSE
The amount in prior year represented misappropriation of cash by a manager
of the Company's factory established in the PRC. The manager agreed to
repay the Company by installments over 3 years however, there have been no
recoveries. Full provision for the amount was made in the 1998 financial
statements and any recoveries will be accounted for on a cash basis.
F-28
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS
(i) Chung Hwa Group
Chung Hwa was the Company's former ultimate holding company. Advances
from/to Chung Hwa and its subsidiaries ("Chung Hwa Group") were made on an
interest-free basis during the years.
Prior to the closing of the transaction pursuant to Share Agreement of
January 28, 1998 (see Note 1), Justrite was wholly-owned by Chung Hwa and
participated in Chung Hwa's consolidated cash system. The following table
summarizes the movements between the Company and the Chung Hwa Group:
Balance as of April 1, 1996 $ 6,492,888
Advances to Chung Hwa Group 4,923,208
Repayments from Chung Hwa Group (3,219,763)
------------
Balance as of March 31, 1997 8,196,333
Repayments from Chung Hwa Group (15,716,978)
Advances to Chung Hwa Group 34,515,488
Dividend paid to Chung Hwa Group (14,248,705)
------------
Balance as of March 31, 1998 12,746,138
Write off of receivable arising from liquidation of Justrite (10,825,581)
Provision for receivables due to the Company (1,920,557)
------------
Balance as of March 31, 1999 $ --
------------
As a consequence of the situation with Justrite described in Note 1,
information on the other movements in the year ended March 31, 1999 is not
available and accordingly, the net balance at April 1, 1998 is included in
the net loss on closure of subsidiaries.
In November 1998, the Chung Hwa group faced a sudden liquidity problem due
to deteriorating operating conditions and its bankers withdrew their lines
of credit. As Justrite was unable to collect its receivable from Chung
Hwa, it in turn was unable to satisfy its obligation to its creditors,
including the minority shareholder, Hua Nam. As a result, Hua Nam seized
control of all of the assets of Justrite's joint venture, thus leading to
the subsequent liquidation of Justrite's other subsidiaries, including the
receivable from Chung Hwa. The write off of all of these assets of
Justrite including the receivable from Chung Hwa, is included in
F-29
<PAGE>
Leading Edge Packaging, Inc.
the loss on disposal of subsidiary in the statement of operations for the
year ended March 31, 1999 (See Note 1(i)). Likewise, amounts owed to the
Company by Chung Hwa have been written off as a bad debt expense in the
year ended March 31, 1999 as Chung Hwa is in financial difficulty and it
is not anticipated there will be any significant recovery by the Company.
F-30
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS - continued
(ii) Related Company
March 31,
---------
1999 1998
---- ----
Amount payable to L.B. Saw & Associates Limited $420,521 $ --
-------- ------
On February 12, 1999, the Company entered into a loan agreement with
L.B. Saw & Associates Limited, a company in which L.B. Saw, the
Company's director, has a beneficial ownership interest. The amount
advanced by L.B. Saw & Associates Limited is non-interest bearing,
repayable on demand and is secured by 5,000,000 shares of LEPI China
Limited, a subsidiary of the Company.
14. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Customers accounting for 10% or more of the total net sales for each of
the three years in the period ended March 31, 1999, 1998 and 1997 are
detailed as follows:
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
Customer A 35% 10% 23%
Customer B -- 5% 20%
Customer C -- 10% --
Customer D 17% -- --
Details of the accounts receivable from the five customers with the
largest receivable balances at March 31, 1999, 1998 and 1997 are as
follows:
Percentage of accounts
receivable as at March 31,
--------------------------
1999 1998 1997
---- ---- ----
Five largest receivable balances 72% 54% 34%
Bad debt expense relating to trade receivables was $1,324,425, $Nil and
$218,560 for the years ended March 31, 1999, 1998 and 1997, respectively.
F-31
<PAGE>
Leading Edge Packaging, Inc.
15. COMMITMENTS AND CONTINGENCIES
The Company leases premises and equipment under various operating leases
which do not contain any renewal and escalation clauses. Rental expense
under operating leases was $511,085, $1,113,769 and $796,290 for the years
ended March 31, 1999, 1998 and 1997, respectively.
At March 31, 1999, the Company was obligated under operating leases
requiring minimum rentals as follows:
Year ending March 31,
2000 $ 878,159
2001 761,829
2002 552,049
2003 10,440
----------
Total minimum lease payments $2,202,477
----------
16. RETIREMENT PLAN
For the years ended March 31, 1998 and 1997, the Company had a defined
contribution retirement plan covering substantially all employees in Hong
Kong. Under this plan, eligible employees may contribute amounts through
payroll deductions which are equal to 5% of individual salary,
supplemented by employer contributions at 5% of individual salary, for
investment in various funds established by the plan. The expense related
to this plan was $34,781 and $29,668, for the years ended March 31, 1998
and 1997, respectively. The plan was terminated in 1998 following the
liquidation of the principal subsidiaries and no contribution was made for
the year ended March 31, 1999.
17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments". The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. The estimates presented herein are
not necessarily indicative of the amounts that the Company could realize
in a current market exchange. The carrying amounts of cash, accounts
receivable, bills receivable, accounts payable, bills payable and payable
to a related company are short term in nature and therefore reflect their
fair value. All the financial instruments are for trade purposes.
F-32
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SEGMENT INFORMATION
The Company is engaged in one business segment which is the manufacture,
sale and distribution of packaging products. An analysis of sales by
geographic destinations for the relevant years is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales:
North America $ 6,066,693 $ 11,308,861 $ 12,987,263
Europe 302,829 5,176,973 5,908,333
Asia and others 45,135 5,782,132 4,984,227
------------ ------------ ------------
$ 6,414,657 $ 22,267,966 $ 23,879,823
------------ ------------ ------------
</TABLE>
The following is the Company's operating information by geographic area:
<TABLE>
<S> <C> <C> <C>
Net sales:
North America $ 6,066,693 $ 11,308,861 $ 12,987,263
Hong Kong and other parts of PRC 347,964 10,959,105 10,892,560
------------ ------------ ------------
$ 6,414,657 $ 22,267,966 $ 23,879,823
------------ ------------ ------------
Operating (loss) income:
North America (12,841,868) 1,610,870 3,358,866
Hong Kong and other parts of PRC (5,342,410) 2,041,752 1,802,135
------------ ------------ ------------
(18,184,278) 3,652,622 5,161,001
------------ ------------ ------------
Assets at end of year:
North America 4,358,319 8,568,218 13,866,879
Hong Kong and other parts of PRC 3,084,820 21,043,699 29,739,807
------------ ------------ ------------
</TABLE>
F-33
<PAGE>
Leading Edge Packaging, Inc.
<TABLE>
<S> <C> <C> <C>
$ 7,443,139 $ 29,611,917 $ 43,606,686
------------ ------------ ------------
Long-lived assets at end of year:
North America 274,558 302,814 273,734
Hong Kong and other parts of PRC 1,710,095 5,285,458 5,776,424
------------ ------------ ------------
$ 1,984,653 $ 5,588,272 $ 6,050,158
------------ ------------ ------------
</TABLE>
F-34
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Fiscal 1999
Net Sales:
Balance as per 10Q or 10K 4,439 4,801 1,437 786
Deconsolidations adjustment
on Justrite (2,410) (2,638) -- --
------ ------ ------ ------
Consolidated amount 2,029 2,163 1,437 786
------ ------ ------ ------
Gross profit:
Balance as per 10Q or 10K 1,671 1,536 163 (1,376)
Deconsolidations adjustment
on Justrite (948) (1,116) -- --
------ ------ ------ ------
Consolidated amount 723 420 163 (1,376)
------ ------ ------ ------
Net income (loss):
Balance as per 10Q or 10K 333 279 (9,492) (7,073)
Deconsolidations adjustment
on Justrite (279) (519) -- --
------ ------ ------ ------
Consolidated amount 54 (240) (9,492) (7,073)
------ ------ ------ ------
Earnings (loss) per share:
Balance as per 10Q or 10K 0.06 0.06 (1.70) (1.28)
Adjustment on disposal of Justrite (0.05) (0.10) -- --
------ ------ ------ ------
Consolidated amount 0.01 (0.04) (1.70) (1.28)
------ ------ ------ ------
</TABLE>
F-35
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. QUARTERLY FINANCIAL DATA (UNAUDITED) - continued
<TABLE>
<CAPTION>
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Fiscal 1998
Net Sales:
Balance as per 10Q or 10K
- Leading Edge $ 2,751 $ 3,029 $ 3,262 $ --
Adjustment on combination with
Justrite 1,535 1,731 4,071 5,889
------- ------- ------- -------
Combined amount 4,286 4,760 7,333 5,889
------- ------- ------- -------
Gross profit:
Balance as per 10Q or 10K
- Leading Edge 1,141 996 1,056 --
Adjustment on combination with
Justrite 766 1,168 2,258 3,216
------- ------- ------- -------
Combined amount 1,907 2,164 3,314 3,216
------- ------- ------- -------
Net income:
Balance as per 10Q or 10K
- Leading Edge 465 262 229 --
Adjustment on combination with
Justrite 46 79 679 1,503
------- ------- ------- -------
Combined amount 511 341 908 1,503
------- ------- ------- -------
Earnings per share:
Balance as per 10Q or 10K
- Leading Edge 0.14 0.08 0.07 --
Adjustment on combination with
Justrite (0.05) (0.02) 0.09 0.28
------- ------- ------- -------
Combined amount $ 0.09 $ 0.06 $ 0.16 $ 0.28
------- ------- ------- -------
</TABLE>
F-36
<PAGE>
Leading Edge Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. QUARTERLY FINANCIAL DATA (UNAUDITED) - continued
<TABLE>
<CAPTION>
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Fiscal 1997
Net Sales:
Balance as per 10Q or 10K
- Leading Edge $ 2,505 $ 3,047 $ 3,696 $ 3,740
Adjustment on combination with
Justrite 2,261 3,957 2,803 1,871
------- ------- ------- -------
Combined amount 4,766 7,004 6,499 5,611
------- ------- ------- -------
Gross profit:
Balance as per 10Q or 10K
- Leading Edge 808 1,007 1,151 1,615
Adjustment on combination with
Justrite 1,418 2,205 1,947 993
------- ------- ------- -------
Combined amount 2,226 3,212 3,098 2,608
------- ------- ------- -------
Net income:
Balance as per 10Q or 10K
- Leading Edge 451 504 510 626
Adjustment on combination with
Justrite 489 1,279 777 (886)
------- ------- ------- -------
Combined amount 940 1,783 1,287 (260)
------- ------- ------- -------
Earnings per share:
Balance as per 10Q or 10K
- Leading Edge 0.24 0.26 0.21 0.18
Adjustment on combination with
Justrite (0.04) (0.15) 0.05 (0.23)
------- ------- ------- -------
Combined amount $ 0.20 $ 0.41 $ 0.26 $ (0.05)
------- ------- ------- -------
</TABLE>
F-37
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LEADING EDGE PACKAGING, INC.
By: /s/Lip-Boon Saw
----------------------------------
Date: August 19, 1999 Lip-Boon Saw,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Stephen J. DeGroat Chairman and Director August 19, 1999
- -------------------------
Stephen J. DeGroat
/s/ Lip-Boon Saw Chief Executive August 19, 1999
- ------------------------- Officer and Director
Lip-Boon Saw
/s/ Casey K. Tjang President, Chief
- ------------------------- Financial Officer August 19, 1999
Casey K. Tjang (Principal Accounting)
and Director
/s/ John Fee Senior Vice August 19, 1999
- ------------------------- President-
John Fee Marketing
/s/ Bernard Esquenet Secretary and Director August 19, 1999
- -------------------------
Bernard Esquenet
/s/ Peter L. Coker Director August 19, 1999
- -------------------------
Peter L. Coker
/s/ Richard Fung-Gea Wong Director August 19, 1999
- -------------------------
Richard Fung-Gea Wong
<PAGE>
State of Delaware
Office of the Secretary of State
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "LEADING EDGE PACKAGING, INC.", FILED IN THIS OFFICE ON THE
SEVENTEENTH DAY OF NOVEMBER, A.D. 1998, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
[SEAL] Edward J. Freel, Secretary of State
2571632 8100 AUTHENTICATION: 9792239
991228575 DATE: 06-08-99
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
It is hereby certified:
1. The name of the corporation is Leading Edge Packaging, Inc. (the
"Corporation").
2. The certificate of incorporation of the Corporation is hereby
amended by striking out the first sentence of Article Fourth thereof and
substituting in lieu of said sentence the following new sentence.
The total number of shares of common stock which this
corporation is authorized to issue is eight million (8,000,000)
shares, par value $.01 per share.
3. The amendment of 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 on November 12, 1998.
/s/ Casey K. Tjang
-----------------------------------
Casey K. Tjang,
President, Chief Financial
Officer and Secretary
<PAGE>
EXHIBIT 3.4
-------------
State of Delaware
Office of the Secretary of State PAGE 1
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "LEADING EDGE PACKAGING, INC." FILED IN THIS OFFICE ON THE
NINETEENTH DAY OF JANUARY, A.D. 1999, AT 9 O'CLOCK A.M.
[SEAL] Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2571632 8100 AUTHENTICATION: 9792238
9912285575 DATE: 06-08-99
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
1,000,000 SHARES OF SERIES A 8% REDEEMABLE PREFERRED STOCK
500,000 SHARES OF SERIES B 8% REDEEMABLE PREFERRED STOCK
500,000 SHARES OF SERIES C 8% REDEEMABLE PREFERRED STOCK
LEADING EDGE PACKAGING, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Company"), hereby certifies that the following resolution was adopted by
the board of directors of the Company as required by Section 151 of the General
Corporation Law at a meeting duly called and held on December 7, 1998:
RESOLVED, that, pursuant to the authority granted to and vested in the
board of directors of the Company in accordance with the provisions of the
Company's Certificate of Incorporation, as amended, the board of directors
hereby creates three series of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), of the Company and hereby states the designation and number
of shares, and fixes the relative rights, preferences, and limitations thereof
as follows:
1. Designation and Amount. The shares of Preferred Stock shall be
designated in the following series and number of shares constituting
each series:
(i) 1,000,000 shares of Series A 8% Redeemable Preferred Stock;
(ii) 500,000 shares of Series B 8% Redeemable Preferred Stock; and
(iii) 500,000 shares of Series C 8% Redeemable Preferred Stock.
All shares of each series shall be identical with the other
shares in the same series in all respects.
2. Voting Rights. Each holder of Series A Preferred Stock shall be
entitled to cast ten votes for each share of Series A Preferred
Stock held by such holder at any meeting of stockholders of the
Company or in taking action by written consent of the stockholders
in accordance with the Company's Amended and Restated By-laws or the
Delaware General Corporation Law.
<PAGE>
Each holder of Series B Preferred Stock shall be entitled to cast
five votes for each share of Series B Preferred Stock held by such
holder at any meeting of stockholders of the Company or in taking
action by written consent of the stockholders in accordance with the
Company's Amended and Restated By-laws or the Delaware General
Corporation Law.
Each holder of Series C Preferred Stock shall be entitled to cast
three votes for each share of Series C Preferred Stock held by such
holder at any meeting of stockholders of the Company or in taking
action by written consent of the stockholders in accordance with the
Company's Amended and Restated By-laws or the Delaware General
Corporation Law.
Holders of the Preferred Stock, voting separately as a class, will
be entitled to elect two directors to the board of directors at any
meeting of stockholders of the Company or in any written consent in
which directors are to be elected.
So long as any Series A Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of
all outstanding shares of Series A Preferred Stock, voting separately
as a class, (i) amend, alter or repeal any provision of the Certificate
of Incorporation (including this Certificate of Designations), as
amended, or the Amended and Restated By-laws of the Company, (ii)
authorize, or increase the authorized amount of, any additional class
or series of stock, or issue any shares of stock, or (iii) effect any
reclassification of the Series A Preferred Stock.
3. Dividend Rights. The holders of Preferred Stock shall be entitled to
receive when, as and if delcared by the board of directors, out of
funds legally available for the payment of dividends, cumulative
dividends in the amount per share of eight percent (8%) of the original
issue price of $1.75 per share. Dividends, if any, shall be payable
annually, within thirty (30) days of the end of the twelve (12) month
period commencing on January 15, 1999 and within 30 days of each twelve
(12) month period thereafter. Dividends will accrue and be cumulative
from January 15, 1999 and will be payable, to holders of record as
they appear on the stock books of the Company as of January 15 of each
such year. The board of directors may authorize the payment of
dividends in cash or in-kind, by the issuance of additional shares of
Preferred Stock, to the extent such shares are available for issuance,
to the holders of Preferred Stock in the same series as the
2
<PAGE>
shares on which the dividend is delcared. If, for any twelve (12)
month period, the board of directors authorizes payment of a dividend
in-kind, the Company shall issue additional shares of Preferred Stock,
in the appropriate series, to each holder thereof in an amount equal
to 8% of the number of share held by such holder. The amount of
dividends payable for any period shorter than a full dividend period
will be pro rated on the basis of a 350-day year. No interest will be
payable in respect of any dividend payment on the Preferred Stock
which may be in arrears.
4. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, holders of Preferred Stock are entitled to
receive as a liquidation preference an amount per share equal to the
sum of (a) the original issue price of $1.75 per share and (b) an
amount equal to any accrued and unpaid dividends per share to the
payment date, and no more, before any payment or distribution is made
to the holders of Series B and Series C or Common Stock (Series B
having priority over Series C and Series C having priority over the
Common Stock), or any series or class of the Company's stock that
ranks junior as to liquidation rights to the Preferred Stock. The
holders of Series A Preferred Stock are entitled to share ratably, in
accordance with the respective preferential amounts payable on such
stock, in any distribution which is not sufficient to pay in full the
aggregate of the amounts payable thereon. After payment in full of the
liquidation preference of the shares of the Series A Preferred Stock,
the holder of such shares will not be entitled to any further
participation in any distribution of assets by the Company. Neither a
consolidation, merger or other business combination of the Company
with or into another corporation or other entity nor a sale or
transfer of all or part of the Company's assets for cash, securities
or other property will be considered a liquidation, dissolution or
winding up of the Company.
5. Redemption Rights. The Company, shall, at the option of any holder
of shares of Series A Preferred Stock, at any time and from time to
time on or after January 15, 2000, redeem the shares of Preferred
Stock held by such holder, in whole on in part, by paying to the
holder thereof a price equal to the issue price of $0.75 per share,
plus all dividends accrued and unpaid thereon as of the date fixed for
redemption.
Any holder electing to redeem Preferred Stock shall give notice of
its election to the Company at its principal place of business. Any
such notice shall be sent by facsimile, mail, overnight courier or any
other reasonable
3
<PAGE>
means, not less than 30 nor more than 90 days prior to the date
designated as the date for the redemption. Any non-material defect in
such a notice, shall not affect the validity of the redemption.
On and after the date of redemption specified in the notice, each
holder of Preferred Stock to be redeemed shall be entitled to receive
for Preferred Stock called for redemption the redemption price of such
stock, upon presentation and surrender at the place designated in the
notice of the certificate or certificates for Preferred Stock held by
the holder, properly endorsed in blank for transfer or accompanies by
proper instruments of assignment in blank.
Unless the Company defaults in the payment of the redemption price:
(1) from and after the date of redemption specified in the notice (a)
all dividends upon Preferred Stock called for redemption shall cease
to accrue after the date of redemption, and (b) all rights attached to
the Preferred Stock called for redemption shall cease, except for the
right to receive the redemption price of the shares on and after the
redemption date without interest; and (2) from and after the date of
redemption, any redeemed Preferred Stock shall no longer be deemed to
be outstanding.
4
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its President, Chief Financial Officer and Secretary on
this 19th day of January, 1999.
LEADING EDGE PACKAGING, INC.
By: Casey K. Tjang
------------------------
Casey K. Tjang,
President, Chief Financial
Officer and Secretary
5
<PAGE>
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "LEADING EDGE PACKAGING, INC.", FILED IN THIS OFFICE ON THE
ELEVENTH DAY OF JUNE, A.D. 1999 AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2571632 8100 AUTHENTICATION: 9800936
991235946 DATE: 06-14-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/11/1999
991235946 - 2571632
CERTIFICATE OF DESIGNATIONS
OF
1,000,000 SHARES OF SERIES A 8%
CUMULATIVE REDEEMABLE PREFERRED STOCK
500,000 SHARES OF SERIES B 8%
CUMULATIVE REDEEMABLE PREFERRED STOCK
500,000 SHARES OF SERIES C 8%
CUMULATIVE REDEEMABLE PREFERRED STOCK
LEADING EDGE PACKAGING, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called
the "Company"), hereby certifies that, as required by Section 151 of the
General Corporation Law, the following resolution was adopted by the board
of directors of the Company by Unanimous Written Consent dated June 8, 1999
in lieu of a meeting pursuant to Section 141(f) of the General Corporation
Law:
RESOLVED, that, pursuant to the authority granted to and vested in the
board of directors of the Company in accordance with the provisions of the
Company's Certificate of Incorporation, as amended, the board of directors
hereby creates three series of Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), of the Company and hereby states the designation
and number of shares, and fixes the relative rights, preferences and
limitations thereof as follows:
1. Designation and Amount. The shares of Preferred Stock shall be
designated in the following series and number of shares constituting each
series:
(i) 1,000,000 shares of Series A 8% Cumulative Redeemable Preferred
Stock;
(ii) 500,000 shares of Series B 8% Cumulative Redeemable Preferred
Stock; and
(iii) 500,000 shares of Series C 8% Cumulative Redeemable Preferred Stock.
All shares of each series shall be identical with the other shares in
the same series in all respects.
2. Voting Rights. Except as otherwise set forth in these resolutions or the
certificate of designations (the "Certificate of Designations") with
respect to the Preferred Stock, or as otherwise required by law,
1
<PAGE>
holders of each share of Preferred Stock shall be entitled to vote together
with the holders of shares of common stock as a single class on all matters
submitted for a vote of stockholders and shall be entitled to notice of all
stockholders' meetings and to act by written consent in the same manner as
the holders of the common stock.
Each holder of Series A Preferred Stock shall be entitled to cast ten
votes for each share of Series A Preferred Stock held by such holder at any
meeting of stockholders of the Company or in taking action by written
consent of the stockholders in accordance with the Company's Third Amended
and Restated By-laws or the Delaware General Corporation Law.
Each holder of Series B Preferred Stock shall be entitled to cast five
votes for each share of Series B Preferred Stock held by such holder at any
meeting of stockholders of the Company or in taking action by written
consent of the stockholders in accordance with the Company's Third Amended
and Restated By-laws or the Delaware General Corporation Law.
Each holder of Series C Preferred Stock shall be entitled to cast three
votes for each share of Series C Preferred Stock held by such holder at any
meeting of stockholders of the Company or in taking action by written
consent of the stockholders in accordance with the Company's Third Amended
and Restated By-laws or the Delaware General Corporation Law.
At any meeting of stockholders of the Company or in any written consent
in which directors are to be elected, holders of the Preferred Stock,
voting separately as a class, the holders of each series of Preferred Stock
being entitled to cast such number of votes per share as are allocated to
that series herein, shall be entitled to elect two directors to the board
of directors, which directors shall serve until their successors have been
duly elected, by the holders of the Preferred Stock voting separately as a
class, and qualified. Holders of the Preferred Stock shall not otherwise be
entitled to vote for directors of the Company.
So long as any shares of Series A Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a
majority of all outstanding shares of Series A Preferred Stock, voting
separately as a class, (i) amend, alter or repeal any
2
<PAGE>
provision of the Certificate of Incorporation (including this Certificate
of Designations), as amended, or the Third Amended and Restated By-laws of
the Company, (ii) authorize, or increase the authorized amount of, any
additional class or series of stock, or issue any shares of stock, or (iii)
effect any reclassification of the Series A Preferred Stock.
So long as any shares of Series B Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a
majority of all outstanding shares of Series B Preferred Stock, voting
separately as a class, effect any reclassification of the Series B
Preferred Stock.
So long as any shares of Series C Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a
majority of all outstanding shares of Series C Preferred Stock, voting
separately as a class, effect any reclassification of the Series C
Preferred Stock.
3. Dividend Rights. The holders of Series A Preferred Stock shall be
entitled to receive when, as and if declared by the board of directors, out
of funds legally available for the payment of dividends, cumulative
dividends in the amount per share of eight percent (8%) per annum of the
original issue price of $0.75 per share. Dividends, if any, on the Series A
Preferred Stock shall be payable annually, within thirty (30) days of the
end of the twelve (12) month period commencing on January 15, 1999 and
within 30 days of the end of each twelve (12) month period thereafter and,
to the extent not paid, shall be cumulative. Dividends on the Series A
Preferred Stock will accrue and be cumulative from January 15, 1999 to the
redemption date of the Series A Preferred Stock and will be payable, to
holders of record as they appear on the stock books of the Company as of
January 15 of each such year. Dividends on the Series A Preferred Stock
shall accrue on a daily basis whether or not the Company shall have
earnings or surplus at the time.
The holders of Series B Preferred Stock shall be entitled to receive
when, as and if declared by the board of directors, out of funds legally
available for the payment of dividends, cumulative dividends in the amount
per share of eight percent (8%) per annum of the original issue price of
$1.00 per share. Dividends, if any, on the Series B Preferred Stock shall
be payable annually, within thirty (30) days of the end of the
3
<PAGE>
twelve (12) month period commencing on February 15, 1999 and within 30 days
of the end of each twelve (12) month period thereafter and, to the extent
not paid, shall be cumulative. Dividends on the Series B Preferred Stock
will accrue and be cumulative from February 15, 1999 to the redemption date
of the Series B Preferred Stock and will be payable, to holders of record
as they appear on the stock books of the Company as of February 15 of each
such year. Dividends on the Series B Preferred Stock shall accrue on a
daily basis whether or not the Company shall have earnings or surplus at
the time.
The holders of Series C Preferred Stock shall be entitled to receive
when, as and if declared by the board of directors, out of funds legally
available for the payment of dividends, cumulative dividends in the amount
per share of eight percent (8%) per annum of the original issue price of
$1.00 per share. Dividends, if any, on the Series C Preferred Stock shall
be payable annually, within thirty (30) days of the end of the twelve (12)
month period commencing on March 15, 1999 and within 30 days of the end of
each twelve (12) month period thereafter and, to the extent not paid, shall
be cumulative. Dividends on the Series C Preferred Stock will accrue and be
cumulative from March 15, 1999 to the redemption date of the Series C
Preferred Stock and will be payable, to holders of record as they appear on
the stock books of the Company as of March 15 of each such year. Dividends
on the Series C Preferred Stock shall accrue on a daily basis whether or
not the Company shall have earnings or surplus at the time.
No dividend shall be paid on any series of Preferred Stock on any
dividend payment date unless a dividend is also paid on that dividend
payment date on all series of Preferred Stock. If, on any such dividend
payment date, the dividend payable on any series of Preferred Stock is less
than an amount equal to all dividends accrued and unpaid on that series of
Preferred Stock as of the last day of the immediately preceding calendar
year, then the dividend payable on any series of Preferred Stock expressed
as a percentage of the amount of all dividends accrued and unpaid on that
series of Preferred Stock as of the last day of the immediately preceding
calendar year shall be the same.
The board of directors may authorize the payment of dividends in cash or
in-kind by the issuance of additional shares of Preferred Stock, to the
extent
4
<PAGE>
such shares are available for issuance, to the holders of Preferred Stock
in the same series as the shares on which the dividend is declared. If, for
any twelve (12) month period, the board of directors authorizes payment of
a dividend in-kind, the Company shall issue to each holder thereof
additional shares of Preferred Stock in the appropriate series having a
value equal to the amount of the dividend to which such holder would have
been entitled were such dividend paid in cash. Such shares of Preferred
Stock shall be valued based upon the last third party sale of shares of
Preferred Stock in the same series or the last price at which shares of
Preferred Stock of the same series were sold or redeemed by the Company,
whichever is most recent. The amount of dividends payable for any period
shorter than a full dividend period will be pro rated on the basis of a
360-day year and 12 30-day months. No interest will be payable in respect
of any dividend payment on the Preferred Stock which may be in arrears.
4. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, holders of
Series A Preferred Stock shall be entitled to receive out of the assets of
the Company available for distribution to stockholders, as a liquidation
preference, an amount per share equal to the sum of (a) the original issue
price of $0.75 per share and (b) an amount equal to any accrued and unpaid
dividends per share to the payment date, and no more, before any payment or
distribution is made to the holders of Series B Preferred Stock, Series C
Preferred Stock or Common Stock, or any other series or class of the
Company's stock that ranks junior as to liquidation rights to the Series A
Preferred Stock.
In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, after payment of the liquidation
preference to the holders of the Series A Preferred Stock, holders of
Series B Preferred Stock shall be entitled to receive out of assets of the
Company available for distribution to stockholders, as a liquidation
preference, an amount per share equal to the sum of (a) the original issue
price of $1.00 per share and (b) an amount equal to any accrued and unpaid
dividends per share to the payment date, and no more, before any payment or
distribution is made to the holders of Series C Preferred Stock or Common
Stock, or any other series or class of the Company's stock that ranks
junior as to liquidation rights to the Series B Preferred Stock.
5
<PAGE>
In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, after payment of the liquidation
preference to the holders of the Series A Preferred Stock and Series B
Preferred Stock, holders of Series C Preferred Stock shall be entitled to
receive out of the assets of the Company available for distribution to
stockholders, as a liquidation preference, an amount per share equal to the
sum of (a) the original issue price of $1.00 per share and (b) an amount
equal to any accrued and unpaid dividends per share to the payment date,
and no more, before any payment or distribution is made to the holders of
Common Stock, or any series or class of the Company's stock that ranks
junior as to liquidation rights to the Series C Preferred Stock.
If the assets and funds thus available for distribution to the holders
of the Series A Preferred Stock shall be insufficient to permit the payment
to such holders of the full preferential amount described above, then the
entire amount of assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock based on the number of shares of Series A Preferred Stock
held by each such holder. After payment in full of the liquidation
preference on the shares of Series A Preferred Stock, the holders of such
shares will not be entitled to any further participation in any
distribution of assets by the Company.
After distribution of the liquidation preference to the holders of the
Series A Preferred Stock, if the assets and funds available for
distribution to the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount described above, then the remaining assets and funds of the Company
legally available for distribution after payment in full to the holders of
the Series A Preferred Stock shall be distributed ratably among the holders
of the Series B Preferred Stock based on the number of shares of Series B
Preferred Stock held by each such holder. After payment in full of the
liquidation preference on the shares of Series B Preferred Stock, the
holders of such shares will not be entitled to any further participation in
any distribution of assets by the Company.
6
<PAGE>
After distribution of the liquidation preference to the holders of the
Series A Preferred Stock and Series B Preferred Stock, if the assets and
funds available for distribution to the holders of the Series C Preferred
Stock shall be insufficient to permit the payment to such holders of the
full preferential amount described above, then the remaining assets and
funds of the Company legally available for distribution after payment in
full to the holders of the Series C Preferred Stock shall be distributed
ratably among the holders of the Series C Preferred Stock based on the
number of shares of Series C Preferred Stock held by each such holder.
After payment in full of the liquidation preference on the shares of Series
C Preferred Stock, the holders of such shares will not be entitled to any
further participation in any distribution of assets by the Company.
Neither a consolidation, merger or other business combination of the
Company with or into another corporation or other entity nor a sale or
transfer of all or part of the Company's assets for cash, securities or
other property will be considered a liquidation, dissolution or winding up
of the Company.
5. Redemption Rights. The Company, shall, at the option of any holder of
shares of Series A Preferred Stock, at any time and from time to time on or
after January 15, 2000, redeem the shares of Series A Preferred Stock held
by such holder, in whole or in part, by paying to the holder thereof out of
funds legally available therefor a cash price equal to the issue price of
$0.75 per share, plus all dividends accrued and unpaid thereon as of the
date fixed for redemption.
The Company, shall, at the option of any holder of shares of Series B
Preferred Stock, at any time and from time to time on or after February 15,
2000, redeem the shares of Series B Preferred Stock held by such holder, in
whole or in part, by paying to the holder thereof out of funds legally
available therefor, a cash price equal to the issue price of $1.00 per
share, plus all dividends accrued and unpaid thereon as of the date fixed
for redemption; provided, however, that any shares of Series B Preferred
Stock may be redeemed only to the extent the Company has sufficient funds
legally available for such redemption after redemption of any shares of
Series A Preferred Stock for which the Company shall have received notice
of redemption prior to redemption of such shares of Series B Preferred
Stock.
7
<PAGE>
The Company shall, at the option of any holder of shares of Series C
Preferred Stock, at any time and from time to time on or after March 15,
2000, redeem the shares of Series C Preferred Stock held by such holder, in
whole or in part, by paying to the holder thereof out of funds legally
available therefor, a cash price equal to the issue price of $1.00 per
share, plus all dividends accrued and unpaid thereon as of the date fixed
for redemption; provided, however, that any shares of Series C Preferred
Stock may by redeemed only to the extent the Company has sufficient funds
legally available for such redemption after redemption of any shares of
Series A Preferred Stock and Series B Preferred Stock for which the Company
shall have received notice of redemption prior to redemption of such shares
of Series C Preferred Stock.
Any holder electing to have its shares of Preferred Stock redeemed shall
give notice of its election to the Company at its principal place of
business. Any such notice shall be sent by facsimile, mail, overnight
courier or any other reasonable means, not less than 30 nor more than 90
days prior to the date designated as the date for the redemption. Any
non-material defect in such a notice, shall not affect the validity of the
redemption. A copy of any such notice from any holder of shares of Series B
Preferred Stock shall forthwith be provided to each holder of Series A
Preferred Stock. A copy of any such notice from any holder of Series C
Preferred Stock shall forthwith be provided to each holder of Series A
Preferred Stock and Series B Preferred Stock.
On and after the date of redemption specified in the notice, each holder
of Preferred Stock to be redeemed shall be entitled to receive for
Preferred Stock called for redemption the redemption price of such stock,
upon presentation and surrender at the place designated in the notice of
the certificate or certificates for Preferred Stock held by the holder,
properly endorsed in blank for transfer or accompanied by proper
instruments of assignment in blank.
Unless the Company defaults in the payment of the redemption price: (1)
from and after the date of redemption specified in the notice (a) all
dividends upon Preferred Stock called for redemption shall cease to accrue
after the date of redemption, and (b) all rights attached to the Preferred
Stock called for
8
<PAGE>
redemption shall cease, except for the right to receive the redemption
price of the shares on and after the redemption date without interest; and
(2) from and after the date of redemption, any redeemed Preferred Stock
shall no longer be deemed to be outstanding.
9
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its President and Chief Financial Officer on this 9th
day of June, 1999.
LEADING EDGE PACKAGING, INC.
By:/s/ Casey K. Tjang
----------------------
Casey K. Tjang,
President and Chief
Financial Officer
10
<PAGE>
SECOND AMENDED AND RESTATED BY-LAWS
OF
LEADING EDGE PACKAGING, INC.
ARTICLE I - STOCKHOLDERS
Section 1.1. Annual Meetings. The annual meeting of the stockholders of
the Corporation shall be held for the purpose of electing Directors, at such
date, time and place, either within or without the State of Delaware, as may be
designated by resolution of the Board of Directors from time to time. Any other
proper business may be transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time by (i) the holders of a
majority of the issued and outstanding shares of Series A 8% Redeemable
Preferred Stock, (ii) the Board of Directors or (iii) a committee of the Board
of Directors that has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of Directors,
include the power to call such meetings or as otherwise required under the
provisions of the General Corporation Law.
Section 1.3. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the Corporation, or at such other places as
shall be designated in the notices or waivers of notice of such meetings.
Section 1.4. Notice of Meetings.
(a) Except as otherwise provided by law or the rules of any
stock exchange or the Nasdaq Stock Exchange, Inc. ("Nasdaq"), whenever
stockholders are required or permitted to take any action at a meeting,
a written notice of the meeting shall be given that shall state the
place, date and hour of the meeting, and the purpose or purposes for
which it is called, shall be served either personally or by mail, not
less than ten or more than sixty days before the meeting, upon each
stockholder of record entitled to vote at such meeting, and to any
other to whom the giving of notice may be required by law. Notice of a
special meeting shall indicate that it is being issued by, or at the
direction of, the person or persons calling the meeting. If, at any
meeting, action is proposed to be taken that would, if taken, entitle
stockholders to receive payment for their shares pursuant to law, the
notice of such meeting shall include a statement of that purpose and to
that effect. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, and directed to
each such stockholder at his address, as it appears on the records of
the stockholders of the Corporation, unless he shall have previously
filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to the address designated in such
request.
<PAGE>
(b) Notice of any meeting need not be given to any person who
may become a stockholder of record after the record date, as determined
under Section 1.10 of these Bylaws and prior to the meeting, or to any
stockholder who attends such meeting, in person or by proxy, or to any
stockholder who, in person or by proxy, submits a signed waiver of
notice either before or after such meeting.
Section 1.5. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting in accordance with
Section 1.4.
Section 1.6. Quorum. At all meetings of stockholders of the
Corporation, the presence at such meetings in person or by proxy of stockholders
holding of record a majority of the total number of voting rights corresponding
to shares of the Corporation then issued and outstanding and entitled to vote,
with all classes of stock considered as a single class, shall be necessary and
sufficient to constitute a quorum for the transaction of any business; provided,
however, that no quorum shall exist unless there shall be present, in person or
by proxy, holders of record of a majority of the issued and outstanding shares
of Series A 8% Redeemable Preferred Stock. In the absence of a quorum, the
stockholders may, by majority in interest of votes present with all classes of
stock considered as a single class, adjourn the meeting from time to time in the
manner provided in Section 1.5 of these By-laws until a quorum shall attend. At
any such adjourned meeting at which a quorum is present, any business may be
transacted at the adjournment thereof which could have been transacted at the
meeting as originally called if a quorum had been present. Shares of its own
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of Directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.7. Organization. Meetings of stockholders shall be presided
over by the Chairman, if any, or in his absence, by the President, or in his
absence by a Vice President, or in the absence of the foregoing persons, by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting by a majority in interest of
votes present with all classes of stock considered as a single class. The
Secretary shall act as secretary of the meeting, but in his absence, the
chairman of the meeting may appoint any person to act as secretary of the
meeting. The chairman of the meeting shall announce at the meeting of
stockholders the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote.
2
<PAGE>
Section 1.8. Voting; Proxies.
(a) Except as otherwise provided by law or by the Certificate
of Incorporation, any corporate action, other than the election of
Directors to be taken by vote of the stockholders, shall be authorized
by a majority of votes cast at a meeting of stockholders by the holders
of shares entitled to vote thereon with all classes of stock considered
as a single class.
(b) Except as otherwise provided by law or by the Certificate
of Incorporation, each holder of record of common stock entitled to
vote at any meeting of stockholders shall be entitled to one vote for
each share of stock held by him which has voting power upon the matter
in question.
(c) Each holder of record of preferred stock entitled to vote
at any meeting of stockholders shall be entitled to cast such number of
votes for each share of preferred stock held by him as is set forth in
the Certificate of Designations governing such preferred stock.
(d) Each stockholder entitled to vote at a meeting of
stockholders, or to express consent or dissent to a corporate action in
writing without a meeting, may authorize another person or persons to
act for such stockholder by proxy; provided, however, that the
instrument authorizing such proxy to act shall have been executed in
writing by the stockholder himself, or by his attorney-in-fact
thereunto duly authorized in writing. No such proxy shall be voted or
acted upon after three years from its date, unless the person(s)
executing it shall have specified therein the length of time it is to
continue in force. Such proxy shall be exhibited to the Secretary at
the meeting and shall be filed with the records of the Corporation. A
proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person
or by filing an instrument in writing revoking the proxy or by
delivering a proxy in accordance with applicable law bearing a later
date to the Secretary of the Corporation.
(e) At all meetings of stockholders for the election of
Directors, a plurality of the votes cast shall be sufficient to elect.
Unless otherwise provided by law, the Certificate of Incorporation or
these By-laws, all other elections and questions shall, be decided by
the vote of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all shares of stock
outstanding and entitled to vote thereon.
Section 1.9. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose
3
<PAGE>
of any other lawful action, the Board of Directors, or, if a meeting is called
by the holders of Series A 8% Redeemable Preferred Stock, such holders, may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (i) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, the rules of any stock exchange or Nasdaq, not be more than
sixty nor less than ten days before the date of such meeting; (ii) in the case
of determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (iii) in the case of any other action, shall not be more than
sixty days prior to such other action. If no record date is fixed: (i) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day preceding
the day on which notice is given, or, if notice is waived, at the close of
business on the day preceding the day on which the meeting is held; (ii) the
record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting when no prior action of the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (iii) the record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors, or, if a meeting is called by the holders of Series
A 8% Redeemable Preferred Stock, such holders, may fix a new record date for the
adjournment.
Section 1.10. List of Stockholders Entitled to Vote. The Secretary,
after consultation with the transfer agent, shall prepare and make, at least ten
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at the place where the
meeting is to be held, or at another place within the city where the meeting is
to be held, which other place shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. The stock ledger maintained by the transfer agent shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the Corporation, or to vote in person
or by proxy at any meeting of stockholders.
Section 1.11. Action by Consent of Stockholders. Unless otherwise
restricted by the Certificate of Incorporation or the rules of any stock
exchange or Nasdaq, any action required or permitted to be taken at any annual
or special meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
4
<PAGE>
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered (by hand, by certified
mail, return receipt requested, or by overnight courier from which evidence of
receipt may be obtained) to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the Minute Book in which proceedings
of minutes of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II - BOARD OF DIRECTORS
Section 2.1. Number, Election and Term of Office.
(a) The number of the Directors of the Corporation shall be
seven (7), unless and until otherwise determined by vote of a majority
of the entire Board of Directors. The number of Directors shall not be
less than three, unless all of the outstanding shares are owned
beneficially and of record by fewer than three stockholders, in which
event the number of Directors shall not be less than the number of
stockholders permitted by law.
Directors need not be stockholders.
(b) Except as may otherwise be provided herein or in the
Certificate of Incorporation, at each annual meeting of stockholders,
two members of the Board of Directors shall be elected by a plurality
of the votes cast at such meeting by the holders of the Series A 8%
Redeemable Preferred Stock, voting separately as a class, and the
remaining members of the Board of Directors of the Corporation shall be
elected by a plurality of the votes cast at such meeting by the holders
of the Common Stock, voting separately as a class.
(c) Each Director shall hold office until the annual meeting
of the stockholders next succeeding his election, and until his
successor is duly elected and qualified, or until his prior death,
resignation or removal.
Section 2.2. Duties and Powers. The Board of Directors shall be
responsible for the control and management of the affairs, property and
interests of the Corporation, and may exercise all powers of the Corporation,
except as are in the Certificate of Incorporation or by law expressly conferred
upon or reserved to the stockholders.
Section 2.3. Annual and Regular Meetings; Notice.
(a) A regular annual meeting of the Board of Directors shall
be held immediately following the annual meeting of the stockholders,
at the place of such annual meeting of stockholders.
5
<PAGE>
(b) The Board of Directors, from time to time, may provide by
resolution for the holding of other regular meetings of the Board of
Directors and may fix the time and place thereof.
(c) Notice of any regular meeting of the Board of Directors
shall not be required to be given and, if given, need not specify the
purpose of the meeting; provided, however, that in case the Board of
Directors shall fix or change the time or place of any regular meeting,
notice of such action shall be given to each Director who shall not
have been present at the meeting at which such action was taken within
the time limit, and in the manner set forth, in paragraph (b) of
Section 2.4 of this Article II, with respect to special meetings,
unless such notice shall be waived in the manner set forth in paragraph
(c) of such Section 2.4.
Section 2.4. Special Meetings; Notice.
(a) Special meetings of the Board of Directors shall be held
whenever called by the President or by any one of the Directors
(including the Chairman), at such time and place as may be specified in
the respective notices or waivers of notice thereof.
(b) Except as otherwise required by law, notice of a special
meeting shall be mailed directly to each Director, addressed to him at
his residence or usual place of business, at least two (2) days before
the day on which the meeting is to be held, or shall be sent to him at
such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the
day on which the meeting is to be held. A notice, or waiver of notice,
except as required by Section 2.8 of this Article II, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be
given to any Director who shall attend such meeting without protesting
prior thereto or at its commencement, the lack of notice to him, or who
submits a signed waiver of notice, whether before or after the meeting.
Notice of any adjournment of a meeting shall not be required to be
given.
Section 2.5. Organization. At all meetings of the Board of Directors
the Chairman of the Board, if any and if present, shall preside. If there shall
be no Chairman, or he shall be absent, then the President shall preside, and in
his absence, a chairman chosen by the Directors shall preside. The Secretary
shall act as secretary of the meeting, but in his absence, the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.6. Quorum and Adjournments.
(a) At all meetings of the Board of Directors, the presence of
a majority of the entire Board, including at least one director elected
by the Series A 8% Redeemable Preferred Stock, shall be necessary and
sufficient to constitute a quorum for the transaction of business.
6
<PAGE>
(b) A majority of the Directors present at the time and place
of any regular or special meeting, although less than a quorum, may
adjourn the same from time to time without notice, until a quorum shall
be present.
Section 2.7. Manner of Acting; Telephonic Meetings; Unanimous Consent
Permitted.
(a) At all meetings of the Board of Directors, each Director
present shall have one vote, irrespective of the number of shares of
stock, if any, which he may hold.
(b) Members of the Board of Directors, or any committee
designated by the Board of Directors, may participate in a meeting
thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this
Section 2.7(b) shall constitute presence in person at such meeting.
(c) The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the Board of
Directors. Any action authorized in writing, by all of the Directors
entitled to vote thereon and filed with the minutes of the Corporation,
shall be the act of the Board of Directors with the same force and
effect as if the same had been passed by unanimous vote at a duly
called meeting of the Board of Directors.
Section 2.8. Vacancies. Subject to the Certificate of Designations
relating to the Preferred Stock, which provides for the right of the Series A 8%
Redeemable Preferred Stock at all times to elect two Directors of the
Corporation and to fill any related vacancies, any vacancy in the Board of
Directors occurring by reason of an increase in the number of Directors, or by
reason of the death, resignation, disqualification, removal (unless a vacancy
created by the removal of a Director by the stockholders shall be filled by the
stockholders at the meeting at which the removal was effected) or inability to
act of any Director, or otherwise, shall be filled for the unexpired portion of
the term by a majority vote of the remaining Directors, though less than a
quorum, at any regular meeting or special meeting of the Board of Directors
called for that purpose.
Section 2.9. Resignation. Any Director may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 2.10. Removal. Any Director may be removed with or without
cause at any time by the affirmative vote of stockholders holding of record in
the aggregate at least a majority of
7
<PAGE>
the outstanding shares of the Corporation at a special meeting of the
stockholders called for that purpose, and may be removed for cause by action of
the Board of Directors; provided, however, that any directors elected by vote of
the Series A 8% Redeemable Preferred Stock, in accordance with the terms of the
Certificate of Designations with respect thereto, may only be removed by the
affirmative vote of the holders of a majority of the outstanding shares of
Series A 8% Redeemable Preferred Stock voting separately.
Section 2.11. Salary. An annual fee in an amount to be determined by
resolution by the Board of Directors shall be paid to each Director, for his or
her services as such, and by resolution of the Board of Directors, a fixed sum
plus expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board; provided, however, that nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 2.12. Contracts.
(a) No contract or other transaction between the Corporation
and any other Corporation shall be impaired, affected or invalidated,
nor shall any Director be liable in any way by reason of the fact that
any one or more of the Directors of this Corporation is or are
interested in, or is a Director or officer, or are Directors or
officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors and the stockholders.
(b) Any Director, personally and individually, may be a party
to or may be interested in any contract or transaction of the
Corporation, and no Director shall be liable in any way by reason of
such interest, provided at the fact of such interest be disclosed or
made known to the Board of Directors and the stockholders, and provided
that the Board of Directors shall authorize, approve or ratify such
contract or transaction by the vote (not counting the vote of any such
Director) of a majority of a quorum, notwithstanding the presence of
any such Director at the meeting at which such action is taken. Such
Director or Directors may be counted in determining the presence of a
quorum at such meeting. This Section 2.12 shall not be construed to
impair or invalidate or in any way affect any contract or other
transaction which would otherwise he valid under the law (common,
statutory or otherwise) applicable thereto.
Section 2.13. Committees. The Board of Directors, by resolution adopted
by a majority of the entire Board, may from time to time designate from among
its members an Executive Committee, an Audit Committee, a Compensation Committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of one or more Directors (at least one of whom shall
be a Director elected by the holders of the Series A 8% Redeemable Preferred
Stock in accordance with the terms of the Certificate of Designations with
respect thereto), with such powers and authority (to the extent permitted by law
and the rules of any stock exchange or Nasdaq) as may be provided in such
resolution. At any meeting of a committee designated by the Board of Directors,
a quorum shall not exist without the presence of at least one
8
<PAGE>
Director elected by the Series A 8% Redeemable Preferred Stock in accordance
with the Certificate of Designations
ARTICLE III - OFFICERS
Section 3.1. Number, Election and Term of Office.
(a) The officers of the Corporation shall consist of a
President and Chief Operating Officer, a Secretary, a Chief Financial
Officer, and such other officers, including a Chairman and Chief
Executive Officer, and one or more Vice Presidents, as the Board of
Directors may from time to time deem advisable. The Chairman of the
Board of Directors shall, and any other officer may, be a Director of
the Corporation. Any two or more offices may be held by the same
person.
(b) The officers of the Corporation shall be elected by the
Board of Directors at the regular annual meeting of the Board following
the annual meeting of stockholders.
(c) Each officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election, and until his
successor shall have been duly elected and qualified, or until his
death, resignation or removal.
Section 3.2. Resignation. Any officer may resign at any time by giving
written notice of such resignation to the Board of Directors, or to the
President or the Secretary of the Corporation. Unless otherwise specified in
such written notice, such resignation shall take effect upon receipt thereof by
the Board of Directors or by the President or Secretary, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.3. Removal. Any officer may be removed, either with or
without cause, and a successor elected by a majority of the Board of Directors
at any time.
Section 3.4. Vacancies. A vacancy in any office by reason of death,
resignation, inability to act, disqualification, or any other cause, may at any
time be filled for the unexpired portion of the term by the Board of Directors.
Section 3.5. Duties of Officers. Officers of the Corporation shall,
unless otherwise provided by the Board of Directors, each have such powers and
duties as generally pertain to their respective offices as well as such powers
and duties as may be set forth in these By-laws, or may from time to time be
specifically conferred or imposed by the Board of Directors.
Section 3.6. Sureties and Bonds. In case the Board of Directors shall
so require, any officer, employee or agent of the Corporation shall execute to
the Corporation a bond in such sum, and with such surety or sureties as the
Board of Directors may direct, conditioned upon the faithful performance of his
duties to the Corporation, including responsibility for negligence and for the
accounting for all property, funds or securities of the Corporation which may
come into his hands.
9
<PAGE>
Section 3.7. Shares of Other Corporations. Whenever the Corporation is
the holder of shares of any other Corporation, any right or power of the
Corporation as such (including the attendance, acting and voting at
stockholders' meetings and execution of waivers, consents, proxies or other
instruments) may be exercised on behalf of the Corporation by the Chairman, the
President, any Vice President, the Chief Financial Officer, or such other person
as the Board of Directors may authorize.
ARTICLE IV - SHARES OF STOCK
Section 4.1. Certificate of Stock.
(a) The certificates representing shares of the Corporation
shall be in such form as shall be adopted by the Board of Directors,
and shall be numbered and registered in the order issued. They shall
bear the holder's name and the number of shares, and shall be signed by
(i) the Chairman or the President or a Vice President, and (ii) the
Secretary or Chief Financial Officer, and shall bear the corporate
seal, if any. Such signatures and corporate seal may be imprinted or
facsimiles.
(b) No certificate representing shares shall be issued until
the full amount of consideration therefor has been paid, except as
otherwise permitted by law.
(c) To the extent permitted by law or the rules of any stock
exchange or Nasdaq, the Board of Directors may authorize the issuance
of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in
liquidating distributions, in proportion to the fractional holdings; or
it may authorize the payment in cash of the fair value of fractions of
a share as of the time when those entitled to receive such fractions
are determined; or it may authorize the issuance, subject to such
conditions as may be permitted by law, of scrip in registered or bearer
form over the signature of an officer or agent of the Corporation,
exchangeable as therein provided for full shares, but such scrip shall
not entitle the holder to any rights of a stockholder, except as
therein provided.
Section 4.2. Lost or Destroyed Certificates. The holder of any
certificate representing shares of the Corporation shall notify the Corporation
of any loss or destruction of the certificate representing the same. The
Corporation through its transfer agent may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the
10
<PAGE>
Corporation against any claims, loss, liability or damage it may suffer on
account of the issuance of the new certificate. A new certificate may be issued
without requiring any such evidence or bond when, in the judgment of the Board
of Directors, it is proper so to do. The Board of Directors, by resolution or
resolutions duly adopted, may delegate to the Transfer Agent of the Corporation,
the authority to issue replacement stock certificates in such manner and on such
terms as are deemed appropriate by the Board of Directors and specified in such
resolution or resolutions.
Section 4.3. Transfers of Shares.
(a) Transfers of shares of the Corporation shall be made on
the share records of the Corporation only by the holder of record
thereof, in person or by his duly authorized attorney, upon surrender
for cancellation of the certificate or certificates representing such
shares, with an assignment or power of transfer endorsed thereon or
delivered therewith, duly executed, with such proof of the authenticity
of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of
record of any share or shares as the absolute owner thereof for all
purposes and, accordingly, shall not be bound to recognize any legal,
equitable or other claim to, or interest in, such share or shares on
the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by law.
ARTICLE V - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of
any funds available therefor, as often, in such amounts, and at such time or
times as the Board of Directors may determine.
ARTICLE VI - FISCAL YEAR
The fiscal year of the Corporation shall commence on the 1st day of
April of each year and end on the 31st day of March of the following year,
unless and until amended by the Board of Directors and subject to applicable
law.
ARTICLE VII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved
from time to time by the Board of Directors.
11
<PAGE>
ARTICLE VIII - AMENDMENTS
Section 8.1. By-Laws. All By-Laws of the Corporation shall be subject
to alteration or repeal, and new By-laws may be made, by the affirmative vote of
stockholders holding of record in the aggregate at least a majority of the
outstanding number of votes in the election of Directors at any annual or
special meeting of stockholders, with all classes of stock considered as a
single class, so long as the notice or waiver of notice of such meeting shall
have summarized or set forth in full therein, the proposed amendment; provided,
however, that none of the By-Laws may be amended without the consent of the
holders of a majority of the outstanding shares of Series A 8% Redeemable
Preferred Stock.
Section 8.2. By Directors. The Board of Directors shall have power to
make, adopt, alter, amend and repeal, from time to time, By-laws of the
Corporation; provided, however, that the stockholders entitled to vote with
respect thereto as in this Article VIII above-provided may alter, amend or
repeal By-laws made by the Board of Directors, except that the Board of
Directors shall have no power to change the quorum for meetings of stockholders
or of the Board of Directors, or to change any provisions of the By-laws with
respect to the removal of Directors or the filling of vacancies in the Board
resulting from the removal by the stockholders. If any By-law regulating an
impending election of Directors is adopted, amended or repealed by the Board of
Directors, there shall be set forth in the notice of the next meeting of
stockholders for the election of Directors the By-law so adopted, amended or
repealed, together with a concise statement of the changes made. Notwithstanding
the foregoing, none of the By-Laws may be amended at any meeting of the Board of
Directors, without the presence, of at least one director elected by the holders
of the Series A 8% Redeemable Preferred Stock.
ARTICLE IX - INDEMNIFICATION
Section 9.1. Right to Indemnification. The Corporation shall indemnify
and hold harmless, to the full extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. The Corporation
shall be required to indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
Section 9.2. Payment of Expenses. The Corporation may, in its
discretion, pay the expenses (including attorneys' fees) incurred in defending
any proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an
12
<PAGE>
undertaking by the director or officer to repay all amounts advanced if it
should ultimately be determined that the director or officer is not entitled to
be indemnified under this Article or otherwise.
Section 9.3. Claims. If a claim for indemnification or payment of
expenses under this Article is not paid in full within sixty days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action, the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
Section 9.4. Non-Exclusivity of Rights. The rights conferred on any
person by this Article IX shall not be exclusive of any of the rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 9.5. Other Indemnification. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee, or agent of another corporation, partnership, limited
liability company, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such person may collect as indemnification from such other
corporation, partnership, limited liability company, joint venture, trust,
enterprise or nonprofit enterprise.
Section 9.6. Amendment or Repeal. Any repeal or modification of the
foregoing paragraph by the stockholders of the Corporation shall not adversely
affect any right or protection of the director of the Corporation existing at
the time of such repeal or modification.
13
<PAGE>
Exhibit 3.7
THIRD AMENDED AND RESTATED BY-LAWS
OF
LEADING EDGE PACKAGING, INC.
ARTICLE I - STOCKHOLDERS
Section 1.1. Annual Meetings. The annual meeting of the stockholders of
the Corporation shall be held for the purpose of electing Directors, at such
date, time and place, either within or without the State of Delaware, as may be
designated by resolution of the Board of Directors from time to time. Any other
proper business may be transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time by (i) the holders of a
majority of the issued and outstanding shares of Preferred Stock, (ii) the Board
of Directors or (iii) a committee of the Board of Directors that has been duly
designated by the Board of Directors and whose powers and authority, as provided
in a resolution of the Board of Directors, include the power to call such
meetings or as otherwise required under the provisions of the General
Corporation Law.
Section 1.3. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the Corporation, or at such other places as
shall be designated in the notices or waivers of notice of such meetings.
Section 1.4. Notice of Meetings.
(a) Except as otherwise provided by law or the rules of any
stock exchange or the Nasdaq Stock Exchange, Inc. ("Nasdaq"), whenever
stockholders are required or permitted to take any action at a meeting,
a written notice of the meeting shall be given that shall state the
place, date and hour of the meeting, and the purpose or purposes for
which it is called, shall be served either personally or by mail, not
less than ten or more than sixty days before the meeting, upon each
stockholder of record entitled to vote at such meeting, and to any
other to whom the giving of notice may be required by law. Notice of a
special meeting shall indicate that it is being issued by, or at the
direction of, the person or persons calling the meeting. If, at any
meeting, action is proposed to be taken that would, if taken, entitle
stockholders to receive payment for their shares pursuant to law, the
notice of such meeting shall include a statement of that purpose and to
that effect. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, and directed to
each such stockholder at his address, as it appears on the records of
the stockholders of the Corporation, unless he shall have previously
filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to the address designated in such
request.
<PAGE>
(b) Notice of any meeting need not be given to any person who
may become a stockholder of record after the record date, as determined
under Section 1.10 of these Bylaws and prior to the meeting, or to any
stockholder who attends such meeting, in person or by proxy, or to any
stockholder who, in person or by proxy, submits a signed waiver of
notice either before or after such meeting.
Section 1.5. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting in accordance with
Section 1.4.
Section 1.6. Quorum. At all meetings of stockholders of the
Corporation, the presence at such meetings in person or by proxy of stockholders
holding of record a majority of the total number of voting rights corresponding
to shares of the Corporation then issued and outstanding and entitled to vote,
with all classes of stock considered as a single class, shall be necessary and
sufficient to constitute a quorum for the transaction of any business; provided,
however, that no quorum shall exist unless there shall be present, in person or
by proxy, holders of record of a majority of the issued and outstanding shares
of Preferred Stock. In the absence of a quorum, the stockholders may, by
majority in interest of votes present with all classes of stock considered as a
single class, adjourn the meeting from time to time in the manner provided in
Section 1.5 of these By-laws until a quorum shall attend. At any such adjourned
meeting at which a quorum is present, any business may be transacted at the
adjournment thereof which could have been transacted at the meeting as
originally called if a quorum had been present. Shares of its own stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of Directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.7. Organization. Meetings of stockholders shall be presided
over by the Chairman, if any, or in his absence, by the President, or in his
absence by a Vice President, or in the absence of the foregoing persons, by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting by a majority in interest of
votes present with all classes of stock considered as a single class. The
Secretary shall act as secretary of the meeting, but in his absence, the
chairman of the meeting may appoint any person to act as secretary of the
meeting. The chairman of the meeting shall announce at the meeting of
stockholders the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote.
2
<PAGE>
Section 1.8. Voting; Proxies.
(a) Except as otherwise provided by law or by the Certificate
of Incorporation, any corporate action, other than the election of
Directors to be taken by vote of the stockholders, shall be authorized
by a majority of votes cast at a meeting of stockholders by the holders
of shares entitled to vote thereon with all classes of stock considered
as a single class.
(b) Except as otherwise provided by law or by the Certificate
of Incorporation, each holder of record of common stock entitled to
vote at any meeting of stockholders shall be entitled to one vote for
each share of stock held by him which has voting power upon the matter
in question.
(c) Each holder of record of preferred stock entitled to vote
at any meeting of stockholders shall be entitled to cast such number of
votes for each share of preferred stock held by him as is set forth in
the Certificate of Designations governing such preferred stock.
(d) Each stockholder entitled to vote at a meeting of
stockholders, or to express consent or dissent to a corporate action in
writing without a meeting, may authorize another person or persons to
act for such stockholder by proxy; provided, however, that the
instrument authorizing such proxy to act shall have been executed in
writing by the stockholder himself, or by his attorney-in-fact
thereunto duly authorized in writing. No such proxy shall be voted or
acted upon after three years from its date, unless the person(s)
executing it shall have specified therein the length of time it is to
continue in force. Such proxy shall be exhibited to the Secretary at
the meeting and shall be filed with the records of the Corporation. A
proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person
or by filing an instrument in writing revoking the proxy or by
delivering a proxy in accordance with applicable law bearing a later
date to the Secretary of the Corporation.
(e) At all meetings of stockholders for the election of
Directors, a plurality of the votes cast shall be sufficient to elect.
Unless otherwise provided by law, the Certificate of Incorporation or
these By-laws, all other elections and questions shall, be decided by
the vote of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all shares of stock
outstanding and entitled to vote thereon.
Section 1.9. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose
3
<PAGE>
of any other lawful action, the Board of Directors, or, if a meeting is called
by the holders of Preferred Stock, such holders, may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which record date: (i) in
the case of determination of stockholders entitled to vote at any meeting of
stockholders or adjournment thereof, shall, unless otherwise required by law,
the rules of any stock exchange or Nasdaq, not be more than sixty nor less than
ten days before the date of such meeting; (ii) in the case of determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall not be more than ten days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and
(iii) in the case of any other action, shall not be more than sixty days prior
to such other action. If no record date is fixed: (i) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
day preceding the day on which the meeting is held; (ii) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(iii) the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors, or,
if a meeting is called by the holders of Preferred Stock, such holders, may fix
a new record date for the adjournment.
Section 1.10. List of Stockholders Entitled to Vote. The Secretary,
after consultation with the transfer agent, shall prepare and make, at least ten
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at the place where the
meeting is to be held, or at another place within the city where the meeting is
to be held, which other place shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present. The stock ledger maintained by the transfer agent shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the Corporation, or to vote in person
or by proxy at any meeting of stockholders.
Section 1.11. Action by Consent of Stockholders. Unless otherwise
restricted by the Certificate of Incorporation or the rules of any stock
exchange or Nasdaq, any action required or permitted to be taken at any annual
or special meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
4
<PAGE>
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered (by hand, by certified
mail, return receipt requested, or by overnight courier from which evidence of
receipt may be obtained) to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the Minute Book in which proceedings
of minutes of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II - BOARD OF DIRECTORS
Section 2.1. Number, Election and Term of Office.
(a) The number of the Directors of the Corporation shall be
seven (7), unless and until otherwise determined by vote of a majority
of the entire Board of Directors. The number of Directors shall not be
less than three, unless all of the outstanding shares are owned
beneficially and of record by fewer than three stockholders, in which
event the number of Directors shall not be less than the number of
stockholders permitted by law.
Directors need not be stockholders.
(b) Except as may otherwise be provided herein or in the
Certificate of Incorporation, at each annual meeting of stockholders,
two members of the Board of Directors shall be elected by a plurality
of the votes cast at such meeting by the holders of the Preferred
Stock, voting separately as a class, and the remaining members of the
Board of Directors of the Corporation shall be elected by a plurality
of the votes cast at such meeting by the holders of the Common Stock,
voting separately as a class.
(c) Each Director shall hold office until the annual meeting
of the stockholders next succeeding his election, and until his
successor is duly elected and qualified, or until his prior death,
resignation or removal.
Section 2.2. Duties and Powers. The Board of Directors shall be
responsible for the control and management of the affairs, property and
interests of the Corporation, and may exercise all powers of the Corporation,
except as are in the Certificate of Incorporation or by law expressly conferred
upon or reserved to the stockholders.
Section 2.3. Annual and Regular Meetings; Notice.
(a) A regular annual meeting of the Board of Directors shall
be held immediately following the annual meeting of the stockholders,
at the place of such annual meeting of stockholders.
(b) The Board of Directors, from time to time, may provide by
resolution for the
5
<PAGE>
holding of other regular meetings of the Board of Directors and may fix
the time and place thereof.
(c) Notice of any regular meeting of the Board of Directors
shall not be required to be given and, if given, need not specify the
purpose of the meeting; provided, however, that in case the Board of
Directors shall fix or change the time or place of any regular meeting,
notice of such action shall be given to each Director who shall not
have been present at the meeting at which such action was taken within
the time limit, and in the manner set forth, in paragraph (b) of
Section 2.4 of this Article II, with respect to special meetings,
unless such notice shall be waived in the manner set forth in paragraph
(c) of such Section 2.4.
Section 2.4. Special Meetings; Notice.
(a) Special meetings of the Board of Directors shall be held
whenever called by the President or by any one of the Directors
(including the Chairman), at such time and place as may be specified in
the respective notices or waivers of notice thereof.
(b) Except as otherwise required by law, notice of a special
meeting shall be mailed directly to each Director, addressed to him at
his residence or usual place of business, at least two (2) days before
the day on which the meeting is to be held, or shall be sent to him at
such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the
day on which the meeting is to be held. A notice, or waiver of notice,
except as required by Section 2.8 of this Article II, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be
given to any Director who shall attend such meeting without protesting
prior thereto or at its commencement, the lack of notice to him, or who
submits a signed waiver of notice, whether before or after the meeting.
Notice of any adjournment of a meeting shall not be required to be
given.
Section 2.5. Organization. At all meetings of the Board of Directors
the Chairman of the Board, if any and if present, shall preside. If there shall
be no Chairman, or he shall be absent, then the President shall preside, and in
his absence, a chairman chosen by the Directors shall preside. The Secretary
shall act as secretary of the meeting, but in his absence, the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.6. Quorum and Adjournments.
(a) At all meetings of the Board of Directors, the presence of
a majority of the entire Board, including at least one director elected
by the Preferred Stock, shall be necessary and sufficient to constitute
a quorum for the transaction of business.
6
<PAGE>
(b) A majority of the Directors present at the time and place
of any regular or special meeting, although less than a quorum, may
adjourn the same from time to time without notice, until a quorum shall
be present.
Section 2.7. Manner of Acting; Telephonic Meetings; Unanimous Consent
Permitted.
(a) At all meetings of the Board of Directors, each Director
present shall have one vote, irrespective of the number of shares of
stock, if any, which he may hold.
(b) Members of the Board of Directors, or any committee
designated by the Board of Directors, may participate in a meeting
thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this
Section 2.7(b) shall constitute presence in person at such meeting.
(c) The action of a majority of the Directors present at any
meeting at which a quorum is present shall be the act of the Board of
Directors. Any action authorized in writing, by all of the Directors
entitled to vote thereon and filed with the minutes of the Corporation,
shall be the act of the Board of Directors with the same force and
effect as if the same had been passed by unanimous vote at a duly
called meeting of the Board of Directors.
Section 2.8. Vacancies. Subject to the Certificate of Designations
relating to the Preferred Stock, which provides for the right of the Preferred
Stock at all times to elect two Directors of the Corporation and to fill any
related vacancies, any vacancy in the Board of Directors occurring by reason of
an increase in the number of Directors, or by reason of the death, resignation,
disqualification, removal (unless a vacancy created by the removal of a Director
by the stockholders shall be filled by the stockholders at the meeting at which
the removal was effected) or inability to act of any Director, or otherwise,
shall be filled for the unexpired portion of the term by a majority vote of the
remaining Directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 2.9. Resignation. Any Director may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 2.10. Removal. Any Director may be removed with or without
cause at any time by the affirmative vote of stockholders holding of record in
the aggregate at least a majority of the outstanding shares of the Corporation
at a special meeting of the stockholders called for that purpose, and may be
removed for cause by action of the Board of Directors; provided, however, that
any directors elected by vote of the Preferred Stock, in accordance with the
terms of the
7
<PAGE>
Certificate of Designations with respect thereto, may only be removed by the
affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock voting separately.
Section 2.11. Salary. An annual fee in an amount to be determined by
resolution by the Board of Directors shall be paid to each Director, for his or
her services as such, and by resolution of the Board of Directors, a fixed sum
plus expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board; provided, however, that nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 2.12. Contracts.
(a) No contract or other transaction between the Corporation
and any other Corporation shall be impaired, affected or invalidated,
nor shall any Director be liable in any way by reason of the fact that
any one or more of the Directors of this Corporation is or are
interested in, or is a Director or officer, or are Directors or
officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors and the stockholders.
(b) Any Director, personally and individually, may be a party
to or may be interested in any contract or transaction of the
Corporation, and no Director shall be liable in any way by reason of
such interest, provided at the fact of such interest be disclosed or
made known to the Board of Directors and the stockholders, and provided
that the Board of Directors shall authorize, approve or ratify such
contract or transaction by the vote (not counting the vote of any such
Director) of a majority of a quorum, notwithstanding the presence of
any such Director at the meeting at which such action is taken. Such
Director or Directors may be counted in determining the presence of a
quorum at such meeting. This Section 2.12 shall not be construed to
impair or invalidate or in any way affect any contract or other
transaction which would otherwise he valid under the law (common,
statutory or otherwise) applicable thereto.
Section 2.13. Committees. The Board of Directors, by resolution adopted
by a majority of the entire Board, may from time to time designate from among
its members an Executive Committee, an Audit Committee, a Compensation Committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of one or more Directors (at least one of whom shall
be a Director elected by the holders of the Preferred Stock in accordance with
the terms of the Certificate of Designations with respect thereto), with such
powers and authority (to the extent permitted by law and the rules of any stock
exchange or Nasdaq) as may be provided in such resolution. At any meeting of a
committee designated by the Board of Directors, a quorum shall not exist without
the presence of at least one Director elected by the Preferred Stock in
accordance with the Certificate of Designations.
8
<PAGE>
ARTICLE III - OFFICERS
Section 3.1. Number, Election and Term of Office.
(a) The officers of the Corporation shall consist of a
President and Chief Operating Officer, a Secretary, a Chief Financial
Officer, and such other officers, including a Chairman and Chief
Executive Officer, and one or more Vice Presidents, as the Board of
Directors may from time to time deem advisable. The Chairman of the
Board of Directors shall, and any other officer may, be a Director of
the Corporation. Any two or more offices may be held by the same
person.
(b) The officers of the Corporation shall be elected by the
Board of Directors at the regular annual meeting of the Board following
the annual meeting of stockholders.
(c) Each officer shall hold office until the annual meeting of
the Board of Directors next succeeding his election, and until his
successor shall have been duly elected and qualified, or until his
death, resignation or removal.
Section 3.2. Resignation. Any officer may resign at any time by giving
written notice of such resignation to the Board of Directors, or to the
President or the Secretary of the Corporation. Unless otherwise specified in
such written notice, such resignation shall take effect upon receipt thereof by
the Board of Directors or by the President or Secretary, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.3. Removal. Any officer may be removed, either with or
without cause, and a successor elected by a majority of the Board of Directors
at any time.
Section 3.4. Vacancies. A vacancy in any office by reason of death,
resignation, inability to act, disqualification, or any other cause, may at any
time be filled for the unexpired portion of the term by the Board of Directors.
Section 3.5. Duties of Officers. Officers of the Corporation shall,
unless otherwise provided by the Board of Directors, each have such powers and
duties as generally pertain to their respective offices as well as such powers
and duties as may be set forth in these By-laws, or may from time to time be
specifically conferred or imposed by the Board of Directors.
Section 3.6. Sureties and Bonds. In case the Board of Directors shall
so require, any officer, employee or agent of the Corporation shall execute to
the Corporation a bond in such sum, and with such surety or sureties as the
Board of Directors may direct, conditioned upon the faithful performance of his
duties to the Corporation, including responsibility for negligence and for the
accounting for all property, funds or securities of the Corporation which may
come into his hands.
Section 3.7. Shares of Other Corporations. Whenever the Corporation is
the holder of shares of any other Corporation, any right or power of the
Corporation as such (including the
9
<PAGE>
attendance, acting and voting at stockholders' meetings and execution of
waivers, consents, proxies or other instruments) may be exercised on behalf of
the Corporation by the Chairman, the President, any Vice President, the Chief
Financial Officer, or such other person as the Board of Directors may authorize.
ARTICLE IV - SHARES OF STOCK
Section 4.1. Certificate of Stock.
(a) The certificates representing shares of the Corporation
shall be in such form as shall be adopted by the Board of Directors,
and shall be numbered and registered in the order issued. They shall
bear the holder's name and the number of shares, and shall be signed by
(i) the Chairman or the President or a Vice President, and (ii) the
Secretary or Chief Financial Officer, and shall bear the corporate
seal, if any. Such signatures and corporate seal may be imprinted or
facsimiles.
(b) No certificate representing shares shall be issued until
the full amount of consideration therefor has been paid, except as
otherwise permitted by law.
(c) To the extent permitted by law or the rules of any stock
exchange or Nasdaq, the Board of Directors may authorize the issuance
of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in
liquidating distributions, in proportion to the fractional holdings; or
it may authorize the payment in cash of the fair value of fractions of
a share as of the time when those entitled to receive such fractions
are determined; or it may authorize the issuance, subject to such
conditions as may be permitted by law, of scrip in registered or bearer
form over the signature of an officer or agent of the Corporation,
exchangeable as therein provided for full shares, but such scrip shall
not entitle the holder to any rights of a stockholder, except as
therein provided.
Section 4.2. Lost or Destroyed Certificates. The holder of any
certificate representing shares of the Corporation shall notify the Corporation
of any loss or destruction of the certificate representing the same. The
Corporation through its transfer agent may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do. The Board of Directors, by
resolution or resolutions duly adopted, may delegate to the Transfer Agent of
the Corporation, the authority to issue replacement stock certificates in such
manner and on such
10
<PAGE>
terms as are deemed appropriate by the Board of Directors and specified in such
resolution or resolutions.
Section 4.3. Transfers of Shares.
(a) Transfers of shares of the Corporation shall be made on
the share records of the Corporation only by the holder of record
thereof, in person or by his duly authorized attorney, upon surrender
for cancellation of the certificate or certificates representing such
shares, with an assignment or power of transfer endorsed thereon or
delivered therewith, duly executed, with such proof of the authenticity
of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of
record of any share or shares as the absolute owner thereof for all
purposes and, accordingly, shall not be bound to recognize any legal,
equitable or other claim to, or interest in, such share or shares on
the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by law.
ARTICLE V - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of
any funds available therefor, as often, in such amounts, and at such time or
times as the Board of Directors may determine.
ARTICLE VI - FISCAL YEAR
The fiscal year of the Corporation shall commence on the 1st day of
April of each year and end on the 31st day of March of the following year,
unless and until amended by the Board of Directors and subject to applicable
law.
ARTICLE VII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved
from time to time by the Board of Directors.
ARTICLE VIII - AMENDMENTS
Section 8.1. By-Laws. All By-Laws of the Corporation shall be subject
to alteration or repeal, and new By-laws may be made, by the affirmative vote of
stockholders holding of record in the aggregate at least a majority of the
outstanding number of votes in the election of Directors at any annual or
special meeting of stockholders, with all classes of stock considered as a
single class, so long as the notice or waiver of notice of such meeting shall
have summarized or set forth in full therein, the proposed amendment; provided,
however, that none of the By-laws may be amended without the consent of the
holders of a majority of the outstanding shares of Preferred Stock.
Section 8.2. By Directors. The Board of Directors shall have power to
make, adopt, alter, amend and repeal, from time to time, By-laws of the
Corporation; provided, however, that the stockholders entitled to vote with
respect thereto as in this Article VIII above-provided may alter, amend or
repeal By-laws made by the Board of Directors, except that the Board of
Directors shall have no power to change the quorum for meetings of stockholders
or of the Board of Directors, or to change any provisions of the By-laws with
respect to the removal of Directors or the filling of vacancies in the Board
resulting from the removal by the stockholders. If any By-law regulating an
impending election of Directors is adopted, amended or repealed by the Board of
Directors, there shall be set forth in the notice of the next meeting of
stockholders for the election of Directors the By-law so adopted, amended or
repealed, together with a concise statement of the changes made. Notwithstanding
the foregoing, none of the By-laws may be amended at any meeting of the Board of
Directors, without the presence, of at least one director elected by the holders
of the Preferred Stock.
11
<PAGE>
ARTICLE IX - INDEMNIFICATION
Section 9.1. Right to Indemnification. The Corporation shall indemnify
and hold harmless, to the full extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. The Corporation
shall be required to indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
Section 9.2. Payment of Expenses. The Corporation may, in its
discretion, pay the expenses (including attorneys' fees) incurred in defending
any proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should ultimately
be determined that the director or officer is not entitled to be indemnified
under this Article or otherwise.
Section 9.3. Claims. If a claim for indemnification or payment of
expenses under this Article is not paid in full within sixty days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action, the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
Section 9.4. Non-Exclusivity of Rights. The rights conferred on any
person by this Article IX shall not be exclusive of any of the rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 9.5. Other Indemnification. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee, or agent of another corporation, partnership, limited
liability company, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such person may collect as indemnification from such other
corporation, partnership, limited liability company, joint venture, trust,
enterprise or nonprofit enterprise.
Section 9.6. Amendment or Repeal. Any repeal or modification of the
foregoing paragraph by the stockholders of the Corporation shall not adversely
affect any right or protection of the director of the Corporation existing at
the time of such repeal or modification.
12
<PAGE>
NUMBER LEP SHARES
8% REDEEMABLE LEADING EDGE PACKAGING, INC. 8% REDEEMABLE
PREFERRED STOCK PREFERRED STOCK
LEPP 00000001 SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE LEGEND ON REVERSE SIDE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE 8% REDEEMABLE
PREFERRED STOCK, $.01 PAR VALUE, OF
LEADING EDGE PACKAGING, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation only by the registered holder hereof, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to the laws of the State of Delaware, the certificate of incorporation
including the certificate of designation of the Corporation as amended and the
Amended and Restated By laws of the Corporation and all amendments therto. This
Certificate is not valid unless guaranteed by the Transfer Agent and registered
by the Registrar.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal of the Corporation.
Dated:
/s/ Casey K. Tjang /s/
- ---------------------------------- ----------------------------
PRESIDENT, SECRETARY AND CHIEF CHAIRMAN AND CHIEF EXECUTIVE
FINANCIAL OFFICER OFFICER
006666392
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
BY TRANSFER AGENT
- --------------------------------- AND REGISTRAR.
AUTHORIZED OFFICER
<PAGE>
LEADING EDGE PACKAGING, INC.
LEADING EDGE PACKAGING, INC. WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE DESIGNATIONS AND THE POWERS,
PREFERENCES AND RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
THEREOF, FOR EACH CLASS OF STOCK OR SERIES THEREOF SET FORTH IN THE CERTIFICATE
OF INCORPORATION (INCLUDING THE CERTIFICATE OF DESIGNATIONS) WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ____________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------
- -----------------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
- --------------------------------------------------------------------------------
(I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES
LAWS, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPTION OF
COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO THE CORPORATION,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH STATE SECURITIES
LAWS IS AVAILABLE.
- ------------------------------------------------------------------------ shares
of the Preferred Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17ad-15.
<PAGE>
NUMBER LEP SHARES
SERIES A LEADING EDGE PACKAGING, INC. SERIES A
8% CUMULATIVE REDEEMABLE 8% CUMULATIVE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
THIS CERTIFIES that
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES A 8% CUMULATIVE
REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE, OF
LEADING EDGE PACKAGING, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation only by the registered holder hereof, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to the laws of the State of Delaware, the certificate of incorporation
including the certificate of designation of the Corporation as amended and the
Amended and Restated By laws of the Corporation and all amendments therto. This
Certificate is not valid unless guaranteed by the Transfer Agent and registered
by the Registrar.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal of the Corporation.
Dated:
/s/ /s/
- ---------------------------------- ----------------------------
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
BY TRANSFER AGENT
- --------------------------------- AND REGISTRAR.
AUTHORIZED OFFICER
<PAGE>
LEADING EDGE PACKAGING, INC.
LEADING EDGE PACKAGING, INC. WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE DESIGNATIONS AND THE POWERS,
PREFERENCES AND RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
THEREOF, FOR EACH CLASS OF STOCK OR SERIES THEREOF SET FORTH IN THE CERTIFICATE
OF INCORPORATION (INCLUDING THE CERTIFICATE OF DESIGNATIONS) WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ____________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------
- -----------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ shares
of the Preferred Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17ad-15.
<PAGE>
NUMBER LEP SHARES
SERIES B LEADING EDGE PACKAGING, INC. SERIES B
8% CUMULATIVE REDEEMABLE 8% CUMULATIVE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
THIS CERTIFIES that
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES B 8% CUMULATIVE
REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE, OF
LEADING EDGE PACKAGING, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation only by the registered holder hereof, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to the laws of the State of Delaware, the certificate of incorporation
including the certificate of designation of the Corporation as amended and the
Amended and Restated By laws of the Corporation and all amendments therto. This
Certificate is not valid unless guaranteed by the Transfer Agent and registered
by the Registrar.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal of the Corporation.
Dated:
/s/ /s/
- ---------------------------------- ----------------------------
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
BY TRANSFER AGENT
- --------------------------------- AND REGISTRAR.
AUTHORIZED OFFICER
<PAGE>
LEADING EDGE PACKAGING, INC.
LEADING EDGE PACKAGING, INC. WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE DESIGNATIONS AND THE POWERS,
PREFERENCES AND RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
THEREOF, FOR EACH CLASS OF STOCK OR SERIES THEREOF SET FORTH IN THE CERTIFICATE
OF INCORPORATION (INCLUDING THE CERTIFICATE OF DESIGNATIONS) WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ____________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------
- -----------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ shares
of the Preferred Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17ad-15.
<PAGE>
NUMBER LEP SHARES
SERIES C LEADING EDGE PACKAGING, INC. SERIES C
8% CUMULATIVE REDEEMABLE 8% CUMULATIVE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
THIS CERTIFIES that
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES C 8% CUMULATIVE
REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE, OF
LEADING EDGE PACKAGING, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation only by the registered holder hereof, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be held
subject to the laws of the State of Delaware, the certificate of incorporation
including the certificate of designation of the Corporation as amended and the
Amended and Restated By laws of the Corporation and all amendments therto. This
Certificate is not valid unless guaranteed by the Transfer Agent and registered
by the Registrar.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal of the Corporation.
Dated:
/s/ /s/
- ---------------------------------- ----------------------------
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
BY TRANSFER AGENT
- --------------------------------- AND REGISTRAR.
AUTHORIZED OFFICER
<PAGE>
LEADING EDGE PACKAGING, INC.
LEADING EDGE PACKAGING, INC. WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE DESIGNATIONS AND THE POWERS,
PREFERENCES AND RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
THEREOF, FOR EACH CLASS OF STOCK OR SERIES THEREOF SET FORTH IN THE CERTIFICATE
OF INCORPORATION (INCLUDING THE CERTIFICATE OF DESIGNATIONS) WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ____________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------
- -----------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ shares
of the Preferred Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17ad-15.
<PAGE>
Exhibit 10.9
LOAN AND SECURITY AGREEMENT
Dated: September 25, 1997
by and among
FIRST UNION NATIONAL BANK,
LEADING EDGE PACKAGING, INC.,
LEP PRODUCTS, INC., LEP MARKETING & SALES, INC.,
AND LEP DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
I. DEFINITIONS................................................. 1
1.1 "ACCOUNT" or "ACCOUNTS RECEIVABLE" ................... 1
1.2 "ACCOUNT DEBTOR"...................................... 1
1.3 "ADJUSTED LIBO RATE .................................. 1
1.4 "ADJUSTED LIBO RATE ADVANCES ......................... 1
1.5 "ADVANCE(S) .......................................... 2
1.6 "AFFILIATE" .......................................... 2
1.7 "AGREEMENT" .......................................... 2
1.8 "BADR" ............................................... 2
1.9 "BANK" ............................................... 2
1.10 "BANKERS' ACCEPTANCES" ............................... 2
1.11 "BANKERS' ACCEPTANCE AGREEMENT" ...................... 2
1.12 "BANKERS' ACCEPTANCE OBLIGATIONS" .................... 2
1.13 "BASELINE ADVANCE LIMIT" ............................. 2
1.14 "BORROWER" ........................................... 2
1.15 "BORROWING DATE" ..................................... 3
1.16 "BUSINESS DAY" ....................................... 3
1.17 "CASH COLLATERAL" .................................... 3
1.18 "CASH SECURED ADVANCES" .............................. 3
1.19 "CHATTEL PAPER" ...................................... 3
1.20 "CLOSING DATE" ....................................... 3
1.21 "COLLATERAL" ......................................... 3
1.22 "COMMITMENT" ......................................... 3
1.23 "CONTINGENT OBLIGATION(S)" ........................... 3
1.24 "CONTRACTUAL OBLIGATIONS" ............................ 4
1.25 "CURRENT ASSETS" ..................................... 4
1.26 "CURRENT LIABILITIES" ................................ 4
1.27 "DEFAULT ............................................ 4
1.28 "DEFAULT RATE" ....................................... 4
1.29 "DIRECT ADVANCE" ..................................... 4
1.30 "DIRECT ADVANCE SUBLIMIT" ............................ 4
1.31 "DOCUMENT(S)" ........................................ 4
1.32 "ENVIRONMENTAL LAWS" ................................. 4
1.33 "EQUIPMENT" .......................................... 5
1.34 "ERISA" .............................................. 5
1.35 "EURODOLLAR RATE" .................................... 5
1.36 "EURODOLLAR RESERVE" ................................. 5
i
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
1.37 "EVENT OF DEFAULT" ................................... 5
1.38 "FACILITIES" ......................................... 5
1.39 "FACILITY FEE" ....................................... 5
1.40 "FOREIGN EXCHANGE CONTRACTS" ......................... 5
1.41 "FOREIGN EXCHANGE CONTRACT OBLIGATIONS" .............. 6
1.42 "FOREIGN EXCHANGE FACILITY" .......................... 6
1.43 "GAAP" ............................................... 6
1.44 "GENERAL INTANGIBLES" ................................ 6
1.45 "GOODS" .............................................. 6
1.46 "GOVERNMENTAL BODY" .................................. 6
1.47 "GUARANTORS" ......................................... 6
1.48 "GUARANTY" ........................................... 6
1.49 "INDEBTEDNESS" ....................................... 6
1.50 "INSTRUMENT" ......................................... 7
1.51 "INTEREST PERIOD" .................................... 7
1.52 "INVENTORY" .......................................... 7
1.53 "INVESTMENT OBLIGATIONS" ............................. 7
1.54 "LETTER(S) OF CREDIT" ................................ 8
1.55 "LETTER OF CREDIT AGREEMENT" ......................... 8
1.56 "LETTER OF CREDIT OBLIGATIONS" ....................... 8
1.57 "LEVERAGE RATIO" ..................................... 8
1.58 "LIEN" ............................................... 8
1.59 "LOAN DOCUMENTS" ..................................... 8
1.60 "MATERIAL ADVERSE CHANGE" ............................ 8
1.61 "MATERIAL ADVERSE EFFECT" ............................ 8
1.62 "MARKETABLE SECURITIES" .............................. 9
1.63 "MATURITY DATE" ...................................... 9
1.64 "MAXIMUM AMOUNT" ..................................... 9
1.65 "NASDAQ" ............................................. 9
1.66 "OBLIGATION" or "OBLIGATIONS" ........................ 9
1.67 "OBLIGOR" ............................................ 9
1.68 "OVERAGE OBLIGATIONS" ................................ 9
1.69 "PBGC" ............................................... 9
1.70 "PERMITTED ADVANCES" ................................. 9
1.71 "PERMITTED ENCUMBRANCES" ............................. 9
1.72 "PERMITTED INDEBTEDNESS" ............................. 10
1.73 "PERMITTED LEASES" ................................... 10
1.74 "PERSON" ............................................. 10
1.75 "PLAN" ............................................... 10
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
1.76 "PRIME RATE" ......................................... 10
1.77 "PRIME RATE ADVANCES" ................................ 10
1.78 "QUICK RATIO" ........................................ 10
1.79 "REPAYMENT INDEMNITY" ................................ 10
1.80 "REPORTABLE EVENT" ................................... 11
1.81 "REVOLVING NOTE" ..................................... 11
1.82 "SEC" ................................................ 11
1.83 "SECURITIES ACTS" .................................... 11
1.84 "SUBSIDIARY" ......................................... 11
1.85 "TANGIBLE NET WORTH" ................................. 12
1.86 "TELERATE PAGE 3750" ................................. 12
1.87 "TOTAL ASSETS" ....................................... 12
1.88 "TOTAL LIABILITIES" .................................. 12
1.89 "UNIFORM COMMERCIAL CODE" ............................ 12
1.90 "WORKING DAY" ........................................ 12
1.91 "INTERPRETATION AND CONSTRUCTION" .................... 12
II FACILITIES.................................................. 13
2.1 FACILITIES............................................ 13
2.2 INTEREST.............................................. 14
2.3 REPAYMENT OF ADVANCES................................. 15
2.4 FEES.................................................. 16
2.5 PREPAYMENT............................................ 16
2.6 PROCEDURES FOR ADVANCES............................... 16
2.7 PROCEDURES FOR LETTERS OF CREDIT ..................... 16
2.8 BANKERS' ACCEPTANCES ................................. 18
2.9 PAYMENTS UNDER BANKERS' ACCEPTANCES AND
REIMBURSEMENT BY BORROWER............................. 19
2.10 OUTSTANDING BANKERS' ACCEPTANCE OBLIGATIONS........... 19
2.11 BANKERS' ACCEPTANCE REGULATION CHANGES................ 19
2.12 BANKER'S ACCEPTANCE DECLARED INELIGIBLE............... 19
2.13 FOREIGN EXCHANGE CONTRACTS............................ 20
2.14 USE OF PROCEEDS....................................... 20
2.15 CONDITIONS TO INITIAL ADVANCE......................... 20
2.16 CONDITIONS TO ALL ADVANCES............................ 22
2.17 REGULATORY CAPITAL REQUIREMENTS....................... 23
2.18 EXCESS ADVANCES....................................... 23
2.19 REQUIREMENTS OF LAW................................... 24
iii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
2.20 SALE, ASSIGNMENT OR PARTICIPATIONS.................... 24
III COLLATERAL.................................................. 26
3.1 CROSS COLLATERAL...................................... 26
3.2 ACCOUNTS RECEIVABLE................................... 26
3.3 INVENTORY ............................................ 26
3.4 GENERAL INTANGIBLES................................... 26
3.5 DEPOSIT ACCOUNTS...................................... 26
3.6 CHATTEL PAPER......................................... 26
3.7 INSTRUMENTS........................................... 26
3.8 DOCUMENTS............................................. 26
3.9 EQUIPMENT............................................. 27
3.10 PROCEEDS AND RECORDS.................................. 27
3.11 CONTINUING PERFECTION................................. 27
IV [RESERVED].................................................. 28
V REPRESENTATIONS AND WARRANTIES.............................. 29
5.1 GOOD STANDING......................................... 29
5.2 CORPORATE AUTHORITY................................... 29
5.3 COMPLIANCE WITH LAW................................... 29
5.4 NO LITIGATION......................................... 30
5.5 NO FINANCIAL CHANGE................................... 30
5.6 TAX COMPLIANCE........................................ 30
5.7 GOOD TITLE AND ABSENCE OF LIENS....................... 30
5.8 PLACE OF RECORDS, CHIEF EXECUTIVE OFFICE, INVENTORY
AND OTHER COLLATERAL.................................. 30
5.9 WARRANTIES AS TO ACCOUNTS............................. 31
5.10 ERISA................................................. 32
5.11 LICENSES, PERMITS AND LAWS............................ 32
5.12 ENVIRONMENTAL STATUS.................................. 32
5.13 REAFFIRMATION......................................... 32
5.14 PROCEEDS OF FACILITIES................................ 33
5.15 NO SUBSIDIARIES....................................... 33
5.16 SOLVENCY.............................................. 33
5.17 NO DEFAULT............................................ 33
5.18 FULL DISCLOSURE....................................... 33
iv
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
5.19 DOCUMENTARY/STAMP TAXES............................... 34
5.20 SHAREHOLDERS' AGREEMENTS.............................. 34
5.21 PERFECTION OF SECURITY INTERESTS...................... 34
5.22 COMPLIANCE WITH SEC REQUIREMENTS...................... 34
VI AFFIRMATIVE COVENANTS....................................... 35
6.1 AUDIT AND OTHER REPORTS............................... 35
6.2 INSURANCE............................................. 36
6.3 PAYMENT OF EXPENSES................................... 37
6.4 [INTENTIONALLY OMITTED]............................... 37
6.5 LANDLORD'S WAIVER..................................... 37
6.6 GOOD WORKING CONDITION................................ 37
6.7 REPORTS OF COLLATERAL................................. 37
6.8 OBSERVANCE OF LEGAL REQUIREMENTS, LICENSES AND
PERMITS AND PROTECTION OF COLLATERAL.................. 37
6.9 INSPECTION............................................ 38
6.10 COLLATERAL REQUIREMENTS............................... 38
6.11 CONTROL OF ACCOUNTS................................... 39
6.12 CHANGE OF LOCATIONS................................... 39
6.13 DEPOSITORY RELATIONSHIPS ............................. 39
VII NEGATIVE COVENANTS.......................................... 40
7.1 LOANS, ADVANCES AND INVESTMENTS....................... 40
7.2 FINANCIAL COVENANTS .................................. 40
7.3 LIENS................................................. 40
7.4 LIMITATION ON INDEBTEDNESS............................ 40
7.5 CERTIFICATE OF INCORPORATION AND BY-LAWS.............. 40
7.6 TRANSACTIONS AMONG AFFILIATES......................... 41
7.7 SPECIAL COVENANTS AS TO ASSETS........................ 41
7.8 PREPAYMENTS OF INDEBTEDNESS........................... 42
7.9 FISCAL YEAR........................................... 42
7.10 CHANGE IN CONTROL..................................... 42
7.11 CHANGE IN ACCOUNTING PRINCIPLES....................... 42
7.12 SALE AND LEASEBACK.................................... 42
7.13 MAINTAIN CORPORATE EXISTENCE AND NATURE OF
BUSINESS.............................................. 43
7.14 DIVIDENDS; REDEMPTIONS................................ 43
v
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
7.15 DISCHARGE OF HAZARDOUS WASTE.......................... 43
7.16 LEASES................................................ 43
VIII EVENTS OF DEFAULT........................................... 44
8.1 NON-PAYMENT........................................... 44
8.2 NON-PERFORMANCE....................................... 44
8.3 MISREPRESENTATION..................................... 44
8.4 OTHER LIEN............................................ 44
8.5 INSOLVENCY............................................ 44
8.6 JUDGMENT OR LIEN...................................... 45
8.7 NONCOMPLIANCE WITH LEASES OR LAWS..................... 45
8.8 ORGANIZATIONAL CHANGE................................. 45
8.9 INSECURITY............................................ 45
8.10 IMPAIRMENT OF RESPONSIBILITY.......................... 45
8.11 ADVERSE CHANGE........................................ 45
8.12 MISREPRESENTATION OF FACT............................. 45
8.13 ERISA................................................. 45
8.14 DEFAULT IN OBLIGATIONS TO THIRD PARTIES............... 45
8.15 LICENSES.............................................. 46
IX CONSEQUENCE OF EVENT OF DEFAULT ............................ 47
9.1 ACCELERATION.......................................... 47
9.2 POSSESSION............................................ 47
9.3 METHODS OF SALE....................................... 47
9.4 RETENTION OF COLLATERAL............................... 48
9.5 SET-OFF............................................... 48
9.6 ATTORNEYS' FEES AND EXPENSES.......................... 48
9.7 INCREASE IN INTEREST/LATE CHARGE...................... 48
9.8 BANK'S PERFORMANCE OF OBLIGATIONS..................... 48
9.9 OTHER REMEDIES........................................ 48
X MISCELLANEOUS............................................... 49
10.1 NO WAIVER............................................. 49
10.2 MODIFICATION OR AMENDMENT............................. 49
10.3 WAIVER OF NOTICE...................................... 49
10.4 ONE INSTRUMENT........................................ 49
vi
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
10.5 LAW OF NEW JERSEY.................................... 49
10.6 JURISDICTION......................................... 49
10.7 SUCCESSORS OR ASSIGNS................................ 49
10.8 RIGHTS CUMULATIVE.................................... 49
10.9 LIMITATION OF LIABILITY.............................. 50
10.10 NOTIFICATION OF DISPOSITION OF COLLATERAL............ 50
10.11 ADDRESSES OF NOTICES................................. 50
10.12 TITLES............................................... 51
10.13 DISCLOSURE........................................... 51
10.14 TERM................................................. 51
10.15 INTEREST LIMITATION.................................. 52
10.16 INDEMNIFICATION...................................... 52
10.17 WAIVER OF TRIAL BY JURY.............................. 53
10.18 ARBITRATION.......................................... 53
10.19 PRESERVATION AND LIMITATION OF REMEDIES.............. 53
vii
<PAGE>
LOAN AND SECURITY AGREEMENT (this "Agreement"), dated September 25
between FIRST UNION NATIONAL BANK, with a place of business at 550 Broad Street,
Newark, New Jersey 07102, hereinafter called "Bank", LEADING EDGE PACKAGING,
INC., a Delaware corporation, with its chief executive office at Empire State
Building, 350 Fifth Avenue, New York, New York 10118 ("Borrower"), LEP PRODUCTS
INC., a Delaware corporation, with its chief executive office at 176 Northfield
Avenue, Building 409, Raritan Center, Edison, New Jersey 08837, ("Products"),
LEP MARKETING & SALES, INC., a Delaware corporation having its chief executive
office at 176 Northfield Avenue, Building 409, Raritan Center, Edison, New
Jersey 08837 ("Sales") and LEP DISTRIBUTORS, INC., a Delaware corporation,
having its chief executive office at 176 Northfield Avenue, Building 409,
Raritan Center, Edison, New Jersey 08837 ("Distributors" and, collectively with
Products and Sales, "Guarantors"). The Borrower and Guarantors are hereinafter
referred to, collectively, as the "Obligors."
This Agreement specifies the terms of a revolving credit, letter of
credit and banker's acceptance facility of up to FOUR MILLION SEVEN HUNDRED
FIFTY THOUSAND AND 00/100 DOLLARS ($4,750,000.00) (the "Revolving Facility"),
and a foreign exchange contract facility in the amount of TWO HUNDRED FIFTY
THOUSAND AND 00/100 DOLLARS ($250,000.00) (the "Foreign Exchange Facility") and
further specifies the terms by which all Obligations, as defined herein, of
Borrower and Guarantor to Bank are to be secured by certain personal property
and assets, tangible and intangible, Obligors.
NOW, THEREFORE, in consideration of these premises and other good
and valuable consideration, the parties hereto agree as follows:
I
DEFINITIONS
1.1 "ACCOUNT" or "ACCOUNTS RECEIVABLE" means, in addition to the
definition of account as contained in the Uniform Commercial Code, the right of
any Obligor to receive payment for goods sold or leased or for services rendered
which are not evidenced by an instrument or chattel paper, whether or not it has
been earned by performance.
1.2 "ACCOUNT DEBTOR" means, in addition to the definition of account
debtor as contained in the Uniform Commercial Code, the person or persons
obligated to any Obligor on an Account, or who is represented by such Obligor to
be so obligated.
1.3 "ADJUSTED LIBO RATE" means, for each Interest Period, a per
annum interest rate equal to the product of (a) the Eurodollar Rate in effect
for such Interest Period and (b) Eurodollar Reserves, if any, imposed upon Bank.
1.4 "ADJUSTED LIBO RATE ADVANCES" means all Advances which bear
interest based upon the Adjusted LIBO Rate and any relevant margin.
<PAGE>
1.5 "ADVANCE(S)" means an amount loaned by Bank to Borrower
hereunder, whether as Direct Advances or to reimburse the Bank for payments
under Letters of Credit and/or Bankers' Acceptances, and as evidenced by the
Revolving Note.
1.6 "AFFILIATE" means any Person which, directly or indirectly, owns
or controls, on an aggregate basis, including all beneficial ownership and
ownership or control as a trustee, guardian or other fiduciary, at least five
percent (5%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors (irrespective of whether, at the
time, stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) of
Borrower or any Subsidiary, or is controlled by or is under common control with
Borrower or any such Person, or any stockholders of Borrower or any such Person
or any Subsidiary. For the purpose of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies, whether through the ownership of voting
securities, by contract or otherwise.
1.7 "AGREEMENT" shall have the meaning set forth on the first page
hereof.
1.8 "BADR" means a per annum rate of interest established by Bank
as its "bankers' acceptance discount rate."
1.9 "BANK" means the party identified on the first page hereof as
Bank.
1.10 "BANKERS' ACCEPTANCES" means Bank's acceptance of one or more
drafts of Borrower drawn under any Bankers' Acceptance Agreement in connection
with purchases of Inventory from foreign sources.
1.11 "BANKERS' ACCEPTANCE AGREEMENT" means Bank's standard form
Continuing Bankers' Acceptance and Security Agreement, as the same may change
from time to time, the current form of which is attached hereto as Exhibit A.
Without limitation, this term shall include any Bankers' Acceptance Agreement
between Borrower and Bank in effect on the date hereof.
1.12 "BANKERS' ACCEPTANCE OBLIGATIONS" means the total amount of all
Bankers' Acceptances from time to time outstanding and all obligations of
Borrower reimburse Bank for its acceptance of any drafts drawn under any
Bankers' Acceptance Agreement.
1.13 "BASELINE ADVANCE LIMIT" means an amount equal to $3,750,000,
subject to increase as provided in Section 2.1(B) hereof.
1.14 "BORROWER" means the party identified on the first page hereof
as Borrower.
2
<PAGE>
1.15 "BORROWING DATE" means the Business Day or Working Day on which
an Advance is to be made.
1.16 "BUSINESS DAY" means a day other than a Saturday or Sunday or
other day on which Bank is authorized or required to close under the laws of the
State of New Jersey or applicable Federal Law.
1.17 "CASH COLLATERAL" means any cash or cash equivalents which have
been pledged to Bank and actually delivered to Bank to secure the Obligations,
including without limitation the Overage Obligations.
1.18 "CASH SECURED ADVANCES" means any Direct Advances which are
secured by a valid, first priority, possessory security interest in Cash
Collateral in an amount not less than the aggregate principal amount of such
Direct Advances.
1.19 "CHATTEL PAPER" means, in addition to the definition of chattel
paper as contained in the Uniform Commercial Code, a writing or writings which
evidence both a money obligation and a security interest in, or a lease of,
specific Goods. When a transaction is evidenced both by such a security
agreement or a lease and by an Instrument or series of Instruments, the group of
writings taken together constitutes Chattel Paper.
1.20 "CLOSING DATE" means the date of this Agreement.
1.21 "COLLATERAL" means all of those present or future assets, real
or personal, of Borrower and Guarantors in which a security interest in or lien
on is granted to Bank hereunder or contemplated hereby or in any other Loan
Document, or under any other prior, present or future agreement by Borrower or
Guarantor to Bank.
1.22 "COMMITMENT" means Bank's commitment to make Direct Advances to
Borrower, to issue Bankers' Acceptances and Letters of Credit for the account of
Borrower and to enter into Foreign Exchange Contracts with Borrower.
1.23 "CONTINGENT OBLIGATION(S)" means, as to any Person, any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent: (A) to purchase any such primary obligation or any
property constituting direct or indirect security therefor; (B) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor; (C) to
purchase property, securities or services primarily for the purpose of assuring
the beneficiary of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation; (D) for the obligations of a
partnership in which such Person is a general partner; or (E) otherwise to
assure or hold harmless the beneficiary of such primary
3
<PAGE>
obligation against loss in respect thereof; provided, however, that the term
Contingent Obligations shall not include the endorsement of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by Bank in
good faith.
1.24 "CONTRACTUAL OBLIGATIONS" means, as to any Person, any
provision of any security issued by such Person or of any agreement, instrument
or other undertaking to which such Person is a party or by which it or any of
its assets are bound.
1.25 "CURRENT ASSETS" means the aggregate of Obligors' (all on a
consolidated basis) cash, marketable securities and Accounts Receivable, all as
valued in accordance with GAAP.
1.26 "CURRENT LIABILITIES" means the liabilities deemed to be
current liabilities on Obligors' consolidated financial statements as calculated
in accordance with GAAP.
1.27 "DEFAULT" means an event of the nature specified in Article
VIII hereof and which, with the giving of notice or passage of time, or both,
would become an Event of Default.
1.28 "DEFAULT RATE" means a per annum rate of interest equal to the
Prime Rate plus four percent (4%).
1.29 "DIRECT ADVANCE" means any Advance within the Facilities for
borrowed money.
1.30 "DIRECT ADVANCE SUBLIMIT" means Advances which are not Cash
Secured Advances in an amount not to exceed $250,000 (exclusive of Cash Secured
Advances).
1.31 "DOCUMENT(S)" shall have the meaning set forth in the Uniform
Commercial Code for such term.
1.32 "ENVIRONMENTAL LAWS" means (A) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et
seq. ("CERCLA"), as amended by the Superfund Amendment and Reauthorization Act
of 1986; (B) the Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. 6901 et seq.; (C) the New Jersey Spill Compensation and Control Act, as
amended, N.J.S.A. 58:10-23.11b et seq.; (D) the New Jersey Industrial Site
Recovery Act, formerly known as the Environmental Cleanup Responsibility Act, as
amended, N.J.S.A. 13:1K-6 et seq.; (E) the New Jersey Underground Storage of
Hazardous Substances Act, N.J.S.A. 58:10A-21 et seq.; (F) the New Jersey Solid
Waste Management Act, as amended, N.J.S.A. 13:1E-1 et seq.; (G) the New Jersey
4
<PAGE>
Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1 et seq.; and (H) any
and all laws, regulations and executive orders, federal, state and local,
pertaining to environmental matters, as same may be amended or supplemented from
time to time.
1.33 "EQUIPMENT" means in addition to the definition of equipment as
contained in the Uniform Commercial Code, all equipment, machinery, fixtures,
furniture and other tangible assets including without limitation motor vehicles,
and all repairs, modifications, alterations, additions, controls and operating
accessories therefor, all substitutions and replacements therefor and all
accessories and additions thereto.
1.34 "ERISA" means the Employee Retirement Income Security Act of
1974 as amended from time to time.
1.35 "EURODOLLAR RATE" means with respect to any Advance or
outstanding portion of the Facilities (should Borrower choose the Adjusted LIBO
Rate option thereto), the rate of interest (rounded to the next higher 1/100 of
one percent (.01%)) for deposits in U.S. Dollars for a maturity equal to the
Interest Period therefor which appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on the day that is two (2) Working Days prior to the commencement
of such Interest Period. If such rate does not appear on the Telerate Page 3750,
the rate utilized shall be the rate as determined by Bank from another
recognized source or interbank quotation.
1.36 "EURODOLLAR RESERVE" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the applicable statutory reserve requirements (rounded to the
next higher 1/100 of one percent (.01%) and expressed as a decimal) for Bank
(without duplication, but including, without limitation, basic, supplemental,
marginal and emergency reserves), from time to time in effect under Regulation D
of the Board of Governors of the Federal Reserve System (or any successor) with
respect to eurocurrency funding currently referred to as "Eurocurrency
liabilities" in such Regulation D.
1.37 "EVENT OF DEFAULT" means an event of the nature specified in
Article VIII hereof.
1.38 "FACILITIES" means, collectively, the Revolving Facility and
the Foreign Exchange Facility.
1.39 "FACILITY FEE" means a facility fee in the amount of $12,500
which has been paid to Bank by Borrower, has been fully earned and is
non-refundable.
1.40 "FOREIGN EXCHANGE CONTRACTS" means, collectively, Borrower's
forward and spot contracts purchased through Bank relative to foreign currencies
on Bank's standard foreign exchange contract forms and under the Foreign
Exchange Facility.
5
<PAGE>
1.41 "FOREIGN EXCHANGE CONTRACT OBLIGATIONS" means all of Borrower's
payment, repayment and other Obligations to Bank, whether direct or indirect,
absolute or contingent, under the Foreign Exchange Contracts and otherwise under
the Foreign Exchange Facility.
1.42 "FOREIGN EXCHANGE FACILITY" shall have the meaning ascribed to
it in the preamble hereto.
1.43 "GAAP" means generally accepted accounting principles in the
United States of America consistently applied and in effect for the relevant
time period.
1.44 "GENERAL INTANGIBLES" means, in addition to the definition of
general intangibles as contained in the Uniform Commercial Code, all rights of
any Obligor to property, choses in action and other rights of Borrower not
otherwise specifically included elsewhere in this Agreement, further including
but not limited to all present and future trademarks, goodwill symbolized by any
trademarks, trade names, trade secrets, trade dress, trade styles, service
marks, copyrights and patents, and all rights under license agreements for the
use of same, and all rights of any Obligor under any and all leases of property,
both real and personal.
1.45 "GOODS" means, in addition to the definition of goods as
contained in the Uniform Commercial Code, all articles of tangible personal
property, sold, supplied, leased or otherwise disposed of, represented by an
Account.
1.46 "GOVERNMENTAL BODY" means any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or pertaining
to government or any court or arbitrator.
1.47 "GUARANTORS" means the persons defined as such in the preamble
of this Agreement as well as each and every other Person who is or shall become
liable, responsible or obligated for any of the Borrower's or any other
Obligor's Obligations hereunder whether by loan, guaranty, suretyship or
otherwise.
1.48 "GUARANTY" means that certain guaranty agreement dated the date
hereof made by Guarantors in favor of Bank in the form attached hereto as
Exhibit B.
1.49 "INDEBTEDNESS" means, as to any Person, at a particular time,
all items which, in accordance with GAAP, would be classified as liabilities on
a balance sheet of such Person as at such time and which constitute, without
duplication: (A) indebtedness for borrowed money or the deferred purchase price
of property (other than credit extended to such Person for the purchase of goods
in the ordinary course of business to the extent the same would otherwise
constitute Indebtedness); (B) indebtedness evidenced by notes, bonds, debentures
or similar instruments; (C) obligations under leases which, in accordance with
GAAP, are required to be capitalized on a balance sheet, (D) obligations under
conditional sales or other title retention
6
<PAGE>
agreements; (E) indebtedness arising under letters of credit (both documentary
and standby) and acceptance facilities and the face amount of all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder to the extent such Person shall not have reimbursed the
issuer in respect of the issuer's payment of such drafts; (F) all liabilities
secured by any Lien on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment thereof (other than
carriers', warehousemen's, mechanics', course of business to the extent such
liens are Permitted Encumbrances) and liens for taxes, assessments or similar
charges incurred in the ordinary course of business to the extent such liens are
Permitted Encumbrances; (G) mandatory obligations of such Person to redeem or
purchase stock or to purchase or repay Indebtedness; (H) all Bankers Acceptance
Obligations and Foreign Exchange Contract Obligations, and (I) Contingent
Obligations of such Person in respect of any of the foregoing.
1.50 "INSTRUMENT" means, in addition to the definition of instrument
as contained in the Uniform Commercial Code, a negotiable instrument or a
security, or any other writing which evidences a right to the payment of money
and is not itself a security agreement or lease and is of the type which is, in
the ordinary course of business, transferred by delivery with any necessary
endorsement or assignment.
1.51 "INTEREST PERIOD" means, as to all Adjusted LIBO Rate Advances,
the period commencing on the Borrowing Date and ending on the numerically
corresponding day (or if there is no numerically corresponding day, the last
day) in the calendar month that is one (1) month thereafter, as selected by
Borrower in its notice of borrowing, and thereafter, the period commencing on
the last day of the first preceding Interest Period and ending on the
numerically corresponding day (or if there is no numerically corresponding day,
the last day) in the calendar month that is one (1) month thereafter, as
selected by Borrower in its notice of continuance of or conversion to an
Adjusted LIBO Rate Advance; provided, however, that if any Interest Period would
end on a day which shall not be a Working Day, such Interest Period shall be
extended to the next succeeding Working Day unless such Working Day would fall
in the next succeeding calendar month in which case the Interest Period shall
end on the first preceding Working Day and provided, further, that
notwithstanding anything to the contrary, (i) no Interest Period shall extend
beyond the Maturity Date and (ii) in all cases, no Interest Period shall extend
beyond any date on which principal is to be paid for that portion of principal
being paid on such date.
1.52 "INVENTORY" means, in addition to the definition of inventory
as contained in the Uniform Commercial Code, all Goods held by any Obligor for
resale or lease or furnished or to be furnished under contracts of service, and
shall include raw materials, goods and work in process and finished goods, and
all goods returned by or reclaimed from customers.
1.53 "INVESTMENT OBLIGATIONS" means any of the following: (A)
obligations of or guaranteed by the United States of America; (B) obligations
issued or guaranteed by any instrumentality or agency of the United States of
America; (C) obligations issued or guaranteed by any State of the United States
or the District of Columbia; (D) repurchase agreements fully secured by
obligations of a kind specified in subsections (A), (B) or (C) above;
7
<PAGE>
(E) interest bearing accounts, certificates of deposit, bankers' acceptances or
commercial paper of Bank; and (F) commercial paper other than as specified in
subsection (E) above and which is rated at least "P1" by Moody's Investors
Services or at least "A1" by Standard and Poor's Corporation.
1.54 "LETTER(S) OF CREDIT" means the one or more standby letters of
credit issued from time to time by Bank at the request and for the account of
Borrower in accordance with the terms hereof.
1.55 "LETTER OF CREDIT AGREEMENT" means Bank's standard form of
Application and Agreement for Irrevocable Standby Letter of Credit, as the same
may change from time to time, the current form of which is annexed hereto as
Exhibit C.
1.56 "LETTER OF CREDIT OBLIGATIONS" means the total amount of all
Letters of Credit as outstanding at any time and all obligations of Borrower to
reimburse Bank for any payments by Bank under any Letters of Credit.
1.57 "LEVERAGE RATIO" means the ratio of Borrower's Total
Liabilities to Tangible Net Worth.
1.58 "LIEN" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement, or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing) and the filing of any financing statement under
the Uniform Commercial Code (or comparable law) of any jurisdiction to evidence
any of the foregoing.
1.59 "LOAN DOCUMENTS" means this Agreement, the Revolving Note, any
Letter of Credit Agreement, Bankers' Acceptance Agreement, the Guaranty, Foreign
Exchange Contract, together with all notes or other documents executed and
delivered by any Obligor hereunder, and any amendments, renewals, modifications
or supplements thereto, or substitutions therefor.
1.60 "MATERIAL ADVERSE CHANGE" means, as to a Person, a material
adverse change in the financial condition, operations, business, prospects or
property of such Person.
1.61 "MATERIAL ADVERSE EFFECT" means, as to a Person, a material
adverse effect on the financial condition, operations, business, prospects or
property of such Person.
8
<PAGE>
1.62 "MARKETABLE SECURITIES" means, collectively, Investment
Obligations and any other debt or equity security which is traded on any
national securities exchange and which securities are satisfactory to Bank in
its discretion.
1.63 "MATURITY DATE" means August 15, 1999.
1.64 "MAXIMUM AMOUNT" means at any time of measurement the lesser
of: $4,750,000; or the then Baseline Advance Limit.
1.65 "NASDAQ" means the National Association of Securities Dealers'
Automated Quotation System.
1.66 "OBLIGATION" or "OBLIGATIONS" means any and all loans, advances
and other financial accommodations made by Bank prior to, on and after the date
of this Agreement to, or on the account of any Obligor including without
limitation, the Facilities, and any and all interest, commissions, obligations,
liabilities, indebtedness, charges and expenses direct or indirect, primary,
secondary, contingent, joint or several which are due or to become due or that
may hereafter be contracted or acquired of any Obligor to Bank, no matter how or
when arising and whether under any present or future agreement or instrument
between any Obligor and Bank, or otherwise, and the amount due or to become due
upon any notes, reimbursement agreement or other obligations given to, or
received by, Bank or on account of any of the foregoing and the performance and
fulfillment by any Obligor of all the terms, conditions, promises, covenants and
provisions contained in the Loan Documents, or in any future agreement or
instrument between any Obligor and Bank. The Obligations include but are not
limited to all Advances, Letter of Credit Obligations, Bankers' Acceptance
Obligations and Foreign Exchange Contract Obligations.
1.67 "OBLIGOR" means Borrower, Guarantors and any other sureties and
guarantors and, if any debt due to Bank hereunder is evidenced by a note or
other instrument, the makers and endorsers thereof.
1.68 "OVERAGE OBLIGATIONS" means any Direct Advances which are in
excess of the Direct Advance Sublimit.
1.69 "PBGC" means the Pension Benefit Guaranty Corporation.
1.70 "PERMITTED ADVANCES" means, collectively, any reimbursement by
any of the Obligors in the ordinary course of its business to any employee or
agent for business travel and other reasonable business expenses.
1.71 "PERMITTED ENCUMBRANCES" means (A) Liens for taxes, assessments
or governmental charges or levies on property of any Obligor if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or are
being diligently contested in good faith and by appropriate proceedings and
against which any Obligor has
9
<PAGE>
established adequate reserves, (B) Liens imposed by law, such as carriers,
warehousemen and mechanics Liens, and Liens incurred in connection with
construction or other similar Liens arising in the ordinary course of business
provided same are not at the time due and payable, (C) Liens arising out of
pledge or deposits under workmen's compensation law, unemployment insurance, old
age pension or other social security or retirement benefit or similar
legislation, (D) Liens arising from judgments or awards with respect to which
any Obligor shall be diligently and in good faith prosecuting an appeal or
proceedings for review and shall have secured a stay of execution pending such
appeal or review, and (E) Liens in favor of Bank.
1.72 "PERMITTED INDEBTEDNESS" means Indebtedness (i) to Bank; and
(ii) other Indebtedness set forth on Schedule 1.72 hereto the amount of which
shall not exceed $500,000.
1.73 "PERMITTED LEASES" means those real property leases entered
into in the ordinary course of business consistent with past practice for which
Bank has received (A) ten (10) Business Days advance notice and (B) landlords'
waivers and any other documents deemed necessary or desirable by Bank.
1.74 "PERSON" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, entity, party or government
(whether national, federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof). Without limitation, the term "Person" shall include
Borrower.
1.75 "PLAN" means an employee benefit plan or other plan maintained
for employees of Borrower covered by Title IV of ERISA.
1.76 "PRIME RATE" means the per annum rate of interest established
by Bank from time to time as its reference rate in making loans but which does
not reflect the rate of interest charged to any particular class of borrower,
such rate to change automatically and immediately as of the date Bank changes
its Prime Rate without notice to Borrower. The Prime Rate is not tied to any
external rate of interest or index.
1.77 "PRIME RATE ADVANCES" means all Advances which bear interest at
the Prime Rate.
1.78 "QUICK RATIO" means the ratio of Borrower's cash and cash
equivalents plus track Account, Current Liabilities, calculated on a
consolidated basis.
1.79 "REPAYMENT INDEMNITY" means any amounts required to compensate
Bank for any losses which it incurs as calculated below as a result of
repayments of Advances (including repayments on account of illegality as set
forth in Section 2.2(B)) other than on, with respect to the Adjusted LIBO Rate
Advances, the last day of an Interest Period. The amount of such loss shall be
calculated by multiplying the principal amount of the repayment or
10
<PAGE>
prepayment by the per annum rate (expressed as a decimal and based on a 360-day
year and actual days elapsed) (the "Indemnity Rate"), determined by subtracting
(A) the highest asked yield most recently published in the Wall Street Journal
as of the date of repayment or prepayment for U.S. Treasury securities having a
term approximating the weighted average of the terms of each Advance or portion
thereof being repaid or prepaid (the "Average Term", said average to be
determined by reference to the period, for each Advance, commencing on the date
of the repayment or prepayment and ending on, with respect to the Adjusted LIBO
Rate Advances, the end of the then current Interest Period) from (B) the rate of
interest applicable to the principal amount being repaid or prepaid, said
Repayment Indemnity to accrue for a period from and including the date of the
repayment or prepayment to, but excluding, the date of expiration of the Average
Term, as if such term commenced on the date of repayment or prepayment; provided
that no Repayment Indemnity shall be payable unless the foregoing calculation of
the Indemnity Rate produces a positive number. Borrower agrees that the
Repayment Indemnity has been freely bargained between the parties to provide
Bank with compensation for the costs of reinvesting of the Facilities' proceeds
and the loss of the contracted-for return on the Facilities and such Repayment
Indemnity is reasonable and constitutes a means of providing Bank with a
substitute or alternate source of cash flow if any Advance is repaid or prepaid
as set forth above. Bank's determination of the Repayment Indemnity shall be
conclusive and binding in the absence of manifest error. The amount payable as
determined above shall be in addition to any amounts payable under any other
Section or Paragraph of this Agreement.
1.80 "REPORTABLE EVENT" has the meaning assigned to such term in
Title IV of ERISA, or regulations issued thereunder other than a Reportable
Event not subject to the provision for a thirty (30) day notice to the PBGC
under such regulations.
1.81 "REVOLVING NOTE" means that certain Revolving Note dated the
date hereof issued by Borrower evidencing the Revolving Facility and any
revolving note replacing such note.
1.82 "SEC" means the Securities and Exchange Commission and any
successor agency or commission thereto.
1.83 "SECURITIES ACTS" means, collectively, the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended. (the "Exchange Act") and any securities or similar laws under the laws
of any state or foreign jurisdiction having jurisdiction over any Obligor.
1.84 "SUBSIDIARY" means the Guarantors and any other corporation of
which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
by Borrower or any other Obligor or one or more Subsidiaries.
11
<PAGE>
1.85 "TANGIBLE NET WORTH" means Total Assets, less (without
limitation and without duplication of deductions) the aggregate of the
liabilities and Indebtedness (including tax and other proper accruals) of a
Person and any reserves established by a Person for anticipated losses or
expenses.
1.86 "TELERATE PAGE 3750" means the display designated as "Page
3750" on the Dow Jones Telerate Service (or such other page as may replace that
page on that service for the purpose of displaying London interbank offered
rates of major banks).
1.87 "TOTAL ASSETS" means, at any date, the amount shown on the
books and records of a Person, determined in accordance with GAAP, of all
property, both real and personal, of a Person, after deducting capitalized
research and development costs, capitalized interest, debt discounts and
expense, marketing expenses and customer and/or mailing lists, goodwill
(including any amounts, however designated on the balance sheet, representing
the cost of acquisition of business and investments in excess of underlying
tangible assets), patents, trademarks, trade name rights, copyrights,
franchises, licenses, amounts owing from employees, officers, directors,
shareholders, principals, partners, Subsidiaries or Affiliates of the Person and
any investments in any entities owned or controlled by any of the foregoing
Persons (including without limitation, any Affiliates and Subsidiaries) and such
other assets as are properly classified as "intangible assets".
1.88 "TOTAL LIABILITIES" means, at any date, the amount of all
liabilities which, in accordance with GAAP should be included in determining
total liabilities as shown on a liability side of a balance sheet of a Person at
such date, other than capital stock, capital surplus, retained earnings,
property interests, deferred credit and contingency reserves under GAAP.
1.89 "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as
adopted and in effect under the laws of the State of New Jersey.
1.90 "WORKING DAY" means any day other than a Saturday, Sunday,
public holiday, bank holiday or other day on which currencies are not traded in
the London interbank market.
1.91 "INTERPRETATION AND CONSTRUCTION"
(A) The terms "hereby," "hereof," "hereto," "herein," "hereunder"
and any similar terms, as used in this Agreement, refer to this Agreement in its
entirety and not any particular Article or paragraph, and the term "hereafter"
means after, and the term "heretofore" means before, the date of delivery of
this Agreement; and
(B) Words importing a particular gender mean and include every other
gender, and words importing the singular number mean and include the plural
number and vice versa.
12
<PAGE>
(C) All accounting terms not defined herein shall have the meanings
used in GAAP and, unless otherwise noted, shall be deemed to mean GAAP as
prepared on a consolidated basis.
1.92 PREAMBLE DEFINITIONS The terms defined in the Preamble of this
Agreement are hereby incorporated by reference in this Article 1.
II
FACILITIES
2.1 FACILITIES (A) Subject to the terms and conditions hereinafter
set forth, and provided that no Default or Event of Default shall have occurred
and be continuing or would result from the making of any Direct Advance or
issuing any Letter of Credit or Bankers' Acceptance or entering into a Foreign
Exchange Contract, from time to time hereafter, through the Maturity Date, Bank
shall extend credit to Borrower by: (i) making Direct Advances; (ii) Letters of
Credit; (iii) issuing Bankers' Acceptances; and (iv) entering into Foreign
Exchange Contracts; provided that at no time may the aggregate amount of (a)
Direct Advances which are not Cash Secured Advances exceed the Direct Advance
Sublimit, or (b) Foreign Exchange Contracts exceed the maximum amount the
Foreign Exchange Facility. Notwithstanding the foregoing, at no time shall the
total amount of Letter of Credit Obligations, plus the total principal amount of
Direct Advances then outstanding, plus the amount of all Bankers' Acceptance
Obligations then outstanding exceed the Maximum Amount.
(B) On a semi-annual basis the Baseline Advance Limit shall be
subject to increase (but not in excess of the Maximum Amount) by an amount equal
to fifty percent (50%) of Borrower's after tax net income, provided that
Borrower's after tax net income shall be not less than $1,000,000 as evidenced
by the financial statements contained in Borrower's Form 10-K filing (which
shall be audited) and Form 10-Q (for its first two calendar quarters, which
shall be internally prepared) and further provided there is not then existing
any Event of Default or any event which with the giving of notice and/or the
passage of time would become an Event of Default. Any such increase shall be
effective upon presentation to the Bank of financial statements contained in the
Borrower's Form 10-K or Form 10-Q, as applicable, evidencing such after tax net
income.
13
<PAGE>
2.2 INTEREST
(A) All Advances shall bear interest at a per annum rate equal to
the Adjusted LIBO Rate, plus two and one quarter percent (2.25%). Borrower shall
pay to Bank all accrued interest on the last day of the Interest Period but in
no event less than quarterly (in which case such payments shall be made on the
last Working Day of such calendar quarter), until all such Advances are paid in
full, which interest shall be computed on the basis of a 360 day year, for the
actual number of days elapsed, on the daily unpaid balance of such Advances.
(B) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation by any central bank or other governmental authority charged with the
administration or interpretation thereof shall make it unlawful, or any central
bank or other governmental authority shall assert that it is unlawful, for Bank
to perform its obligations hereunder (i) to make Adjusted LIBO Rate Advances or
(ii) to continue to fund or maintain Adjusted LIBO Rate Advances hereunder,
then, on notice thereof and demand therefor by Bank to Borrower, the obligation
of Bank to make any such Adjusted LIBO Rate Advances shall terminate and, if the
foregoing clause (ii) is applicable, Borrower shall, upon prior notice to Bank,
either (A) forthwith repay in full any such Adjusted LIBO Rate Advances then
outstanding, together with interest accrued thereon and the Repayment Indemnity
or (B) forthwith convert any such Adjusted LIBO Rate Advances then outstanding
into Prime Rate Advances and pay to Bank the Repayment Indemnity. If no such
notice is received by Bank within three (3) Working Days of the prior demand by
Bank, Borrower will be deemed to have made the election to convert any such
Adjusted LIBO Rate Advances then outstanding into Prime Rate Advances as of the
fourth day following such demand.
(C) If, with respect to any Interest Period, Bank determines that
(i) extraordinary circumstances affecting the relevant market make it
impracticable to ascertain the interest rate applicable for such Interest Period
or (ii) the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to Bank of making or maintaining the Facilities during
such Interest Period, Bank shall promptly notify Borrower of such determination
and no additional Adjusted LIBO Rate Advances shall be made nor shall there be
any conversions thereto until such notice is withdrawn. If any Adjusted LIBO
Rate Advance is outstanding on the date of such notice and such notice has not
been withdrawn on the last day of the then current Interest Period applicable
thereto, Borrower may on the last day of such Interest Period either convert
such Adjusted LIBO Rate Advance to a Prime Rate Advance or prepay the
outstanding principal balance thereof and accrued interest thereon in full. If
no such notice is received by Bank at least one (1) Business Day prior to the
last day of such Interest Period, Borrower will be deemed to have made the
election to convert any such Adjusted LIBO Rate Advances then outstanding into
Prime Rate Advances.
(D) From and after the occurrence of any Event of Default the entire
balance of the Facilities shall bear interest at the Default Rate.
14
<PAGE>
2.3 REPAYMENT OF ADVANCES
(A) Borrower may repay an Adjusted LIBO Rate Advance or portion
thereof on the last day of the relevant Interest Period, provided, that (i)
Borrower shall provide Bank with one (1) Working Day's prior written notice of
its intent to so repay, and (ii) Borrower shall pay to Bank the amount repaid
together with accrued interest to the date of such payment on the amount repaid.
In the event Borrower for any reason repays any Adjusted LIBO Rate Advance on
the day which is not the end of an Interest Period, Borrower shall, upon written
demand by Bank, pay to Bank the Repayment Indemnity with respect to such
repayment.
(B) Provided no Event of Default occurs hereunder, all Direct
Advances shall be payable not later than (90) days after such Direct Advance is
made; provided, however, that no Direct Advance shall extend beyond the Maturity
Date. All Advances arising from payments under Letters of Credit or Bankers'
Acceptances, together with accrued and unpaid interest thereon, shall be due and
payable as provided in Section 2.7 and 2.8 hereof, respectively.
(C) Whenever any payment to be made hereunder or under any note
issued hereunder shall be stated to be due on other than a Business Day or, as
to Adjusted LIBO Rate Advances, a Working Day, such payment may be made on the
next succeeding Business Day or Working Day, as applicable, unless such Business
Day or Working Day, as applicable, falls in the next succeeding month, in which
case, such payment shall be made on the next preceding Business Day or Working
Day, as applicable. Any such alteration of time shall, in such case, be included
in the computation of payment of interest. All payments (including prepayments)
made by Borrower on account of principal of or interest on the Advances
hereunder shall be made without set-off or counterclaim and shall be made prior
to 3:00 p.m. (New York City time) on the date such payment is due, to Bank, in
each case in lawful money of the United States of America and in immediately
available funds. The failure of Borrower to make any such payment by 3:00 p.m.
(New York City time) on such due date shall not constitute a Default or Event of
Default hereunder, provided that such payment is made on such due date, but any
such payment received by Bank on any Business Day after 3:00 p.m. (New York City
time) shall be deemed to have been received on the immediately succeeding
Business Day or Working Day, as applicable, for the purpose of calculating any
interest payable in respect thereof.
(D) Bank shall have the right in its discretion to charge any
principal and/or interest or other sum due by Borrower to Bank, to any checking,
other deposit or loan account of Borrower or with Bank or to apply any proceeds
received by it against payment of same. In the event that the amount so charged
shall create an overdraft, Borrower hereby agrees to pay to Bank the fees
associated with overdraft until the overdraft is satisfied in full. During any
time in which an overdraft is created and outstanding, the Facilities shall be
deemed to be in default (and shall bear interest at the default rate set forth
in Section 9.7) and Bank shall not be required to honor any checks drawn on or
transfers from such deposit account nor shall it be required to notify Borrower
of the existence of any overdraft before dishonoring any such checks or
transfers, and to the extent permitted by law, Borrower waives any rights and
claims they may have against Bank for wrongful dishonor, interference with
contract, wrongful interruption of the Borrower's
15
<PAGE>
businesses or similar claim, counterclaim or causes of action arising due to
Bank's failure to honor such checks. The creation of any overdrafts shall not be
deemed to be a payment hereunder or under any note evidencing the Obligations or
a waiver by Bank of any Event of Default hereunder and nothing herein shall
obligate Bank to create any such overdraft.
(E) All outstanding Advances, together with all accrued and unpaid
interest thereon, and all unpaid fees shall be due and payable in full on the
Maturity Date.
2.4 FEES If from time to time Bank, in accordance with its rights
hereunder, examines or inspects the books and records of Borrower, Borrower
shall upon the demand of Bank pay to Bank any reasonable out-of-pocket expenses
incurred by Bank in connection with such field examination, including but not
limited to travel expenses incurred by Bank in connection therewith.
2.5 PREPAYMENT If on any day the sum of the aggregate outstanding
principal balance of the Advances under Section 2.1 plus the Letter of Credit
Obligations and Bankers Acceptance Obligations hereof shall exceed the Maximum
Amount on such day or the other limitations set forth in Section 2.1, Borrower
shall, on such day, prepay such Advances by an amount equal to such excess
together with the Repayment Indemnity, if any. In the event that the aggregate
amount of Advances (together with accrued and unpaid interest thereon) shall
exceed the Direct Advance Sublimit, Borrower shall repay the amount of such
excess to Bank, together with any Repayment Indemnity payable in connection with
the repayment of any Advances other then at the end of the Applicable Interest
Period. The failure to make any such payment shall be an Event of Default.
2.6 PROCEDURES FOR ADVANCES Borrower shall provide Bank with at
least three (3) Working Day's oral notice of any requested Adjusted LIBO Rate
Advance, specifying the Borrowing Date and amount, which oral notice shall be
promptly confirmed in writing by Borrower (provided, however, Bank may rely and
act upon telephonic notice whether or not such written confirmation is
ultimately received). Bank shall, on or after 1:00 P.M. (New Jersey time) of the
Borrowing Date, make the amount of the requested Advance available to Borrower,
provided all conditions precedent to such Advance have been met or satisfied.
Each requested Adjusted LIBO Rate Advance hereunder for less than the full
amount available under the Direct Advance Sublimit shall be in the minimum
amount of [$50,000.00] or any multiple thereof. In the event that any requested
Direct Advance is, itself or in the aggregate with all then outstanding Direct
Advances, in excess of the Direct Advance Sublimit, the Borrower shall, at the
time that it requests such Direct Advance, deliver to the Bank such Cash
Collateral as is necessary in the Bank's discretion to ensure that the amount of
any Overage Obligations or Cash Secured Advances, including without limitation
the execution, of such pledge or similar agreements as are necessary and the
delivery of any documents of assignment and/or transfer as are necessary to
properly perfect the Bank's security interests in such Cash Collateral.
2.7 PROCEDURES FOR LETTERS OF CREDIT
16
<PAGE>
(A) Issuance of Letters of Credit. Within the Maximum Amount, until
the Maturity Date, and provided that no Default or Event of Default shall have
occurred and be continuing or would result from the issuance of a Letter of
Credit and subject to the limitations of Section 2.1, Bank may issue Letters of
Credit for the account of Borrower on the terms hereinafter set forth. No Letter
of Credit shall have a term beyond 120 days and in any event no Letter of Credit
shall extend beyond the Maturity Date. Each of the Letters of Credit shall be
issued in a form satisfactory to Bank and pursuant to a Letter of Credit
Agreement duly executed by Borrower. The terms and conditions of the Letter of
Credit Agreement(s) are hereby incorporated herein by reference as if fully set
forth at length. Borrower shall pay to Bank any and all fees imposed by Bank in
connection with the issuance of Letters of Credit. Bank's current fee schedule
for Letters of Credit is attached hereto as Schedule 2.7(a); such Schedule is
subject to change without notice.
(B) Payments under Letters of Credit and Reimbursement by Borrower.
In the event of a drawing under any Letter of Credit and payment by Bank,
Borrower shall immediately either (i) reimburse Bank therefor, together with any
fees in connection therewith, which may be made by a charge against any of the
Obligors' accounts with the Bank or (ii) request the creation of a Banker's
Acceptance. If Borrower shall not so reimburse Bank as provided above, such
failure shall be an Event of Default and Borrower shall pay to Bank interest on
the amount of such payment from the date of such payment by Bank or the failure
of Borrower to so reimburse Bank, as applicable, through and including the date
of such reimbursement by Borrower at the Default Rate computed on the basis of
the actual number of days elapsed over a year of 360 days.
(C) Letter of Credit Obligations Absolute. Borrower's obligations to
make payments to Bank in order to reimburse payments by Bank on Letters of
Credit as provided in Subsection 2.7(B) above shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and the Letter of Credit Agreement(s), under any and all
circumstances whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter
of Credit or any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to
departure from all or any of the provisions of any Letter of Credit
or any Loan Document to which Bank is not a party;
(iii) the existence of any claim, setoff, defense or
other right that Borrower, any other party guaranteeing, or
otherwise obligated with, Borrower, any Subsidiary or other
Affiliate thereof or any other person may at any time have against
the beneficiary under any Letter of Credit, Bank or any other
Person, whether in connection with this Agreement, any other Loan
Document or any other related or unrelated agreement or transaction;
17
<PAGE>
(iv) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(v) payment by Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with
the terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any
kind of Bank, or any other person or any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this section, constitute a legal or
equitable discharge of Borrower's obligations hereunder.
It is understood that Bank may accept documents that appear on
their face to be in order, without responsibility for further
investigation, regardless of any notices or information to the
contrary and, in making any payment under any Letter of Credit (i)
Bank's exclusive reliance on the documents presented to it under
such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any drafts presented under such
Letter of Credit, whether or not the amount due to the beneficiary
thereunder equals (but does not exceed) the amount of such draft and
whether or not any document presented pursuant to such Letter of
Credit proves to be forged or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever and (ii)
any noncompliance in any immaterial respect of the documents
presented under such Letter of Credit with the terms thereof shall,
in each case, be deemed not to constitute wilful misconduct or gross
negligence of Bank.
(D) Outstanding Letter of Credit Obligations. In addition to the
provisions of Section 2.7(B), upon an Event of Default, the full amount of all
Letter of Credit Obligations shall be deemed to increase the principal amount
deemed outstanding under the Facilities (and any unpaid interest thereon and on
unpaid letter of credit fees shall be deemed principal on the Facilities,
provide that no interest shall be charged on the amount of the Letters of Credit
unless and until such Letters of Credit are drawn upon) for purposes of (x)
distribution of payments hereunder and (y) application of proceeds; provided,
however, if any such Letter of Credit thereafter expires without being drawn
upon, the amount thereof shall reduce the principal amount deemed outstanding
under the Facilities (as previously increased pursuant to this subsection (D))
and the distributions of payments and proceeds to Bank shall be adjusted
accordingly.
2.8 BANKERS' ACCEPTANCES. Until the Maturity Date, and provided that
no Event of Default or an event which with the giving of notice or lapse of
time, or both, would constitute an Event of Default, shall have occurred and be
continuing or would result from the creation of any Bankers' Acceptance and
subject to the limitations of Section 2.1 (a), if requested by Borrower, Bank
shall issue Bankers' Acceptances drawn under sight Letters of Credit as
18
<PAGE>
provided in Section 2.7(B) hereof. The Bankers' Acceptances shall be discounted
by Bank at the applicable BADR. The Bankers' Acceptances shall have maturities
of thirty (30), sixty (60), ninety (90) or one hundred twenty (120) days. Each
Bankers' Acceptance shall be created in accordance with and governed by the
Bankers' Acceptance Agreement entered into simultaneously herewith between Bank
and Borrower. The terms and conditions of such Bankers' Acceptance Agreement are
hereby incorporated herein by reference as if fully set forth at length.
Borrower shall pay to Bank any and all fees imposed by Bank in connection with
Bank's creation of Bankers' Acceptances. The commission fee for each Bankers'
Acceptance shall be in accordance with the fee schedule attached hereto as
Schedule 2.8, subject to increases in proportion to any and all increases in
Bank's standard commission fees for bankers' acceptances.
2.9 PAYMENTS UNDER BANKERS' ACCEPTANCES AND REIMBURSEMENT BY
BORROWER. In connection with Bankers' Acceptances, Borrower shall pay (and
hereby unconditionally promises to pay) to Bank on the maturity date of the
draft (including renewals), the original principal amount prior to discount and
any commission fees of the Bankers' Acceptances. Such payments may be
effectuated by a Direct Advance under the Revolving Facility. In the event that
there shall not be sufficient availability under the Revolving Facility to
effect such payment, Borrower shall reimburse Bank in cash or via charge to any
of the Obligors' accounts with the Bank for such Bankers' Acceptances. In the
event that the Borrower shall not so reimburse the Bank, such failure to pay
shall constitute an Event of Default and Borrower shall pay to Bank interest on
the amount of such payment from the date of such payment by Bank through and
including the date of such reimbursement by Borrower at the Default Rate
computed on the basis of the actual number of days elapsed over a year of 360
days.
2.10 OUTSTANDING BANKERS' ACCEPTANCE OBLIGATIONS. Upon the
occurrence and during the continuance of an Event of Default, the full amount of
all Bankers' Acceptance Obligations shall be deemed to increase the principal
amount of the Facilities (and, to the extent permitted by law, any unpaid
commission fee(s) with respect to any Bankers' Acceptances shall be deemed to be
principal on the Facilities) for purposes of application of proceeds pursuant to
Section 9.3 hereof.
2.11 BANKERS' ACCEPTANCE REGULATION CHANGES. Without limitation of
any other provision hereof, if for any reason beyond the control of Bank, Bank
is required to maintain reserves against Bankers' Acceptance liabilities under
Regulation D of the Board of Governors (or any other regulation) of the Federal
Reserve System in effect from time to time, Borrower shall, upon demand by Bank,
pay to Bank additional amounts sufficient to indemnify and reimburse Bank
against any such reasonable additional costs incurred by Bank (including, but
not limited to, costs resulting from such reserve requirements) in connection
with such Bankers' Acceptance liabilities.
2.12 BANKER'S ACCEPTANCE DECLARED INELIGIBLE. In the event that any
Bankers' Acceptance is declared ineligible for discount by the Federal Reserve,
Borrower, at Bank's request, shall (x) repay to Bank the original amount of such
Bankers' Acceptance at maturity or sooner as required by law and (y) pay to Bank
any additional amounts
19
<PAGE>
sufficient to reimburse Bank for reasonable additional costs incurred by it in
connection with such Bankers' Acceptance.
2.13 FOREIGN EXCHANGE CONTRACTS. Until the Maturity Date, and
provided that no Event of Default or an event which with the giving of notice or
the passage of time, both, would constitute an Event of Default, shall have
occurred and be continuing or would result from the purchase of any Foreign
Exchange Contract, Bank, at the request of Borrower, may enter into, for the
account of the Borrower, Foreign Exchange Contracts in an aggregate amount at
any one time not to exceed the U.S. dollar equivalent of $250,000; provided
further that Bank's purchase of Foreign Exchange Contracts shall be: (x) subject
to the limitations of Section 2.1(a) and the Foreign Exchange Contract Facility;
(y) subject to a maximum daily settlement limit of ten percent (10%) of the
maximum amount permitted for Foreign Exchange Contracts for the applicable loan
year (i.e., $25,000 daily settlement limit); and (z) created for the purpose of
purchasing Inventory and not for currency speculation purposes. Upon the
maturity of any Foreign Exchange Contract, Borrower shall immediately reimburse
Bank for any and all amounts payable by Bank under such Foreign Exchange
Contract.
2.14 USE OF PROCEEDS The proceeds of the Revolving Facility shall be
used by Borrower: (i) for short term working capital; and (ii) for Letters of
Credit and Bankers' Acceptances, subject to the terms and conditions hereof. The
proceeds of the Foreign Exchange Facility shall be used by Borrower for Foreign
Exchange Contracts, subject to the terms and conditions hereof.
2.15 CONDITIONS TO INITIAL ADVANCE The obligation of Bank to execute
this Agreement and to make the initial Advance or other financial accommodations
hereunder is subject to the satisfaction of the following conditions precedent:
(A) Documents. Bank shall have received the duly executed Revolving
Note, not less than four (4) copies of this Agreement and the duly executed
Guaranty and all other Loan Documents, each executed on behalf of the applicable
Obligors and/or by its duly authorized officers.
(B) Deliveries by Borrower. Obligors shall have delivered or caused
to be delivered to Bank or Bank shall have received, the following items, which
shall be in form and substance reasonably satisfactory to Bank and its counsel:
(i) Legal Opinion of Counsel to Borrower. Opinion of
Bondy & Schloss LLP, counsel to Obligors, dated the date hereof and
addressed to Bank, substantially in the form of Exhibit D hereto.
(ii) Corporate Proceedings. Resolutions of the Boards of
Directors of Obligors and the respective Shareholders of the
Guarantors certified on the date hereof by the Secretary or an
Assistant Secretary of Borrower and Guarantor authorizing: (a) the
execution, delivery and performance of this
20
<PAGE>
Agreement, and all of the other Loan Documents to which it is a
party; (b) the consummation of the transactions contemplated hereby
and thereby; and (c) the borrowings and other matters contemplated
in the Loan Documents. Such certificate shall state that the
resolutions set forth therein have not been amended, modified,
revoked or rescinded as of the date of such certificate and are in
full force and effect as of the Closing Date.
(iii) Incumbency Certificate. A certificate of the
Secretary or an Assistant Secretary of Borrower and Guarantors,
dated the date hereof, as to the incumbency and signature of the
officers executing each of the Loan Documents and any other document
to be delivered pursuant to any of such documents, together with
evidence of the incumbency of such Secretary or Assistant Secretary.
(iv) Officer's Certificate. A certificate of each of
Borrower and Guarantors signed by its president or chief financial
officer stating that to the best of his knowledge after diligent
investigation: (a) as of the date hereof and giving effect to such
Advance, Letter of Credit, Bankers' Acceptance or Foreign Exchange
Contract hereunder no Default or Event of Default exists hereunder;
and (b) all of Obligors' representations and warranties contained in
this Agreement and the other Loan Documents are presently true and
correct in all material respects.
(v) Consents, Licenses, Approvals, etc. Copies of all
consents, licenses and approvals required in connection with the
execution, delivery, performance, validity and enforceability of
this Agreement, the Revolving Note and the other Loan Documents, and
such consents, licenses and approvals shall be in full force and
effect and be reasonably satisfactory in form and substance to Bank
and its counsel.
(vi) Searches. Copies, in form and substance reasonably
satisfactory to Bank, of written or other advice relating to such
corporate status, financing statement, tax lien and judgment
searches as Bank may reasonably require.
(vii) Absence of Liens. Proof satisfactory to Bank in
its discretion that there are no liens, charges, pledges, mortgages
or security interests encumbering the assets of the Obligors.
(viii) Landlords' Waivers. Landlords' waivers in the
form of Exhibit E annexed hereto, for each location where any of
the Collateral is located.
(ix) Other Documents. All other documents provided for
herein or which Bank may request or require.
21
<PAGE>
(x) Additional Information. Such additional information
and materials which Bank shall have reasonably requested.
(xi) Supporting Documents. On or before the date hereof,
(a) a copy of the Certificates of Incorporation of Borrower and
Guarantors, certified by the Secretary of State of Delaware; (b) a
certificate of such Secretary of State, dated as of a recent date,
as to the good standing of each of Borrower and Guarantors and
attaching the charter documents of Borrower and Guarantors on file
in the office of such Secretary of State; and (c) a certificate of
the Secretary or an Assistant Secretary of each of Borrower and
Guarantors dated the Closing Date and certifying with respect to
each Obligor (i) that attached thereto is a true and complete copy
of the By-laws of such Obligor as in effect on the date of such
certification, and (ii) that the Certificate of Incorporation of
each of Borrower and Guarantors has not been amended since the date
of the last amendment thereto indicated on the certificate of the
Secretary of State furnished pursuant to clause (A) above.
(xii) Fees/Costs/Taxes. Obligors shall have paid (i) all
of the reasonable fees and expenses of Bank's counsel which are
occasioned in connection with the preparation of this Agreement and
all other Loan Documents and the closing of the transactions
contemplated hereby and thereby and (ii) the Facility Fee of $12,500
and all filing and recording fees and taxes.
(xiii) Insurance. Evidence of the insurance required to
be in effect as set forth in this Agreement.
2.16 CONDITIONS TO ALL ADVANCES The obligation of Bank to make any
Advance, issue any Letter of Credit or Banker's Acceptance or enter into any
Foreign Exchange Contract is subject to fulfillment of the following additional
conditions precedent, to the reasonable satisfaction of Bank and counsel to
Bank:
(A) Representations and Warranties. The representations and
warranties made by Obligors herein or in any other of the Loan Documents or
which are contained in any certificate, document or financial or other statement
furnished at any time under or in connection herewith shall be correct in all
material respects on and as of the date of each Advance, issuance of each Letter
of Credit or Bankers' Acceptance, entering into each Foreign Exchange Contract,
after giving effect to such Advance or issuance of Letters of Credit, or
Bankers' Acceptance or Foreign Exchange Contract, as if made on and as of such
date.
(B) No Default. No Event of Default has occurred, and no Default has
arisen and is continuing on the date the Advance is to be made, Letter of Credit
or Banker's Acceptance or Foreign Exchange Contract is to be entered is to be
issued, after giving effect to such Advance, Letter of Credit, Bankers'
Acceptance or Foreign Exchange Contract.
22
<PAGE>
(C) Litigation. No suit, action, investigation, inquiry or other
proceeding by any governmental authority or other Person or any other legal or
administrative proceeding shall be pending or threatened which (i) questions the
validity or legality of the transactions contemplated by this Agreement, or (ii)
seeks damages in connection therewith and which, in the reasonable judgment of
Bank, (x) involves a significant risk of a preliminary or permanent injunction
or other order by a state or federal court which would prevent, or require
rescission of, the transactions contemplated by this Agreement, or (y) in the
case of any action or proceeding which seeks monetary damages involves a
significant risk of resulting in substantial financial liability to Borrower or
Guarantor and/or Bank.
(D) Material Adverse Change. No event shall have occurred since the
date of the most recent consolidated financial statements of Borrower furnished
to Bank which resulted in a Material Adverse Change of Borrower or Guarantor or
had a Material Adverse Effect on Borrower or Guarantor.
(E) Legal Matters. All legal matters incident to the making of the
Facilities available to Borrower shall be satisfactory to counsel to Bank, in
the reasonable exercise of its judgment.
2.17 REGULATORY CAPITAL REQUIREMENTS If any existing or future law
or regulation or the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, or compliance by
Bank with any request or directive (whether or not having the force of law) of
any such authority, results in any increases after the date hereof in any
capital maintenance, capital ratio or similar requirement against credit
commitments made by Bank hereunder and the result thereof is to impose upon Bank
or increase any capital requirement applicable to Bank as a result of the making
or maintenance of making credit available hereunder (which imposition of or
increase in capital requirement may be determined by Bank's reasonable
allocation of the aggregate of such capital impositions or increases) then, upon
demand by Bank, Obligors shall immediately pay to Bank from time to time as
specified by Bank a fee which shall be sufficient to compensate Bank for such
imposition of or increase in capital requirements together with interest on each
such amount from the date demanded until payment in full thereof at the rate
provided in this Agreement with respect to fees and charges not paid when due. A
certificate setting forth in reasonable detail the amount necessary to
compensate Bank as a result of an imposition of or increase in capital
requirements submitted by Bank to Borrower shall be conclusive, absent manifest
error or bad faith, as to the amount thereof. For purposes of this Section 2.17
in calculating the amount necessary to compensate for any imposition of or
increase in capital requirements, Bank shall be deemed to be entitled to a rate
of return on capital (after federal, state and local taxes) of fifteen percent
(15%) per annum.
2.18 EXCESS ADVANCES In the event Bank shall extend credit hereunder
in an amount in excess of the Maximum Amount and/or the limits of the Foreign
Exchange Facility or if Borrower should directly or indirectly become indebted
to Bank in an amount which, together with all Obligations extended pursuant to
this Agreement, is in excess of the
23
<PAGE>
Maximum Amount and/or the limits of the Foreign Exchange Facility, such Advances
or such Indebtedness (including, without limitation, any Letter of Credit
Obligations, Bankers' Acceptance Obligations and Foreign Exchange Contract
Obligations) shall nevertheless be covered by the terms of this Agreement and
the other Loan Documents.
2.19 REQUIREMENTS OF LAW If, after the date hereof, the adoption of
any law, regulation, treaty, or directive or any change therein or in the
interpretation or application thereof or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority, agency or instrumentality:
(A) does or shall subject Bank to any tax of any kind whatsoever
with respect to this Agreement, any Advances or the Facilities, or change the
basis of taxation of payments to Bank of principal, commitment fee, interest or
any other amount payable hereunder (except for changes in the rate of any tax
presently imposed on Bank);
(B) does or shall impose, modify, or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held by,
or deposits or other liabilities in or for the account of, advances or loans by,
or other credit extended by, or any other acquisition of funds by, any office of
Bank which are not otherwise included in the determination of the Adjusted LIBO
Rate;
(C) has or would have the effect of reducing the rate of return on
Bank's capital as a consequence of its obligations hereunder to a level below
that which Bank could have achieved but for such adoption, change or compliance
(taking into consideration Bank's policies with respect to capital adequacy); or
(D) does or shall impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining advances or extensions of credit to Borrower or
to reduce any amount receivable from Borrower thereunder or to reduce the rate
of return on Bank's capital, then, in any such case, Borrower shall promptly pay
to Bank, upon its demand, any additional amounts necessary to compensate Bank
for such additional cost or reduced amount receivable or reduced rate of return
which Bank deems to be material, as determined by Bank, with respect to this
Agreement, any Advances or the other Facilities. If Bank becomes entitled to
claim any additional amounts pursuant to this Section 2.19, it shall promptly
notify Borrower of the event by reason of which it has become so entitled. A
certificate setting forth calculations as to any additional amounts payable
pursuant to the foregoing sentence submitted by Bank to Borrower shall be
conclusive in the absence of manifest error.
2.20 SALE, ASSIGNMENT OR PARTICIPATIONS Bank may from time to time
sell or assign, in whole or in part, or grant participations in some or all of
the Loan Documents and/or the obligations evidenced thereby. The holder of any
such sale, assignment
24
<PAGE>
or participation, if the applicable agreement between Bank and such holder so
provides, (i) shall be entitled to all of the rights, obligations and benefits
of Bank, and (ii) shall be deemed to hold and may exercise the rights of setoff
or banker's lien with respect to any and all obligations of such holder to
Borrower, in each case as fully as though Borrower were directly indebted to
such holder. Bank may, in its discretion, give notice to Borrower of such sale,
assignment or participation; however, the failure to give such notice shall not
affect any of Bank's or such holder's rights hereunder. Borrower does hereby
authorize Bank to provide information concerning the Borrower to any prospective
purchaser, assignee or participant. The information provided may include, but is
not limited to, amounts, terms, balances, payment history, return item history
and any financial or other information about Borrower. Obligors, jointly and
severally, agree to indemnify, defend, release Bank, and hold Bank harmless, at
Borrower's cost and expense, from and against any and all lawsuits, claims,
actions, proceedings, or suits against Bank or against Borrower, Guarantors and
Bank, arising out of or relating to Bank's reporting or disclosure of such
information.
25
<PAGE>
III
COLLATERAL
3.1 CROSS COLLATERAL All of the Collateral heretofore, herein or
hereafter given or assigned to Bank hereunder or in any other Loan Document
shall secure payment of all Obligations of Borrower and Guarantor to Bank.
3.2 ACCOUNTS RECEIVABLE Each of the Obligors hereby creates in favor
of Bank and hereby grants to Bank a security interest in all Accounts, as
defined herein, presently owned by Borrower or Guarantors or hereafter acquired.
3.3 INVENTORY Each of the Obligors hereby creates in favor of Bank
and hereby grants to Bank a security interest in all of its Inventory, as
defined herein, whether presently owned by Obligors or hereafter acquired and
wherever located.
3.4 GENERAL INTANGIBLES Each of the Obligors hereby creates in favor
of Bank and hereby grants to Bank a security interest in all of its General
Intangibles, whether presently owned by the Obligors or hereafter acquired.
3.5 DEPOSIT ACCOUNTS Each of the Obligors hereby creates in favor of
Bank, hereby assigns to Bank and hereby grants to Bank a security interest in
the balance of every deposit account, now or hereafter existing, of the Obligors
with Bank or any other institution, and all money, Instruments, securities,
documents, Chattel Paper, credits, claims, and other property of the Obligors
now or hereafter in the possession or custody of Bank or any of its agents or
any other institution.
3.6 CHATTEL PAPER Each of the Obligors hereby creates in favor of
Bank and hereby grants to Bank a security interest in all of its Chattel Paper,
whether presently owned by the Obligors or hereafter acquired, including but not
limited to all such Chattel Paper now or hereafter left in the possession of
Bank for any purpose, further including but not limited to for collection.
3.7 INSTRUMENTS Each of the Obligors hereby creates in favor of Bank
and hereby grants to Bank a security interest in all of its Instruments, whether
presently owned by the Obligors or hereafter acquired, including but not limited
to all such Instruments now or hereafter left in the possession of Bank for any
purpose, including but not limited to for collection.
3.8 DOCUMENTS Each of the Obligors hereby creates in favor of Bank
and hereby grants to Bank a security interest in all of its Documents, whether
presently owned by its or hereafter acquired, including but not limited to all
such Documents now or hereafter left in the possession of Bank for any purpose.
26
<PAGE>
3.9 EQUIPMENT. Each of the Obligors hereby grants to Bank a security
interest in all of its Equipment, whether now owned or hereafter acquired, and
whenever located.
3.10 PROCEEDS AND RECORDS Each of the Obligors hereby creates in
favor of Bank and hereby grants to Bank a security interest in (A) all books and
records, including, without limitation, customer lists, credit files, computer
programs, print-outs and other computer materials and records of each of the
Obligors pertaining to all of the Collateral; and (B) all of the products and
proceeds of all of the foregoing Collateral (including all proceeds of insurance
policies covering the Collateral); as well as all accessions, additions,
substitutions, replacements and increments as to the assets in (A) and (B).
3.11 CONTINUING PERFECTION Each of the Obligors will perform any and
all steps requested by Bank to create and maintain in Bank's favor a first and
exclusive and valid lien on or security interest in the Collateral or pledges of
Collateral, including, without limitation, the execution, delivery, filing and
recording of financing statements and continuation statements, supplemental
security agreements, notes and any other documents necessary, in the opinion of
Bank, to protect its interest in the Collateral. Bank and its designated officer
are hereby irrevocably appointed each Obligor's (as applicable) attorney-in-fact
to do all acts and things which Bank may deem necessary to perfect and continue
perfected the security interests and Liens provided for in this Agreement and
the other Loan Documents, including, but not limited to, executing financing
statements on behalf of Borrower or Guarantors (as applicable).
3.12. OBLIGORS' GRANTS. Notwithstanding anything to the contrary
herein, it is the expressed intention of the Obligors and the Bank that the
grants of security interests and liens by the Obligors to the Bank is intended
to cover and encumber all of the assets of the Obligors, whether the same are
owned jointly among one or more Obligors or all are owned severally, whether
same are now owned or hereafter acquired, and wherever same may be located and
each Obligor hereby creates in favor of Bank and hereby grants a security
interest in all of their respective assets now owned or hereafter acquired
including, without limitation, all assets specifically described in this Article
III.
27
<PAGE>
IV
[RESERVED]
28
<PAGE>
V
REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make Advances and
other financial accommodations hereunder, each of the Obligors represents and
warrants to Bank that:
5.1 GOOD STANDING Schedule 5.1 sets forth:
(A) the jurisdiction of each Obligor's incorporation and in which it
is in good standing;
(B) all other jurisdictions in which each Obligor is authorized to
transact business and all of which it is in good standing;
(C) any prior changes in the structure of each Obligor, such as
mergers, consolidations and the like;
(D) any prior name changes of each Obligor;
(E) all trade names or trade styles under which each Obligor
conducts business or issue invoices; and
(F) all Subsidiaries and Affiliates of each Obligor and the
percentage of stock or other ownership interest thereof owned by Borrower.
5.2 CORPORATE AUTHORITY Each Obligor has the requisite power and
authority to own its property and to carry on its businesses as now conducted,
and is in good standing and authorized to do business in each jurisdiction in
which the failure so to do would have a Material Adverse Effect on such Obligor.
Each Obligor has the corporate power to execute, deliver and carry out this
Agreement and all other Loan Documents to which it is a party, its Board of
Directors has duly authorized and approved the terms of the Loan described
herein and the taking of any and all action contemplated herein and therein, and
this Agreement and all other Loan Documents to which such Obligor is a party
constitutes the valid and binding obligations of such Obligor, enforceable
against it in accordance with their terms. No consent or approval of, or
exemption by, shareholders, any Governmental Body or any other Person is
required to authorize, or is otherwise required in connection with the
execution, delivery and performance of, the Loan Documents to which such Obligor
is a party, or is required as a condition to the validity or enforceability of
the Loan Documents to which such Obligor is a party.
5.3 COMPLIANCE WITH LAW (A) Each Obligor is in compliance with all
laws, rules and regulations to which it is subject and has all licenses,
certificates, permits and
29
<PAGE>
franchises and other governmental authorization necessary to own its properties
and to conduct its businesses.
(B) The execution of this Agreement and each other Loan
Document, and the performance by each of the Obligors of its obligations
hereunder and thereunder, do not violate any existing law or regulation or any
writ or decree of any court or Governmental Body or the charter or by-laws of
Borrower or Guarantors or any agreement or undertaking to which such Obligor is
a party or by which it is bound.
5.4 NO LITIGATION There are no judgments against the Obligors and no
litigation or administrative proceeding before any Governmental Body is
presently pending, or to the knowledge of any Obligor, threatened, against any
Obligor or any of their respective property.
5.5 NO FINANCIAL CHANGE There has been no Material Adverse Change in
the condition of the Obligors since their last consolidated financial statements
and reports furnished to Bank and the information contained in said statements
and reports is true and correctly reflects the financial condition of the
Obligors as of the dates of the statements and reports, and such statements and
reports have been prepared in accordance with GAAP and do not contain any
material misstatement of fact or omit to state any facts necessary to make the
statements contained therein not misleading.
5.6 TAX COMPLIANCE Each of the Obligors has filed, or caused to be
filed, all tax returns required to be filed and has paid all taxes shown to be
due and payable on said return or on any assessment made against it.
5.7 GOOD TITLE AND ABSENCE OF LIENS Each of the Obligors has good
and marketable title to all of its properties and assets, real, personal and
mixed, and none of said properties or assets is subject to any Lien, except for
Permitted Encumbrances.
5.8 PLACE OF RECORDS, CHIEF EXECUTIVE OFFICE, INVENTORY AND OTHER
COLLATERAL (A) Each of the Obligors' chief executive offices, and the offices
where it keeps its records concerning any Accounts, and all locations of their
Inventory, and all other business locations of the Obligors are presently at the
locations set forth on Schedule 5.8.
(B) Except as set forth on Schedule 5.8, within four (4) months of
the date of this Agreement, none of Obligors' assets have been moved from any
jurisdiction or other locations than the present locations of assets set forth
on Schedule 5.8 under item (A)(V) except for Inventory purchased by an Obligor
(as applicable) in the ordinary course of business from persons or entities
customarily selling such Inventory.
(C) As of the date hereof no Inventory is now, except as set forth
on Schedule 5.8, stored with a bailee, warehouseman or similar party.
30
<PAGE>
(D) As of the date of this Agreement, Obligors do not hold any Goods
belonging to third parties or in which other parties have an interest, including
any Goods sold on a bill and hold basis, except as set forth on Schedule 5.8.
(E) None of the Obligors presently purchases or otherwise holds
Goods on a consignment basis except as set forth on Schedule 5.8.
(F) Except as set forth on Schedule 5.8 none of the Obligors'
Inventory is of a nature that contains any labels, trademarks, trade names, or
other identifying characteristics which are the properties of third parties, and
the use of which by such Obligor is in violation of the rights of such third
parties or under license, royalty or similar agreements with any third parties.
(G) Except as set forth on Schedule 5.8 no persons hold any Goods of
any Obligor.
(H) Except as set forth on Schedule 5.8, none of the Obligors has
purchased any Inventory except in the ordinary course of business for value and
from persons customarily in the business of selling such Inventory.
(I) Except as set forth on Schedule 5.8, none of the Obligors holds
any Instrument or Chattel Paper connected with any Account.
(J) Except as set forth on Schedule 5.8, none of the Obligors owns
any trademarks, trade names, patents or copyrights.
(K) No surety bonds have been issued on behalf of any Obligor with
respect to any contracts or purchase orders out of which Accounts Receivable
have arisen or are expected to arise.
5.9 WARRANTIES AS TO ACCOUNTS Each of the Obligors warrants that as
to all Accounts reported to Bank: (A) each Account is a valid subsisting Account
as defined herein; (B) each Account represents a bona fide performed
transaction; (C) the amount shown on such Obligor's books and on any invoice or
statement delivered to Bank is owing to such Obligor; (D) no partial payment has
been made; (E) no set-off or counterclaim exists as to any such Account and no
agreement has been made under which any deductions or discount may be claimed
except regular discounts in the usual course of business, but only if disclosed
on the face of the invoice; (F) the Account Debtor has not disputed the Account
or otherwise asserted any defense, set-off or counterclaim; (G) that to the
extent required by law such Obligor is authorized to do business and in good
standing in any state in which any such Account must be enforced; (H) all agings
of Accounts submitted to Bank are true and accurate; and (I) no surety bond was
required or given on behalf of such Obligor in connection with any contracts or
purchase orders under which the Account arose.
31
<PAGE>
5.10 ERISA (A) No Reportable Event or unfunded deficiencies or
failure of compliance with ERISA or the Internal Revenue Code of 1986, as
amended, has occurred and is continuing with respect to any Plan; and (B) the
Obligors have complied with the provisions of ERISA and the Internal Revenue
Code of 1986, as amended, with respect to each Plan.
5.11 LICENSES, PERMITS AND LAWS Each of the Obligors holds all
necessary licenses and permits for the operation of its businesses, including
all permits required under Environmental Laws and each such Obligor has complied
with all laws, rules and regulations applicable to its businesses, including but
not limited to the Fair Labor Standards Act, 29 U.S.C. ss. 215(a)(1). All such
licenses and permits are in good standing and are not under any outstanding
citation issued by any governmental authority, and no litigation has been
instituted nor (to the best knowledge of Borrower) have any claims been made by
any third parties relating to the licenses and permits issued by any
Governmental Body for the operation of their businesses, and no such citation,
litigation or claim, to the best knowledge of the Obligors is contemplated by
any Governmental Body or any third persons nor, to the best knowledge of
Borrower or Guarantor, does there exist any basis for any such citation,
litigation or claim by any of the authorities or any Person.
5.12 ENVIRONMENTAL STATUS As to all properties owned, leased or
operated by any Obligor and to all operations of its businesses:
(A) there is no pending or threatened proceeding affecting such
Obligor with respect to any Environmental Law;
(B) such Obligor has not been identified as a responsible or
potentially responsible party under CERCLA or any other Environmental Laws nor
received notification that any hazardous substance or contaminant has been found
at any site;
(C) none of such properties are listed or proposed for listing on
the National Properties List under CERCLA;
(D) no Hazardous Substance or Hazardous Waste (as such term is
defined in any Environmental Laws) have been disposed of or otherwise released
or discharged on such properties;
(E) no underground storage tanks exist on the properties and any
removal of any such tanks from the properties was undertaken in compliance with
the Underground Storage Tank Act; and
(F) no friable asbestos, or any substance containing asbestos or
PCB's have been installed in or exists on such properties.
5.13 REAFFIRMATION Each and every request for an Advance and other
extensions of credit hereunder shall be deemed as an affirmation by each of the
Obligors that no
32
<PAGE>
Default nor Event of Default exists hereunder and that the representations and
warranties contained in this Article V are true and accurate as of the date of
each such request (notwithstanding that some of the terms hereof speak as of the
date of this Agreement) is in compliance with all applicable laws, rules and
regulations.
5.14 PROCEEDS OF FACILITIES None of the Obligors is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended. No part of the proceeds of the Facilities will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
Governmental Body, including without limitation the provisions of Regulations G,
T, U or X of the Board of Governors of the Federal Reserve System, as amended.
None of the Obligors represents that the proceeds of the Facilities provided for
herein shall be used in manner set forth in Section 2.14 hereof. No proceeds of
any loan or other financial accommodations hereunder shall be used to purchase
or carry any margin stock (within the meaning of Regulation U issued by the
Board of Governors of the Federal Reserve System) or to extend credit to others
for the purpose of purchasing or carrying any margin stock.
5.15 NO SUBSIDIARIES. Borrower has no Affiliates or Subsidiaries as
of the date hereof other than Guarantors, and Guarantors have no Subsidiaries or
Affiliates other than Borrower.
5.16 SOLVENCY The fair value of the business and assets of Borrower
and Guarantors will be in excess of the amount that will be required to pay its
liabilities (including, without limitation, contingent, subordinated, unmatured
and unliquidated liabilities on existing debts, as such liabilities may become
absolute and matured), in each case after giving effect to the transactions
contemplated by this Agreement and the use of proceeds therefrom. Borrower and
Guarantors, after giving effect to the transactions contemplated by this
Agreement and the use of proceeds therefrom, will not be engaged in any business
or transaction, or about to engage in any business or transaction, for which
such Person has an unreasonably small capital (within the meaning of the Uniform
Fraudulent Transfer Act, as adopted in the State of New Jersey and Section 548
of the Federal Bankruptcy Code), and none of the Borrower and Guarantors has any
intent to (A) hinder, delay or defraud any entity to which it is, or will
become, on or after the date hereof, indebted, or (B) to incur debts that would
be beyond its ability to pay as they mature.
5.17 NO DEFAULT None of the Obligors is in default under or with
respect to any of its Contractual Obligations in any respect which could have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
5.18 FULL DISCLOSURE Neither this Agreement nor any other Loan
Document or certificate, written statement or other document furnished to Bank,
or to any appraiser or engineer employed or engaged by Bank, by or, to the
knowledge of any Obligor, on behalf of any Obligor in connection with the
transactions contemplated by this Agreement and the other Loan Documents,
contains any untrue statement of a material fact or omits to state a
33
<PAGE>
[MISSING FOLIO 34]
<PAGE>
VI
AFFIRMATIVE COVENANTS
6.1 AUDIT AND OTHER REPORTS (A) The Obligors agree that within ninety (90)
days of the close of each fiscal year, they will furnish Bank with a detailed
report of audit, including a balance sheet, statements of financial condition,
profit and loss statement, income and cash flow statement, reconciliation of net
worth, notes to financial statements, all calculated on a consolidated basis and
certified on an unqualified basis, by an independent certified public accountant
satisfactory to Bank; (B) the Obligors will also furnish within sixty (60) days
of the close of each fiscal quarter, quarterly financial statements internally
prepared by management of the Borrower, all calculated on a consolidated basis
and prepared in a format acceptable to Bank; (C) Simultaneously with the
submission of the statements required under subsections (A) and (B) above, the
Obligors shall cause to be submitted to Bank a certificate of the Obligor's
accountants (as to its year-end statements) and Obligors' respective chief
financial officers in the form of Exhibit E annexed hereto (i) certifying the
financial information as true, correct and complete, (ii) certifying that all
representations and warranties set forth in the Loan Documents are true and
correct, (iii) setting forth the calculations of the financial tests described
in Section 7.2 hereof and attesting that none of the covenants set forth in this
Agreement have been breached and (iv) certifying that no event has occurred
which, with the passage of time and/or giving of notice, would constitute a
Default or Event of Default; (D) the Obligors shall notify Bank promptly, but no
later than five (5) days after a responsible officer of each Obligor shall
become aware of the following events (i) a Reportable Event or "prohibited
transaction" as such term is defined in ERISA, (ii) the occurrence of an event
which, with the passage of time and/or giving of notice, would constitute a
Default or Event of Default, (iii) the commencement of any proceeding or
litigation or other event which, if adversely determined, would adversely affect
any Obligor's financial condition or its ability to conduct business, (iv)
changes in the executive management of the Obligors, and (v) the termination or
threatened termination of or claim of breach by any Obligor of any material
contract, agreement or obligation, or of any claim of patent infringement, a
written notice specifying the existence thereof and the action Borrower is
taking or proposes to take with respect thereto; (E) the Obligors will furnish
to Bank prompt written notice if (i) any Indebtedness of any Obligors is
declared or shall become due and payable prior to its stated maturity, or called
and not paid when due or (ii) a default shall have occurred under any note or
the holder of any such note, or other evidence of Indebtedness, certificate of
security evidencing any such Indebtedness or any obligee with respect to any
other Indebtedness of any Obligor has the right to declare any such Indebtedness
due and payable prior to its stated maturity as a result of such default; (F)
Obligors agree to furnish to Bank with reasonable promptness such other data and
information concerning the Obligors as from time to time may be reasonably
requested by Bank; (G) Obligors agree to furnish Bank within ninety (90) days
after the close of each fiscal year, an unqualified management letter by an
independent accounting firm acceptable to Bank; (H) submission to the Bank, as
and when filed with the SEC, copies of Borrower's form 10-K, 10-Q, 8-K, as well
as any registration statements and/or proxy statements filed with the SEC or any
other state securities bureau or authority or any foreign securities authority;
and (I) immediately upon receipt of same, furnish to the Bank prompt notice of
any stop order or suspension of trading or any delisting (voluntary or
involuntary) of Borrower's
35
<PAGE>
securities traded on the NASDAQ. All financial statements shall be prepared in
accordance with GAAP.
6.2 INSURANCE Obligors agree to keep all of the tangible Collateral
assigned hereunder insured and obtain business interruption insurance, at their
own cost and expense, for the benefit of Bank, and in such amounts, in such
companies, and against such risks as may be acceptable to Bank, and deliver the
policies evidencing such insurance to Bank. If any of the Obligors fail to take
the action called for herein, Bank may, in its discretion obtain insurance
covering Bank's interest in the Collateral and the amount of the premium for
said insurance shall be added to the Obligations of the Obligors to Bank. All
policies of insurance on the Collateral shall be in form and with insurers
recognized as adequate by prudent business persons and all such policies shall
be in such amounts as may be satisfactory to Bank. Each of the Obligors shall
deliver to Bank the original (or certified copy) of each policy of insurance and
evidence of payment of all premiums therefor. Such policies of insurance shall
contain an endorsement, in form and substance satisfactory to Bank showing loss
payable to Bank. Such endorsement or an independent instrument furnished to
Bank, shall provide that the insurance companies will give Bank at least thirty
(30) days prior written notice before any such policy or policies of insurance
shall be altered or canceled and that no act or default of any Obligor or any
other Person shall affect the right of Bank to recover under such policy or
policies of insurance in case of loss or damage. The Obligors each hereby direct
all insurers under such policies of insurance to pay all proceeds payable
thereunder directly to Bank. Each of the Obligors irrevocably makes, constitutes
and appoints Bank (and all officers, employees or agents designated by Bank) as
its true and lawful attorney (and agent-in-fact) for the purpose of making,
settling and adjusting claims under such policies of insurance (provided that
until an Event of Default exists, Bank shall consult with the applicable
Obligors prior to finally making, settling or adjusting claims under such
policies of insurance), endorsing the name of Borrower or Guarantors (as
applicable); on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. In the event any Obligor
at any time or times hereafter, shall fail to obtain or maintain any of the
policies of insurance required above or to pay any premium in whole or in part
relating thereto, then Bank, without waiving or releasing any obligation or
default by Borrower or Guarantors (as applicable) hereunder, may (but shall be
under no obligation to do so) at any time or times thereafter obtain and
maintain such policies of insurance and pay such premium and take any other
action with respect thereto which Bank deems advisable. All sums so disbursed by
Bank, including reasonable attorneys' fees, court costs, expenses and other
charges related thereto, shall be payable, on demand, by the Obligors to Bank
and shall be additional Obligations hereunder secured by the Collateral. The
Obligors also agree to at all times maintain insurance, both hazard and
liability, against such risks and in such amounts as reasonably prudent to
companies similarly situated as any applicable Obligors would maintain and to
furnish to each Bank from time to time evidence that such insurance is in full
force and effect.
6.3 PAYMENT OF EXPENSES The Obligors will pay any and all expenses,
including reasonable counsel fees and disbursements, filing and recording fees
and taxes, and all
36
<PAGE>
other charges and expenses incurred or to be incurred by Bank in connection with
the preparation and execution and recording of this Agreement and all other Loan
Documents, and the Facilities made under this Agreement and all amendments and
modifications hereto and in defending or prosecuting any actions or proceedings
or otherwise enforcing any rights arising out of or relating to Bank's
transactions with Borrower and Guarantors.
6.4 [INTENTIONALLY OMITTED]
6.5 LANDLORD'S WAIVER Borrower and Guarantors shall cause the
landlord of all premises where any of the Collateral provided for herein may be
located (including without limitation, any premises now or hereafter leased by
Borrower or Guarantors) to execute and deliver to Bank a landlord's waiver in
the form set forth on Exhibit F.
6.6 GOOD WORKING CONDITION Each of Borrower and Guarantors shall
maintain all of its property in good working condition, ordinary wear and tear
excepted.
6.7 REPORTS OF COLLATERAL Each of Borrower and Guarantors shall, on
or before January 15, and July 15 of each year deliver to Bank an aging of its
Accounts and report of its Inventory, and an aging of its accounts payable in
such form as may be acceptable to Bank as to the preceding six (6) month period
and, within twenty (20) days of the close of each month, deliver to Bank a duly
completed accounts receivable reconciliation report in the form of Exhibit H
annexed hereto.
6.8 OBSERVANCE OF LEGAL REQUIREMENTS, LICENSES AND PERMITS AND
PROTECTION OF COLLATERAL
(A) Each Obligor shall comply with any and all laws, legislation,
rules and regulations in effect as of the date hereof and subsequent hereto,
including but not limited to all state, local and federal laws, legislation,
rules and regulations relating to employee pension and benefit funds, the
payment of taxes, assessments, and other governmental charges, zoning, and the
use, occupancy, transfer or encumbering of the Collateral and all Environmental
Laws, except with respect to the payment of taxes, assessments and other
governmental charges, as such payments thereof shall be contested in good faith
and by appropriate proceedings diligently conducted by Obligors, provided that
adequate reserves shall have been maintained therefor. Each of the Obligors
agrees to comply with all reasonable conditions required by Bank designed to
protect Bank and the Collateral from the effect of all Environmental Laws, ERISA
and such other laws, legislation, rules and regulations as are in, or may come
into, effect and apply to a Borrower, Bank, the transactions contemplated hereby
or the Collateral or any occupants or users thereof, whether as lessees,
tenants, licensees or otherwise. Each of the Obligors agrees to pay any costs
required to comply with any of the above conditions.
(B) Each of the Obligors (as applicable) shall observe and comply in
all material respects with all laws (including ERISA), ordinances, orders,
judgments, rules, regulations, certifications, franchises, permits, licenses,
directions and requirements of all
37
<PAGE>
Governmental Bodies, which now or at any time hereafter may be applicable to
each of the Obligors and the operation of its business.
(C) Each of the Obligors will continue to hold all necessary
licenses and permits for the operations of its business.
(D) Each of the Obligors shall, in the event that any Lien shall be
filed against its Collateral by any Governmental Body in connection with the
discharge of hazardous substances or waste, either (i) pay such amounts
necessary to discharge the Lien or (ii) furnish to such Governmental Body a
bond, cash deposit or security necessary to discharge such Lien.
(E) Each of the Obligors shall promptly clean up any hazardous
substances or waste discharged without a proper permit therefor in accordance
with Environmental Laws.
(F) Each of the Obligors shall comply in all respects with the
Securities Acts.
6.9 INSPECTION Bank (by any of its officers, employees and agents)
shall have the right, at any time or times during Obligors' usual business
hours, to inspect the Collateral, all records related thereto, all financial
records, and the premises upon which any of the Collateral is located, to make
extracts from and/or audit such records, to discuss Obligors' affairs and
finances with any Person (including without limitation, Obligors' officers and
outside accountants) and to verify the amount, quality, quantity, value and
condition of, or any other matter relating to, the Collateral or Obligors.
6.10 COLLATERAL REQUIREMENTS Each Obligor will (A) furnish to Bank
all original and other documents evidencing right to payment including but not
limited to invoices, original orders, shipping and delivery receipts; (B) give
Bank such financial statements, reports, lists of Account Debtors and other data
concerning its Accounts, contracts and collections and the other Collateral, or
any other matters which Bank may, from time to time specify; (C) permit Bank or
its nominee to examine each Obligor's records at any time and to make extracts
therefrom; (D) notify Bank immediately in writing if any of its Accounts arise
out of contracts between any Obligor and the United States or any department,
agency or instrumentality thereof, or any other governmental body and take all
steps necessary to protect Bank under the Federal Assignment of Claims Act or
other applicable state or local statutes or ordinances; (E) deliver to Bank,
appropriately endorsed, any Instrument or Chattel Paper connected with any
Account; (F) collect its Accounts in the ordinary course of business and prior
to a Default sell its Inventory only in the ordinary course of business for
value to buyers in the ordinary course of business; (G) not sell or transfer
after a Default any of its Inventory; (H) keep accurate and complete records of
its Account Equipment and Inventory; (I) promptly notify Bank in writing of any
trademarks, trade names, patents or copyrights which it may hereafter own or
obtain a license to use or under which it may issue invoices; and (J) maintain
its Equipment in good working order and in accordance with the manufacturers'
manuals therefor.
38
<PAGE>
6.11 CONTROL OF ACCOUNTS
(A) Bank shall have the right at any time after an Event of Default
to notify Account Debtors to make payments to Bank, to endorse all items of
payment which may come into its hands payable to Borrower or Guarantors, to take
control of any cash or non-cash proceeds of Accounts and of any returned or
repossessed goods; to compromise, extend or renew any Account or deal with it as
it may deem advisable, and to make exchanges, substitutions or surrenders of
Collateral, to notify the postal authorities, to deliver all mail,
correspondence or parcels addressed to Borrower or Guarantors to Bank at such
address as Bank may choose.
(B) Each of Borrower and Guarantor herewith appoints Bank or its
designee as attorney-in-fact to endorse Borrower's or Guarantors' names (as
applicable) on any checks, notes, acceptances, drafts or any other Instrument or
document requiring said endorsement and to sign Borrower's names on any invoice
or bills of lading relating to any Account, or drafts against its customers, or
schedules or confirmatory assignment on Accounts, or notices of assignment,
financing statements under the Uniform Commercial Code, and other public
records, and in verification of Accounts and in notices to Account Debtors.
(C) Bank shall have no obligation to preserve any rights against any
Person obligated on any Account, Chattel Paper, Instrument or other item of
Collateral.
6.12 CHANGE OF LOCATIONS Each of Borrower and Guarantors will
furnish Bank with at least ten (10) days prior written notice of any change in
location of or addition to its chief executive office, the office where it keeps
its records concerning its accounts, its location of Inventory, Equipment and
other assets, and other business locations.
6.13 DEPOSITORY RELATIONSHIPS Each of Borrower and Guarantors agrees
to maintain at Bank its primary depository relationship, as well as all of its
cash management accounts.
39
<PAGE>
VII
NEGATIVE COVENANTS
7.1 LOANS, ADVANCES AND INVESTMENTS Each of Borrower and Guarantors
will not, without prior written consent of Bank, make any loans or advances to
or investment in any Person except for Investment Obligations and Permitted
Advances not to exceed in the aggregate during any fiscal year $10,000 to any
Person and $20,000 in the aggregate.
7.2 FINANCIAL COVENANTS
(A) Total Liabilities to Tangible Net Worth. Borrower and Guarantors
will not allow their ratio of Total Liabilities to Tangible Net Worth (on a
consolidated basis) to exceed:
from the Closing Date to March 31, 1998 - 1:00 to 1:00;
from April 1, 1998 through the Maturity Date - 1.25:1.00.
(B) Tangible Net Worth. Borrower and Guarantors shall not permit
their Tangible Net Worth (on a consolidated basis) to be less than the following
amounts at the following times:
from the Closing Date to March 31, 1998 - $8,500,000; and
from April 1, 1998 through March 31, 1999 $9,500,000; and
from April 1, 1999 through the Maturity Date - $10,500,000.
(C) Quick Ratio. Borrower and Guarantors shall not permit their
Quick Ratio (on a consolidated basis) at any time to be less than 2.00 to 1.00.
7.3 LIENS Neither Borrower nor Guarantors will allow or suffer any
Lien to exist on any of its assets except for Permitted Encumbrances.
7.4 LIMITATION ON INDEBTEDNESS Neither Borrower nor Guarantors will
create, incur, assume or suffer to exist any Indebtedness, whether by direct
borrowing or credit or by guaranty or surety agreement, except Permitted
Indebtedness.
7.5 CERTIFICATE OF INCORPORATION AND BY-LAWS Neither Borrower nor
any of the Guarantors will amend or otherwise modify its Certificate of
Incorporation, By-Laws or other organizational documents.
40
<PAGE>
7.6 TRANSACTIONS AMONG AFFILIATES Neither Borrower nor Guarantors
will become a party to any transaction with an Affiliate or Subsidiary of
Borrower (other than the Guarantors) unless the terms and conditions relating to
such transaction are as favorable to Borrower or Guarantor (as applicable) as
would be obtainable at the time in a comparable arms-length transaction with a
Person other than an Affiliate or Subsidiary or pay or incur any obligation to
pay any management, service, consulting or similar fees to any Affiliate or
Subsidiary (other than the Guarantors).
7.7 SPECIAL COVENANTS AS TO ASSETS Each of Borrower and Guarantors
covenants that until satisfaction in full of all Obligations to Bank and until
termination of this Agreement:
(A) no Inventory shall be stored with a bailee, warehouseman or
similar party without Bank's prior written consent and, if Bank gives such
consent, the Borrower and Guarantors (as applicable) will concurrently therewith
cause any such bailee, warehouseman or similar party to issue and deliver to
Bank, in form and substance acceptable to Bank, warehouse receipts therefor in
Bank's name;
(B) neither Borrower nor Guarantors will hold any Goods belonging to
third parties or in which other parties have an interest, including any Goods
sold on a bill and hold basis, except as set forth on Schedule 5.8;
(C) neither Borrower nor Guarantors will purchase or otherwise hold
Goods on a consignment basis except as set forth on Schedule 5.8;
(D) except as set forth on Schedule 5.8 none of the Borrowers' nor
Guarantors' Inventory will be of a nature that contains any labels, trademarks,
trade names, or other identifying characteristics which are the property of
third parties, and the use of which by Borrower or Guarantor is in violation of
the rights of such third parties or a violation of any license, royalty or
similar agreements with any third parties;
(E) except as set forth on Schedule 5.8, Borrower nor Guarantors
will allow any Goods of Borrower or any further (as applicable) to be held by
any Person in the future.
(F) except upon prior written notice to Bank, neither Borrower nor
Guarantors will in the future purchase any Inventory except in the ordinary
course of business from Persons customarily in the business of selling such
Inventory.
(G) neither Borrower nor Guarantors will, without prior written
consent of Bank, remove the Collateral from its present location, except for the
removal of Inventory upon its sale in the ordinary course of business or
transfers of Inventory to any other facility of the Obligors as to which
facility appropriate UCC-1 financing statements shall have been filed.
41
<PAGE>
(H) neither Borrower nor Guarantors will sell or transfer any
Inventory to any Affiliate or Subsidiary (other than the Guarantors);
(I) neither Borrower nor Guarantors will sell, lease or transfer any
of its Inventory or other assets except for sales of Inventory in the ordinary
course of business to good faith purchasers for value; and
(J) neither Borrower nor Guarantors will not cause any surety bonds
to be issued on its behalf in connection with any contracts or purchase orders
except upon not less than ten (10) days prior written notice to Bank.
7.8 PREPAYMENTS OF INDEBTEDNESS neither Borrower nor Guarantors will
prepay or obligate itself to prepay in whole or in part, any Indebtedness (other
than any Indebtedness due hereunder).
7.9 FISCAL YEAR neither Borrower nor Guarantors will change its
fiscal years from a March 31 fiscal year end without the prior written consent
of Bank.
7.10 CHANGE IN CONTROL neither Borrower nor Guarantors will make or
suffer a change in management of Borrower or Guarantor (as applicable) which
might (in Bank's determination) effectively cause undesirable results in
Borrower's or Guarantor's (as applicable) operations and financial performance.
Borrower shall not sell or transfer any stock or other equity interest or issue
any additional stock or other equity interest in Borrower or options or warrants
for the issuance of stock or other equity interest in Borrower other than the
issuance of common stock to Borrower's existing stockholders and the issuance of
options and shares of common stock into which such options are exercisable under
the two (2) stock option plans adopted by the Borrower entitled the "1996
Incentive Stock Option Plan" and the "1997 Associate Stock Option Plan."
Notwithstanding anything else to the contrary, no such options shall be granted
nor shall any common stock be issued upon the exercise of any such option if
there shall then be existing any Event of Default or any Event of Default shall
arise from such exercise or issuance.
7.11 CHANGE IN ACCOUNTING PRINCIPLES Neither Borrower nor Guarantors
will change or permit any change in accounting principles applied to Borrower
nor Guarantors, except as required by GAAP.
7.12 SALE AND LEASEBACK Neither Borrower nor Guarantors will enter
into any arrangement with any Person providing for the leasing by Borrower or
Guarantors (as applicable) of property which has been or is to be sold or
transferred by Borrower or Guarantors (as applicable) to such Person or to any
other Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of Borrower.
42
<PAGE>
7.13 MAINTAIN CORPORATE EXISTENCE AND NATURE OF BUSINESS
(A) Neither Borrower nor Guarantors will allow its corporate
existence to be other than in good standing and will not dissolve or liquidate
(or discontinue their normal operations with the intent to liquidate), or merge
or consolidate with or acquire or affiliate with any other business entity or
form any Subsidiary or Affiliate or sell all or substantially all of its Assets.
(B) Neither Borrower nor Guarantors will change its corporate or
trade names without furnishing to Bank at least ten (10) days prior written
notice thereof.
(C) Neither Borrower nor Guarantors will utilize any trade name not
set forth on Schedule 5.8 without furnishing to Bank at least ten (10) days
prior written notice thereof.
(D) Neither Borrower nor Guarantors will change the nature of its
businesses.
7.14 DIVIDENDS, REDEMPTIONS Neither Borrower nor Guarantors will pay
or declare any cash or property dividends, nor otherwise make a withdrawal or
distribution of capital or income, nor redeem, retire, repurchase or otherwise
acquire or set aside reserves to acquire any stock, partnership or other
ownership interest of Borrower or Guarantor of any Subsidiary or Affiliate if a
Default or Event of Default exists hereunder or any such action would cause a
Default or Event of Default to occur hereunder.
7.15 DISCHARGE OF HAZARDOUS WASTE Neither Borrower nor Guarantors
shall cause or permit to exist a discharge of hazardous substances or waste
resulting in damage to natural resources, unless such discharge is in compliance
with the conditions of a valid permit issued by the appropriate Governmental
Body.
7.16 LEASES Neither Borrower nor Guarantors shall enter into any
leases of real property, other than Permitted Leases.
43
<PAGE>
VIII
EVENTS OF DEFAULT
The occurrence of any of the following shall constitute an Event of
Default:
8.1 NON-PAYMENT Failure on the part of Borrower or Guarantors to pay
any Obligation to Bank when due.
8.2 NON-PERFORMANCE (a) Failure on the part of any Obligor to
perform its Obligations when due under Article VIII hereof or under Section 6.1,
6.2, 6.3, 6.9, 6. 10 and 6.12 hereto; or (b) other than as provided in Section
8.2(a), failure on the part of any Obligor to perform when such performance is
due any term, covenant or condition contained in any Loan Document or any other
agreement now existing or hereafter entered into with Bank, or in any document
executed in connection with any such agreements within thirty (30) days after
the Bank shall have notified such Obligor in writing of such failure.
8.3 MISREPRESENTATION Any representation, covenant or warranty made
by any Obligor in this Agreement, or any Loan Document, or in connection with
any instrument of guaranty or security furnished to Bank shall have proved to
have been inaccurate in any substantial or material respect as of the date or
dates with respect to which it is made or deemed to have been made.
8.4 OTHER LIEN Any Obligor shall have caused or permitted a security
interest or Lien, perfected or otherwise, other than the security interest and
Liens specifically provided for or permitted hereunder, to be created in any of
its assets, or shall have failed to take any action requested by Bank to perfect
or protect the security interests and Liens provided for herein.
8.5 INSOLVENCY Any Obligor shall have applied for or consented to
the appointment of a custodian, receiver, trustee or liquidator of all or a
substantial part of its assets; a custodian shall have been appointed with or
without consent of such Obligor; any Obligor is generally not paying its debts
as they become due, has made a general assignment for the benefit of creditors;
has been adjudicated insolvent, or has filed a voluntary petition in bankruptcy,
or a petition or an answer seeking reorganization or an arrangement with
creditors or to take advantage of any insolvency law, or an answer admitting the
material allegations of a petition in any bankruptcy, reorganization or
insolvency proceeding; or taken corporate action for the purpose of effecting
any, of the foregoing; or an order, judgment or decree shall have been entered,
without the application, approval or consent of any Obligor by any court of
competent jurisdiction approving a petition seeking reorganization of Borrower,
or appointing a receiver, trustee, custodian or liquidator of such Obligor, or a
substantial part of its assets and such order, judgment or decree shall have
continued unstayed and in effect for any period of forty-five (45) consecutive
days; or a petition in bankruptcy shall have been filed against any Obligor and
shall not have been dismissed for a period of thirty (30) consecutive days, or
if an Order for Relief
44
<PAGE>
has been entered under the Bankruptcy Code, or if any Obligor shall have
suspended the transaction of its usual business.
8.6 JUDGMENT OR LIEN Entry of a judgment, issuance of any
garnishment, attachment or distraint, the filing of any lien or of any
governmental attachment against any property of any Obligor in an amount (in the
aggregate or alone) of $10,000 which entry, issuance, attachment or filing shall
have continued unstayed and in effect for a period of thirty (30) consecutive
days.
8.7 NONCOMPLIANCE WITH LEASES OR LAWS Failure of any Obligor to
comply with the material terms and conditions of any lease covering the premises
where any of its assets are located, including the Collateral and any orders,
ordinances, laws or statutes of any city, state or other governmental department
having jurisdiction with respect to such premises or the conduct of business
thereon.
8.8 ORGANIZATIONAL CHANGE Any change in the existing corporate
organization of any Obligor, including but not limited to a change to a
partnership (general or limited), limited liability company or the dissolution
of any Obligor.
8.9 INSECURITY If Bank shall deem itself insecure.
8. 10 IMPAIRMENT OF RESPONSIBILITY Occurrence of any event which, in
the opinion of Bank, impairs the financial responsibility of any Obligor.
8.11 ADVERSE CHANGE The determination by Bank that a Material
Adverse Change has occurred of any Obligor.
8.12 MISREPRESENTATION OF FACT The determination by Bank that a
material misrepresentation of fact has been made by any Obligor in any writing
supplementary or ancillary hereto.
8.13 ERISA If (A) any Reportable Event occurs and shall be
continuing for thirty (30) days after notice from Bank to any Obligor, or (B)
any Plan shall be terminated, or (C) the Plan administrator of any Plan shall
file with the PBGC a notice of intention to terminate such Plan, or (D) the PBGC
shall institute proceedings to terminate any Plan or appoint a trustee to
administer any Plan, and, if in any of the cases set forth in (A) through (D)
above, Bank reasonably determines in good faith that any Plan will be terminated
and that the amount of the unfunded guaranteed benefits (within the meaning of
Title IV of ERISA) resulting upon termination of such Plan would have a material
adverse effect on the financial condition and properties or operation of any
Obligor if a lien against the assets of Borrower were to result under ERISA.
8.14 DEFAULT IN OBLIGATIONS TO THIRD PARTIES Any Obligor is in
default beyond any applicable grace or cure period of any obligation for in
excess of $10,000
45
<PAGE>
(in the aggregate), unless such Obligor is contesting such default in good faith
and shall have set aside on its books adequate reserves to satisfy any claims
arising therefrom.
8.15A. DEFAULT IN OBLIGATIONS TO BANK OR ITS AFFILIATES Any Obligor
or any Affiliate of any Obligor in default beyond any applicable grace or cure
period of any obligation of any Obligor, or any affiliate of any Obligor to Bank
or any affiliate or Bank other than those existing under the Loan Documents.
8.15B. TERMINATION OF DISTRIBUTION AGREEMENT. The Distribution
Agreement between the Borrower and Rich City International Packaging Limited
shall for any reason terminate or otherwise cease to be in full force and
effect.
8.15 LICENSES If any license or permit necessary for the continued
operation of Borrower's or any of the Obligor's customary business is revoked,
suspended, terminated or not renewed.
46
<PAGE>
IX
CONSEQUENCE OF EVENT OF DEFAULT
In case any Event of Default shall have occurred, then and in every
such Event of Default, Bank may take any or all of the following actions, at the
same time or at different times, provided that upon the occurrence of an Event
of Default under Section 8.5 hereof the Facilities shall automatically terminate
and all Obligations shall automatically be immediately due and payable;
9.1 ACCELERATION Declare the Facilities, sums and Obligations owing
Bank from Borrower and any other Obligors under this Agreement or any other
agreement or loan between Bank and Borrower and such other Obligors to be
forthwith due and payable, whereupon all such sums shall forthwith become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by Borrower and any other Obligor and
the Commitment shall be terminated.
9.2 POSSESSION Proceed with or without judicial process to take
possession of all or any part of the Collateral provided for herein not already
in the possession of Bank and Borrower and each other Obligor agrees that upon
receipt of notice of Bank's intention to take possession of all or any part of
said Collateral, Borrower and such other Obligors will do everything reasonably
necessary to assemble the Collateral and make same available to Bank at a place
to be designated by Bank. Each of Borrower and any other Obligor hereby waives
any and all rights it may have, by statute, constitution or otherwise to notice
or a hearing to determine the probable cause of Bank to obtain possession, by
Court proceedings or otherwise, of the Collateral provided for in this or in any
other agreement with Bank.
9.3 METHODS OF SALE So long as Bank acts in a commercially
reasonable manner, assign, transfer and deliver at any time or from time to time
the whole or any portion of the Collateral or any rights or interest therein in
accordance with the Uniform Commercial Code, and without limiting the scope of
Bank's rights thereunder, Bank may sell the Collateral at public or private
sale, or in any other manner, at such price or prices as Bank may deem best, and
either for cash or credit, or for future delivery, at the option of Bank, in
bulk or in parcels and with or without having the Collateral at the sale or
other disposition. Bank shall have the right to be the purchaser at any public
sale. Bank shall have the right to conduct such sales on Borrower's and any
other Obligor's premises or elsewhere and shall have the right to use Borrower's
premises without charge for such sales for such time or times as Bank may see
fit. Bank is hereby granted license or other right to use, without charge,
Borrower's and each other Obligor's labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks and advertising matter, or
any property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrower's rights under all
licenses and franchise agreements shall inure to Bank's benefit. Each of
Borrower and each other Obligor hereby agrees that a reasonable means of
disposition of Accounts shall be for Bank to hold and liquidate any and all
Accounts. In the event of a sale of the Collateral, or any other
47
<PAGE>
disposition thereof, Bank shall apply all proceeds first to all costs and
expenses of disposition, including attorneys' fees, and then to the Obligations
of Borrower to Bank.
9.4 RETENTION OF COLLATERAL Elect to retain the Collateral or any
part thereof in satisfaction of all Obligations due from Borrower and any other
Obligors to Bank upon notice of such proposed election to Borrower or any other
Obligors and any other party as may be required by the Uniform Commercial Code.
9.5 SET-OFF Bank shall have the right immediately, and without
notice or other action to set-off against any of the Obligations to Bank any sum
owed by Bank in any capacity to Borrower or any other Obligor whether due or
not, and Bank shall be deemed to have exercised such right of set-off and to
have made a charge against any such sum immediately upon the occurrence of such
Event of Default, even though the actual book entries may be made at some time
subsequent thereto.
9.6 ATTORNEYS' FEES AND EXPENSES Add to the Obligations of Borrower
and the other Obligors, Bank's reasonable expenses to obtain or enforce payment
of any Obligations hereunder and the enforcement or liquidation of any debt
hereunder shall include reasonable attorneys' fees plus other legal expenses
incurred by Bank.
9.7 INCREASE IN INTEREST/LATE CHARGE Increase the rate of interest
under any Obligations to the Default Rate. Unless otherwise agreed by Bank, this
increase in interest rate shall be retroactive to the date of the first
occurrence of an Event of Default. Add a late charge of five percent (5%) of any
payment of principal or interest required to be made by Borrower to Bank for
each month or portion thereof such payment remains unpaid, such period to begin
ten (10) days after such payment is required to be made.
9.8 BANK'S PERFORMANCE OF OBLIGATIONS If Borrower fails to comply
with any of the covenants or perform any of its obligations set forth herein or
in any other Loan Document, Bank may, but shall have no obligation to, perform
any such obligations or undertake any act to cause such covenant to be complied
with, including, but not limited to, discharging any Lien on any asset other
than Permitted Encumbrances. Any and all sums, and all costs and expenses
incurred by Bank in so performing or causing compliance, shall be payable on
demand together with interest at the default rate provided for in Section 9.7
hereof from the date of any such payment by Bank until the date paid by Borrower
or any other Obligor. Any such performance by Bank shall not cure any Default or
Event of Default by Borrower or such other Obligor.
9.9 OTHER REMEDIES Exercise any other remedies under the Uniform
Commercial Code or other applicable law, or any other Loan Document, including
but not limited to proceeding to enforce its right by suit in equity, action at
law or other appropriate proceeding, whether for payment or the specific
performance of the covenants or agreements contained in this Agreement or any
other Loan Document.
48
<PAGE>
X
MISCELLANEOUS
10.1 NO WAIVER Each Obligor agrees that no delay on the part of Bank
in exercising any power or right hereunder or any other Loan Document shall
operate as a waiver of any such power or right, nor act as a consent to any
departure by any Obligor from any of the terms or conditions hereof or thereof,
preclude other or further exercise thereof, or the exercise of any other power
or right. No waiver whatsoever shall be valid unless in writing signed by Bank
and then only to the extent set forth therein.
10.2 MODIFICATION OR AMENDMENT This Agreement and every other Loan
Document cannot be changed orally and cannot be changed by an executory
agreement unless such agreement is in writing and signed by all parties hereto
by their duly authorized officers.
10.3 WAIVER OF NOTICE Each Obligor waives presentment, dishonor and
notice of dishonor, protest and notice of protest of all commercial papers at
any time held by Bank on which any Obligor is in any way liable.
10.4 ONE INSTRUMENT The provisions of this Agreement shall be in
addition to those of any notes or other evidence of the Obligations held by Bank
relating to this particular transaction, all of which shall be construed as one
instrument.
10.5 LAW OF NEW JERSEY This Agreement and all other Loan Documents
and the rights of the parties hereto and thereto shall be governed by the
internal laws of the State of New Jersey without regard to conflict of laws.
10.6 JURISDICTION Each Obligor hereby irrevocably consents to the
jurisdiction of the Courts of the State of New Jersey or any Federal Court in
such State in connection with any action or proceeding arising out of or related
to this Agreement or any other Loan Document. In any such litigation, each
Obligor waives personal service of any summons, complaint or other process and
agree that service may be made by certified or registered mail to them, at the
address provided herein.
10.7 SUCCESSORS OR ASSIGNS This Agreement and all other Loan
Documents shall be binding upon and shall inure to the benefit of the parties
hereto, their respective successors and assigns, provided, however, that the
Obligors shall not have any right to assign any of their rights hereunder.
10.8 RIGHTS CUMULATIVE The rights and remedies herein expressed or
in any other Loan Document to be vested in or conferred upon Bank shall be
cumulative and
49
<PAGE>
shall be in addition to and not in substitution for or in derogation of the
rights and remedies conferred upon secured creditors by the Uniform Commercial
Code or any other applicable law.
10.9 LIMITATION OF LIABILITY No claim may be made by Borrower or any
other Obligor or other Person against Bank or, as the case may be, directors,
officers, employees, attorneys or agents of Bank for any special, punitive,
indirect or consequential damages in respect of any claim for breach of contract
arising out of or related to the transactions contemplated by this Agreement, or
any act, omission or event occurring in connection therewith; and Borrower and
the other Obligors hereby waive, release and agree not to sue upon any claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor.
10.10 NOTIFICATION OF DISPOSITION OF COLLATERAL Any notification of
a sale or other disposition of the Collateral will be sufficient if given in the
manner set forth in Section 10.11 hereof not less than five (5) days prior to
the day on which such sales or other disposition will be made, and such
notification shall be deemed reasonable notice.
10.11 ADDRESSES OF NOTICES Any written notice required or permitted
to be given by this Agreement and the other Loan Documents shall be given or
made in writing, including telecopy, and shall be, as elected by the party
giving such notice, served personally by messenger or courier service,
telecopied (followed up by a mailing), or mailed in the United States by
prepaid, registered or certified mail, return receipt requested, to the
following:
If to any Obligor:
Leading Edge Packaging, Inc.
176 Northfield Avenue
Building 409, Raritan Center
Edison, New Jersey 08837
Attn: Casey K. Tjang, Chief Financial Officer
Fax #: (732) 225-6300
with a copy (except
for routine notices with
respect to borrowings
hereunder and
the like) to:
Bondy & Schloss
6 East 43rd Street
New York, New York
Attention: Robert J. Haber, Esq.
Fax #: (212)972-1677
50
<PAGE>
If to Bank:
FIRST UNION NATIONAL BANK
550 Broad Street
Newark, New Jersey 07102
Attn: Joseph J. Lebel, III, Vice President
Fax #: (732) 819-4177
with a copy (except
for routine notices
with respect to borrowings
hereunder and the like) to:
RIKER, DANZIG, SCHERER, HYLAND & PERRETTI LLP
Headquarters Plaza
One Speedwell Avenue
Morristown, New Jersey 07962-1981
Attn: Mark S. Rattner, Esq.
Fax #: (973) 538-1984
Any notice given in accordance with the provisions of this section shall be
deemed effective, if hand delivered, on the date of such delivery, or on the
date telecommunicated if telecopied, or if mailed, on the date upon which the
return receipt is signed or delivery refused or the notice is designated by the
postal authorities as not deliverable, as the case may be. Each party may give
notice to each of the other parties of a change of its address for the purpose
of giving notice under this section which, thereafter until changed by like
notice, shall be the address of such party for purposes of this Agreement. Any
failure to provide notice to the parties' attorneys shall not affect the
validity of any otherwise proper notice.
10.12 TITLES The titles and headings indicated herein and any table
of contents are inserted for convenience only and shall not be considered a part
of this Agreement or in any way limit the construction or interpretation of this
Agreement.
10.13 DISCLOSURE Bank is hereby authorized to disclose any financial
or other information it may have about the Obligors or any affiliate of any
Obligor to any present or future participant or prospective participant, any
regulatory body or agency having jurisdiction over Bank, or to any Person which
succeeds to all or any part of Bank's interest herein.
10.14 TERM This Agreement shall with respect to Section 2.1 hereof
have a term through the Maturity Date or such later date as Bank may agree to in
writing in its sole discretion. The Advances provided for in Section 2.1 hereof
shall be due and payable in full upon expiration of the term as set forth herein
or as otherwise set forth in this Agreement. Notwithstanding the expiration of
the term, the rights of Bank hereunder and the obligations of
51
<PAGE>
Borrower hereunder, including but not limited to the grant of security interests
in and Liens on the Collateral as set forth in Article III hereof, shall remain
in full force and effect until all of the Obligations are paid in full.
10.15 INTEREST LIMITATION It is the intention of Bank and the
Obligors to conform strictly to the laws of the State of New Jersey or the laws
of such other jurisdiction which may be found to apply to the subject
transaction relating to the maximum rate of interest which may be lawfully
contracted for or charged. Nothing contained in this Agreement or any other Loan
Document shall be construed to mean that Borrower has contracted to pay or is
obligated to pay any sum or sums to Bank in excess of those which may lawfully
be charged or contracted for under applicable law of the State of New Jersey or
other applicable law. If any provision of this Agreement or any of the other
Loan Documents shall require payment of any sum or sums of interest in excess of
the maximum permitted rate which may be lawfully contracted for or charged, then
Borrower and Bank agree that such result is as a consequence of their
inadvertence and/or mistake, and the interest charge for which Borrower is
liable under this instrument shall be recomputed for the sole and limited
purpose of determining the extent of the obligations and liabilities of any of
the Obligors to Bank so that the interest charges for which Borrower is liable
shall not exceed the maximum permitted rate which is determined to be
applicable. Additionally, any sums of interest which are collected by Bank from
any such Obligors or other source in connection with the Facilities evidenced
hereby which are in excess of the maximum permitted rate shall, for the sole and
limited purpose of determining the extent of the obligations and liabilities of
Borrower to Bank, be credited against the amount of principal for which any such
Obligors is liable to Bank after giving effect to any recomputation and
adjustment required pursuant to the foregoing provisions of this section, or if
such outstanding principal balance and interest are paid in full, any such
excess shall be remitted by Bank to any such Obligors.
10.16 INDEMNIFICATION Each Obligor hereby agrees to and do hereby
jointly and severally indemnify, protect, defend and save harmless Bank and any
member, officer, director, official, agent, employee and attorney of Bank, and
its respective heirs, successors and assigns (collectively, the "Indemnified
Parties"), from and against any and all losses, damages, expenses or liabilities
of any kind or nature and from any suits, claims or demands, including
reasonable counsel fees incurred in investigating or defending such claim,
suffered by any of them and caused by, relating to, arising out of, resulting
from, or in any way connected with the Loan Documents and the transactions
contemplated therein or the Collateral (unless caused by the gross negligence or
willful misconduct of the Indemnified Parties) including, without limitation:
(i) losses, damages, expenses or liabilities sustained by Bank in connection
with any environmental cleanup or other remedy required or mandated by any
Environmental Laws; (ii) any untrue statement of a material fact contained in
information submitted to Bank by Borrower or the omission of any material fact
necessary to be stated therein in order to make such statement not misleading or
incomplete; (iii) the failure of Borrower or any other Obligor to perform any
obligations herein required to be performed by Borrower or such Obligor; and
(iv) the ownership, construction, occupancy, operations, use and maintenance of
any of Borrower's
52
<PAGE>
or any such Obligor's properties. The provisions of this Section 10.16 shall
survive termination of this Agreement and the other Loan Documents.
10.17 WAIVER OF TRIAL BY JURY EACH OF BORROWER AND THE OTHER
OBLIGORS HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR RELATED
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
10.18 ARBITRATION
(A) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement and the other Loan
Documents ("Disputes") between or among parties to this Agreement shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Agreement
(B) Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
10.19 PRESERVATION AND LIMITATION OF REMEDIES
(A) Notwithstanding the preceding binding arbitration provisions,
Bank and Obligors agree to preserve, without diminution, certain remedies that
any party hereto may employ or exercise freely; independently or in connection
with an arbitration proceeding or after an arbitration action is brought. Bank
and Obligors shall have the right to proceed in any court of proper jurisdiction
or by self-help to exercise or prosecute the following remedies, as applicable:
(i) all rights to foreclose against any real or personal property or other
security by exercising a power of sale granted under the Loan Documents or under
applicable law or by judicial foreclosure and sale, including a proceeding to
confirm the sale; (ii) all rights of self-help including peaceful occupation of
real property and collection of rents, set-off, and peaceful
53
<PAGE>
possession of personal property; (iii) obtaining provisional or ancillary
remedies including injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and filing an involuntary bankruptcy proceeding; and
(iv) when applicable, a judgment by confession of judgment. Preservation of
these remedies does not limit the power of an arbitrator to grant similar
remedies that may be requested by a party in a Dispute.
(B) Bank and Obligors agree that they shall not have a remedy of
punitive or exemplary damages against the other in any Dispute and hereby waive
any right or claim to punitive or exemplary damages they have now or which may
arise in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially.
10.20 OBLIGATIONS OF OBLIGORS. Notwithstanding anything else
contained herein, it is the intention of the Bank and each of the Obligors that
the Obligors' obligations hereunder, whether for payment or performance of any
covenant or warranty hereunder or under any other Loan Document, are to be the
joint and several obligations of the Obligors.
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
FIRST UNION NATIONAL BANK
By: /s/ Joseph J. Lebel
----------------------------------
Name: Joseph J. Lebel
Title: Vice President
WITNESS LEADING EDGE PACKAGING, INC.
By: /s/ Carmen E. Highman By: /s/ Casey K. Tjang
--------------------------------- ----------------------------------
Name: Carmen E. Highman Name: Casey K. Tjang
Title: Sales Asst./ Asst Cashier Title: CFO
WITNESS LEP PRODUCTS, INC.
By: /s/ Carmen E. Highman By: /s/ Casey K. Tjang
--------------------------------- ----------------------------------
Name: Name: Casey K. Tjang
Title: Title: CFO
WITNESS LEP MARKETING & SALES, INC.
By: /s/ Carmen E. Highman By: /s/ Casey K. Tjang
--------------------------------- ----------------------------------
Name: Name: Casey K. Tjang
Title: Title: CFO
WITNESS LEP DISTRIBUTORS, INC.
By: /s/ Carmen E. Highman By: /s/ Casey K. Tjang
--------------------------------- ----------------------------------
Name: Name: Casey K. Tjang
Title: Title: CFO
55
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibits
Exhibit A - Form Continuing Bankers' Acceptance Agreement
Exhibit B - Guaranty
Exhibit C - Form Irrevocable Letter of Credit
Exhibit D - Opinion of Counsel
Exhibit E - Certificate of Accountants and Certificate of Chief
Financial Officer
Exhibit F - Landlord's Waiver
Exhibit H - Form Accounts Receivable Reconciliation Report
Schedules
Schedule 1.72 - Other Indebtedness
Schedule 2.7(a) - Letter of Credits Fee Schedule
Schedule 2.8 - Bankers' Acceptances Commission Fee Schedule
Schedule 5.1 - Representations and Warranties
Schedule 5.8 - Locations of Chief Executive Office; Locations of Books
and Records; Locations of Collateral
<PAGE>
EXHIBIT A
Continuing Bankers' Acceptance Agreement
See Tab No. 3
<PAGE>
EXHIBIT B
Guaranty
See Tab No. 5
<PAGE>
EXHIBIT C
Irrevocable Letter of Credit
See Tab No. 4
<PAGE>
EXHIBIT D
Opinion of Counsel
See Tab No. 18
<PAGE>
EXHIBIT E
Certificate of Accountants and Certificate of Chief Financial Officer
See Tab Nos, 19 and 20
<PAGE>
EXHIBIT F
Landlord's Waiver
None
<PAGE>
EXHIBIT H
Form of Accounts Receivable Reconciliation Report
The form of Accounts Receivable Reconciliation Report shall be in such form as
hereafter agreed to by the Obligors and the Bank.
<PAGE>
SCHEDULE 1.72
Other Indebtedness
None
<PAGE>
SCHEDULE 2.7(a) & 2.8
================================================================================
================================================================================
Import Letters of Credit
Issuance
Mail/Fax $0
Cable Charge $25 per page
Pre-advice $40
Amendments (limit of 5 per L/C) $60
Cable Charge $25 per page
Document Examination/Payment 1/4%, min. $75
Discrepancy $60
Cancellation, Unutilized $70
Steamship Guarantee/Air Release $125 per quarter
Bankers Acceptances
Acceptance Commission
for amounts under $250,000 1.25% p.a., min. $150
for amounts $250,000 to $499,999 1.125% pa., min. $150
for amounts $500,000 & over 1.0% p.a., min. $150
Discount Rate As arranged, min. $100
Funds Transfer
Outgoing wire from an account $30
Other Activity Charges
Courier
domestic $20
foreign based on country and
service used
<PAGE>
SCHEDULE 5.1
(A) Jurisdiction of incorporation of Obligors and in which they are in good
standing:
All Obligors are incorporated in the State of Delaware and are in good
standing in that state.
(B) Jurisdiction(s) Obligors are authorized to transact business and are in
good standing:
Leading Edge Packaging, Inc. is qualified to do business in the states of
New York and New Jersey and is in good standing in those states. LEP
Products, Inc. is qualified to do business in New Jersey and is in good
standing in that state.
(C) Prior changes in structure (mergers, consolidations, etc.):
None.
(D) Prior changes in name of Obligors:
LEP Products, Inc. was incorporated under the name LEP-Sun's Products,
Inc.
LEP Marketing and Sales was incorporated under the name LEP Sales and
Marketing, Inc.
(E) Trade names used by Obligors or under which invoices are issued:
LEP
Also, Leading Edge Packaging, Inc. issues joint invoices under its name
and that of Hang Ten for sales of watches of the Hang Ten brand.
(F) Subsidiaries and Affiliates
Name % of Outstanding Stock Owned
---- ----------------------------
Leading Edge Packaging, Inc. owns 100% of the stock of each of the
Guarantors.
Rich City International Packaging Limited owns approximately 57%
[ILLEGIBLE] of the stock of Leading Edge Packaging, Inc.
Chung Hwa Development Holdings Limited owns 100% of the stock of Rich City
as well as several other operating subsidiaries.
<PAGE>
SCHEDULE 5.8
(A) (i) Obligors' chief executive office:
Leading Edge Packaging, Inc. has its chief executive office at 350 Fifth
Avenue, Suite 3922, New York, NY 10118.
Each of the Guarantors has its chief executive office at 176 Northfield
Avenue, Building 409, Raritan Center, Edison, NJ 08837.
(ii) Change in location of foregoing within past four (4) months:
None.
(iii) Location of Books and Records:
Obligors maintain books and records in both offices listed under Item
(A)(i) above. In addition, certain records are kept at the offices of
Bondy & Schloss, LLP, 6 East 43rd Street, 25th Floor, New York, NY 10017.
(iv) Change in location of foregoing within past four (4) months:
None.
(v) Present location(s) of Inventory and other assets:
Obligors keep all of their inventory and other assets at the locations
listed under Item (A)(i) above.
(B) Location from which assets have been moved or other location of assets
within past four (4) months:
None.
i
<PAGE>
Schedule 5.8 continued
(C) (i) Name and address of warehouses, bailees or similar parties where any
Inventory of Obligors is located:
None, other than samples of de minimus value in the hands of distributors
from time to time.
(ii) if any: warehouse receipts are/are not issued:
None.
(iii) if warehouse receipts issued: they are negotiable/non negotiable:
N/A
(D) Goods held by Obligors in which other parties have any interests,
including Goods sold on a bill and hold basis:
Watches supplied by Hang Ten under its brand name.
(E) Goods held by Obligors on a consignment basis:
None.
(F) Inventory with trademarks, trade names, and the like which are the
property of others.
Watches carrying the Hang Ten brand name.
ii
<PAGE>
Schedule 5.8 continued
(G) Names and addresses of persons holding Goods belonging to Obligors and
location of Goods:
None. (See response to Item (C)(i) above.)
(H) Purchases of Inventory or other assets not in the ordinary course of
business or from persons not customarily in the business of selling such
Goods:
None.
(I) Instruments or Chattel Paper held by Obligors relating to Accounts:
Letters of Credit for larger Accounts
(J) Trademark, trade names, patents or copyrights.
The Borrower has a trademark covering the name Leading Edge Packaging for
jewelry cases (app. Serial No. 75/128,302), which was assigned to Borrower
by Rocket Jewelry Box, Inc. The Assignment has been recorded at Reel
1602/Frame 0408.
iii
THIS AGREEMENT made the _____ day of ____________ One Thousand Nine
Hundred and __________________ BETWEEN the party whose name and address and
description are set out in Part 1 of the Schedule hereto (hereinafter called
"the Landlord") of the one part and the party whose name address and description
are set out in Part 2 of the Schedule hereto (hereinafter called "the Tenant")
of the other part
WHEREBY IT IS HEREBY AGREED as follows: -
1. The Landlord lets and the Tenant takes ALL THOSE the
premises more particularly set out and described in Part
3 of the Schedule hereto and as shown on the plan hereto
annexed and thereon colored Pink (hereinafter referred to
as "the said premises") Together with the use in common
with other persons entitled thereto of the water closets
lavatories and convenience an the same floor of the
building of which the said premises form part
(hereinafter referred to as "the said building") together
also with the use for the Tenant his servants and
visitors of the lifts (during such hours as the same
shall be operating) and the entrance hall staircase
corridors and passages or the said building for the
purpose at passing and repassing at all times during
office hours to and from the said premises EXCEPT and
reserving unto the Landlord the right of passage of
running of water electricity gas and soil through the
sewers drains and chattels in of under the said premises
for the term specified in Part 4 of the Schedule hereto
determinable as hereinafter mentioned at the rent set out
in Part 5 a( the Schedule hereto exclusive of rates and
management fees payable in advance on the 1st day of each
and every calendar month without any deduction or set-off
whatsoever.
2. The Tenant to the Intent that the obligations may continue
throughout the term of tenancy hereby agrees with the Landlord
in the manner following this is to say:
(a) To pay the rent hereby stipulated an the day and in
the manner aforesaid without any deduction or set-off
whatsoever.
(b) To pay and discharge punctually during the said
term of tenancy all Rates, taxes, assessments,
duties, charges, impositions, utility charges and
other outgoings now or at any time hereafter to be
imposed or charged by the Government of Hong Kong
or other lawful authority in respect of the said
premises or any part thereof upon the owner or
occupier (hereof save and except only the Crown
Rent and Property Tax Provided That in the case of
Rates, if on the commencement of the said term of
<PAGE>
tenancy. the said building or the said premises has
not yet been assessed to rates by the Government, the
Tenant shall pay the sum equivalent to 4.5% of the
rent hereby reserved in respect of the said premises
or at such other rate as shall reasonably be requited
by the Landlord as deposit by way of security for the
due payment or Rates subject to adjustment on actual
rating assessment being received from the Government.
(c) (i) To pay to the Landlord punctually during
the said term of tenancy such monthly
contribution towards the costs, charges and
expenses for the management and maintenance
of the said building and for the supply of
air-conditioning to, the said premises as
shall reasonably be required by the Landlord
and unless and until otherwise revised
subsequently the Tenant shall pay to the
Landlord the sum as set out in Part 6 of the
Schedule hereto for the management and
maintenance of the said building and the
supply of air-conditioning service aforesaid
such sum to be paid in advance on the first
day of each and every calendar month during
the said term without deduction and
abatement whatsoever.
(ii It at any time during the said term of tenancy
the operating costs relative to the management
and maintenance of the said building and/or to
the supply of the said air-conditioning
service shall have risen, the Landlord shall
be entitled to increase the said management
and/or air-conditioning charges in proportion
to the said increase and the Tenant shall
further pay to the Landlord such Increase as
aforesaid provided always that there shall be
no restriction on the number of such increase
during any given period and that at least one
month's prior notice in writing shall be given
to the Tenant before the increase takes effect.
(d) To pay and discharge punctually during the said
term all charges of electricity, water, gas.
telephone rental and other outgoings now or at any
time hereafter consumed by the Tenant and
chargeable In respect of the said premises and to
make all necessary deposits for the supply of
electricity, water and gas to the said premises
when required.
(e) To keep the said premises including (without
limitation) the flooring and interior plaster or
<PAGE>
other finishes to walls and ceilings and the
Landlord's fixtures and fittings therein arid all
additions thereto and all the doors windows
installations wiring and piping of the said premises
In good clean and tenantable repair and condition and
property preserved arid painted and to maintain the
same at the expense of the Tenant throughout the term
of the tenancy herein created and to yield them up in
such repair and condition at the expiration or sooner
determination of the term of the tenancy hereby
created.
(f) To keep at all times during the said term of tenancy
at the expense of the Tenant both the interior and
exterior of the windows of the said premises in a
good clean and tenantable state and in proper repair
and condition to the satisfaction of the Landlord.
(g) To replace all broken or damaged windows window
frames or shop fronts whether the same be broken or
damaged by the negligence of the Tenant or owing to
circumstances beyond the control of the Tenant with
glass and materials of the same quality and thickness
as presently installed.
(h) To repair or replace If so required by the
appropriate electricity supply company under the
terms of the Electricity Supply Ordinance Cap. 103
or its equivalent for the time being In force or
any Orders In Council or Regulations made
thereunder aft the electrical installations and
wiring from the Tenant's meter or meters to and
within the said premises.
(i) To keep at all times during the said term of
tenancy at the expense a( the Tenant such
lavatories and water closets and all the apparatus
and equipment in connection therewith as will be
allocated to the exclusive use of the Tenant and/or
his employees in a good clean and tenantable state
and In proper repair and condition to the
satisfaction of the Landlord and of the Public
Health of other Government Authorities concerned.
(j) To quietly yield up possession of the said premises
at the expiration or sooner determination of the
tenancy in good clean and tenantable repair and
condition Together with any additional erections
alterations or improvements which the Tenant may
with the consent of the Landlord have made upon or
in the said premises and which the Landlord In his
absolute discretion may be willing to retain
<PAGE>
without payment of any compensation for such
additional erections alterations or improvements, the
Tenant shalt remove its other trade fixtures and
fittings and make good all damages Including damage
to the Landlord's decoration within the said premises
and within the said building caused by such removal
to the satisfaction of the Landlord. The Landlord
shall have the right to require the Tenant to
reinstate to Its original state any part of the said
premises in respect of which the Tenant may have
carried out any alterations with the consent at the
Landlord. Any properties left In the said premises by
the Tenant Upon the expiration or sooner
determination of the term of the tenancy herein
created shall be conclusively deemed to be abandoned
by the Tenant and the Landlord may at its sale
discretion remove and dispose of the same in such
manner as it thinks fit at the expense of the Tenant
and the Tenant shall forthwith on demand reimburse
the Landlord for the expenses so incurred and the
Landlord shall not be accountable or liable to the
Tenant in any way whatsoever for such removal and
disposal nor shall the Landlord be held accountable
at liable to the Tenant for the return or the value
of such properties or the sale proceeds thereat (if
any) and the Tenant shall Indemnify the Landlord
against any claims and proceedings in respect of or
howsoever related to the removal and disposal of such
properties.
(k) To pay on demand to the Landlord the cost of
replacing all windows curtain walls shutters or glass
at or in the said Premises or the said building
broken or damaged by the Tenant of employees agents
licensees or workmen or the Tenant.
(a) To pay the Landlord immediately upon demand the cost
of affixing repairing and replacing as necessary the
Tenant's name in lettering to the show window front
or door panel of the said promises and the cost of a
signboard to be erected by the Landlord and displayed
Immediately outside the said premises with the
Tenant's name thereon.
(m) (i) To permit the Landlord and his agents with or
without workmen or others and with or without
appliances at aft times to enter and view the
state of repair of the said premises. to take
inventories at the Landlord's fixtures
therein. to test the electric wiring, to read
the meters. to carry out any works repairs or
maintenance therein Provided That in the event
at an emergency the Landlord Its employees or
<PAGE>
agents may enter without notice and forcib4y
if necessary.,
(ii On receipt of any notice from the Landlord or
its authorized representative specifying any
works or repairs which require to be done and
which are the responsibility of the Tenant
hereunder forthwith to carry out the same and
it the Tenant shall not within 14 days from
the date of such notice proceed diligently
with the execution of such works or repairs.
the Landlord or its employees or agents may at
its sole discretion enter upon the said
promises and forcibly it need be to carry out
any such works or repairs at the expenses of
the Tenant and the Tenant shall forthwith
reimburse the Landlord the expenses carrying
out any such repair and of the Landlord's
surveyor and otherwise in respect of the
preparation al the notice (if any). The Tenant
hereby further agrees to keep the Landlord
indemnified against any cost claim damage or
proceedings resulting from or attributable to
such default.
(n) To allow the Landlord or its servant or agents
and workmen to enter into the said premises at
air times for the purpose of installing and
affixing lighting in the space between the
curtains and the window frames within the said
premises such materials, fixtures and fittings
so provided shall remain the Landlord's
properly, or for the purpose of carrying out
any cleaning or disinfectant works of for the
purpose of carrying out such other repairs or
installation works as may Involve the removal
of doors or windows or cause any damage to the
walls. partitions, ceilings or fittings
provided that the Landlord shall re-install
and make good such removal or damage on
completion of the said works.
(a) To carry out and comply with all ordinances,
regulations, by-laws and rules and all
notices and requirements of the appropriate
Government authorities in connection with or
in relation to the Tenant's business carried
on In the said premises,
(o) To observe and comply with the rules
regulations or requirements stated In
notices or announcements from time to time
made or issued by the Landlord or the
management company of the said building for
the
<PAGE>
maintenance and management or the said
building including the time and arrangement
for operating the equipment, lifts and the
use at entrance and passage ways.
(p) To be liable for the acts neglect omissions
and default of the contractors employees
agents or licensees of the Tenant as if they
were the acts neglect omissions and default
of the Tenant.
(q) To take all precautions to protect the
interior of the said premises against damage
by storm or typhoon of the like threats.
(r) To take all steps to prevent the drains
pipes within or about the said premises from
being choked or stopped up and to forthwith
clean clear repair and replace the same upon
such choking or slopping up.
(s) To pay an demand to the Landlord the cost to
be incurred by the Landlord in cleaning,
clearing, repairing or replacing any of the
said drains or pipes choked or stopped up due
to the default of the Tenant or its employees,
agents, assistants, licensees, workmen or
visitors.
(n) To pay for the installation of all Internal
air-conditioning ducts and diffusers
required in the said premises.
(o) To be responsible for the general cleaning
service of the Interior of the said premises
and the proper disposal of refuse and shall
only appoint such contractor approved by the
Landlord for such cleaning and disposal of
refuse service.
(p) To submit 3 sets of drawing of interior finish
to the Landlord for approval (which may be
withheld or granted at the Landlord's sole and
absolute discretion) before commencing
decoration and fitting out works at the said
premises and not to carry out such decoration
and fitting out works without the Landlord's
prior written approval (which may be withheld
or granted at the Landlord's sole and absolute
discretion).
(q) Not without the previous written consent of
the Landlord to remove erect install or
alter any fixtures fittings partitioning
doors or
<PAGE>
other erection or installation in the said
premises or any pad thereof or to install
any equipment apparatus or machinery which
imposes a weight on any part of the flooring
in the said premises In excess of the
maximum weight prescribed by the Landlord or
the relevant Government authorities or which
requires any additional electrical main
wiring or which consumes electricity not
metered through the Tenant's separate meter.
(r) Not to make any alteration or addition of
any kind to the outside of the said
premises.
(s) Not to put up any blinds, curtains or any
similar materials visible (ram outside other
then those the color of which shall be first
approved by the Landlord for the windows of
the said building.
(aa) Not to install additional locks bolts or other
fittings to the entrance doors of the said premises
or in any way to cut or alter the same.
(bb) Not to install any electrical wirings in any
concealed part of the said premises unless such
wirings are inserted inside metal conduit.
(cc) Not to do any act of thing liable to cause any fire
risk or other hazard in the said building.
(dd) Not to assign underlet part with the possession of
or transfer the said premises or any part thereof
or any interest therein nor permit or suffer any
arrangement or transaction whereby any person who
is not a party to this Agreement obtains the use
possession occupation or enjoyment of the said
premises or any part thereof irrespective of
whether any rental or other consideration is, given
therefor. The tenancy created hereunder is
personal to the Tenant named in this Agreement and
without in any way limiting the generality of the
foregoing the following acts and events shall
unless with prior written approval of the Landlord
be deemed to be breaches of this Clause: -
(i) In the case of the Tenant being a
partnership. the death or retirement of an
existing partner or the taking in of one or
more new partners or the happening of any
event which will in law amount to
dissolution of a partnership.
(ii In the case of the Tenant being an individual,
the death insanity insolvency bankruptcy or
<PAGE>
other legal disability of that individual to
the intent that no right to use possess
occupy or enjoy the said premises or any
part thereof shall be vested in the
executors administrators personal
representatives next of kin trustee receiver
or committee of any such individual.
(iii) In the case of the Tenant being a corporation,
any take-over reconstruction amalgamation
merger voluntary liquidation or change in
the person or persons who owns or own a
majority of its voting shares or who
otherwise has or have effective control
thereof.
(iv The giving by the Tenant of a Power of
Attorney or similar authority whereby the
donee of the power obtains the right to use
possess occupy or enjoy the said premises or
any pan thereof or does in fact use possess
occupy or enjoy the same.
(v) The change of the Tenant's business name.
(ee) Not to use the said premises except for the purpose
of carrying an the lawful business or profession of
the Tenant as an office only and not to allow the
same or any part thereof to be used by any other
person firm or corporation.
(ff) Not to use the said premises or allow this same to be
used for any illegal or immoral purpose of for
carrying on any offensive trade or occupation.
(gg) Not to use or permit or suffer the said premises or
any part thereof to be used for preparing food or as
sleeping quarters or as domestic premises within the
meaning of any landlord and tenant legislation for
the time being in force nor to allow any person to
remain in the said premises overnight without the
prior written consent of the Landlord.
(hh) Not to use or permit or suffer the said premises to
be used for the purpose of the production
manufacture or making of goods and merchandise nor
for the storage of goods and merchandise other than
samples and exhibits reasonably required in
connection with the Tenant'$ business carried on
therein and only in such quality as permitted by
the Landlord in writing.
(ii Not to affix put up paint or display any signboard,
sign, decoration or other thing whatsoever outside
the said premises or any door wall pier or window
<PAGE>
except with the written approval of the Landlord. The
Landlord shall have absolute discretion in granting
or refusing such approval and any approval to be
granted shall be subject to such conditions as the
Landlord may think fit. The Landlord shall have the
right to remove at the cost and expense to the Tenant
any signboard, sign, decoration or thing which shall
be affixed put up painted or displayed without the
prior approval of the Landlord.
(jj) Not to use or permit to be used the Passenger Lifts
of the said building for the purpose of carrying any
furniture or goods or heavy articles, arid to observe
the regulations affecting the use of all lifts as
indicated therein or intimated by the Landlord or
management company from time to time.
(kk) Not to use the said premises as a stockbroker's
office whether kindred or otherwise without the prior
approval of the Landlord in writing.
(ll) Not to use or suffer to be used any part of the said
premises for the provision of tourist services
without the prior approval of the Landlord In
writing.
(mm) Not to allow any visitors. licensees or servants of
the Tenant to stand or queue up outside the said
premises thereby causing an obstruction to the
passages and entrance halls used in common with the
other tenants of the said building.
(nn) Not to do of permit to be done in or upon the said
premises or any part thereof anything which may be
or become a nuisance annoyance damage or
disturbance to the Landlord or the tenants or
occupiers of the other parts of the said building
of which the said premises form part or of other
property in the neighbourhood or in anywise against
the law or regulations of Hong Kong,
(oo) Not to produce or suffer or permit to be produced
at any time in the said premises any music or noise
(including sound produced by broadcasting from
Television. Radio and any equipment or instrument
so capable of producing or reproducing music and
noise) so as to constitute a nuisance or to give
cause for reasonable complaint from the occupants
of neighbouring shops or other premises in the said
building.
(pp) Not to damage or cause to be damaged any
structures, fixtures, decorations, installations
outside of the said premises including lifts,
<PAGE>
cloakroom. service pantries, halls, passages,
staircases, drainage wells. walls, ceilings of the
said building and to pay an demand to the Landlord
the cost and expenses incurred by the Landlord in
repairing making good such damage of cleaning the
same.
(qq) Not to permit or suffer any safe by auction to be
held upon the said premises.
(rr) Not to change or in any way alter the standard
entrance or exit doors provided by the Landlord for
access to the said premises.
(ss) Not to do permit or suffer anything to be done in
arid upon the said premises whereby the policy or
policies of lire insurance upon the said building or
any part thereof may be invalidated or the premium
for such insurance shall be increased.
(tt) Not without the previous written consent of the
Landlord to cut maim injure drill into or deface or
permit or suffer to be cut maimed injured drifted
Into or defaced any doors windows floor walls curtain
walls beams columns structures or the fixtures and
fitting in the said premises or the said building.
(uu) Not to keep or store or cause or permit or suffer
to be kept or stared "thin the said premises or any
pan thereof any arms ammunitions gun powder
saltpeire kerosene or other explosive of
combustible substance or dangerous or prohibited
goods within the meaning of the Dangerous Goods
Ordinance or any enactment replacing the some and
the Regulations applicable thereto, and In so far
as such Ordinance or Its schedules may he offered
this Clause shall apply equally to any alteration
thereto.
(vv) Not to do or cause or permit or suffer to be done any
act deed matter or thing whatsoever which will amount
to a breach or nonobservance of the terms and
conditions under which the said premises are held
from the Crown or of the Deed of Covenants (if any)
In respect of the sold building and to keep the
Landlord indemnified against any such breach.
(ww) Not to encumber with boxes or otherwise, or place or
leave rubbish or any article or thing whatsoever upon
any part of the said building which is not hereby
exclusively let to the Tenant Provided That any
properties left upon any part of the said
<PAGE>
building which is not hereby exclusively lot to the
Tenant shall be conclusively deemed to be abandoned
by the Tenant and the Landlord may at its sole
discretion remove and dispose of the same in such
manner as it thinks fit at the expense of the Tenant
and the Tenant shall forthwith on demand reimburse
the Landlord for the expenses so Incurred and the
Landlord shall not be accountable or liable to the
Tenant in any way whatsoever for such removal and
disposal nor shall the Landlord be held accountable
or liable to the Tenant for the return or the value
of such properties or the sale proceeds thereof (if
any) and the Tenant shall indemnity the Landlord
against any claims and proceedings In respect of or
howsoever related to the removal and disposal of such
properties,
(xx) Not to cause or permit or suffer any odours or
noxious smells which shall in the opinion of the
Landlord be offensive or unusual to be produced upon
permeate through or emanate from the said premises.
(yy) Not to keep or permit or suffer to be kept any
animals or pets inside the said premises and at the
Tenant's expense to take elf such steps and
precautions as shall be required by the circumstances
to prevent the said premises or any part thereof from
becoming infested by termites rats mice roaches or
any other pests or vermin.
2. The Landlord hereby agrees with the Tenant as follows., -
(a) That the Tenant paying the rent hereby stipulated
and observing and performing the several
stipulations herein contained and on the Tenant's
part to be of service and performed shall
peacefully hold and enjoy the said premises during
the said term of tenancy without any interruption
by the Landlord or any person lawfully claiming
under or in trust for him.
(b) To pay the Crown Rent and Property Tax in respect of
the said promises during the said term of tenancy.
(c) To keep the roof and the main drains and pipes of the
said premises in a proper state of repair at the cost
of the Landlord but the Landlord shall not be liable
under the terms of this provision unless and until
notice in writing shall previously have been given by
the Tenant to the Landlord of the want of repair and
amendment or a request in
<PAGE>
writing shall have been previously sent to the
Landlord to come to view the state thereof Provided
that the Landlord shall be entitled to have a
reasonable time wherein to view repair and amend the
said defects.
4. Provided always and it Is hereby expressly agreed as
follows: -
(a) If the rent hereby stipulated or any part thereof
and/or charges, fees. expenses and outgoings
payable by the Tenant. hereunder shall be unpaid
for 7 days after becoming payable (whether legally
or formally demanded or not) or it the Tenant shall
fall or neglect to perform or observe any term and
conditions herein contained and on the Tenant's
part to be performed of observed or If the Tenant
or the person In whom for the time being the term
of tenancy shall be vested shall become bankrupt or
in the case of a limited company shall go Into
liquidation or if a petition In bankruptcy against
the Tenant, or a petition for the winding up of the
Tenant if a limited company shall have been filed,
or if the Tenant shall enter into any composition
or arrangement with creditors or shall suffer the.
Tenant's goods to be levied on execution then and
in any of the said cases it shall be lawful for the
Landlord at any time thereafter to determine this
Agreement and to re-enter upon the said premises or
any part thereof in the name of the whole but
without prejudice to any right of action of the
Landlord in respect of any breach of the Tenant's
terms and conditions herein contained and a written
notice served by the Landlord on the Tenant in the
manner hereinafter provided to the effect that the
Landlord thereby exercises the power of re-entry
and/or determination hereinbefore contained shall
be a full and sufficient exercise of such power. An
costs and expenses incurred by the Landlord in
demanding the rent and other, charges (if the
Landlord elects to demand) with a view to
exercising the sold rights or remedies or
attempting to do (he same shall be repaid by the
Tenant and is recoverable from him as a debt
PROVIDED ALWAYS that the Landlord shall be under no
obligation to demand the rent or other said charges
or to serve the said notice before the Landlord
exercises the said rights and remedies.
(b) To secure the due performance and observance of the
terms and conditions herein contained the Tenant
shall on the signing hereof pay to the Landlord by
way of deposit the sum as set out in Part 7 of the
Schedule hereto and (a maintain the said sum
<PAGE>
throughout the duration of the sold term of
tenancy. After the determination of the tenancy and
provided that the said rent hereby stipulated shall
have been duly paid an due dales and of) other
terms and conditions herein contained shall have
been duly performed and observed by the Tenant then
within the period of 30 days after [he Tenant shall
have delivered up vacant possession of the said
premises to the Landlord of the settlement of the
last outstanding claim by the Landlord against the
Tenant, whichever is the later, the Landlord shall
return to the Tenant the said deposit money without
Interest but (he said deposit shall be absolutely
forfeited to the Landlord if the Tenant shall tail
to perform or observe any of the terms and
conditions herein contained without prejudice to
the Landlord's rights to claim damages for breach
of contract.
(c) The Landlord shall provide and maintain for the
said premises during the said term central air-
conditioning services as hereinbefore mentioned but
the Landlord reserves the right to change the
period during which the central air-conditioning
system is operated in the said building. The
Landlord further reserves the right to discontinue
the control' air-conditioning services in the event
of typhoon signal No. 8 or over being hoisted.
Unless and until otherwise adjusted a central air-
conditioning services will be provided between the
period specified in Part 8 of the Schedule hereto
Provided that the Landlord shall neither be liable
to pay compensation to the Tenant in respect of any
period during which due to circumstances beyond the
control of the Landlord the proper operation of the
air-conditioning -plant shall be Interrupted as the
result of mechanical failure or need for repair or
overhaul nor shall the Landlord be liable thereby
to grant an abatement of air-conditioning charges
in respect of such Interruption. And the Tenant
further agrees to keep all windows and doors closed
while the air-conditioned ventilation is in
operation and the Landlord shall have the right to
send a representative to close the same for the
Tenant should it be found that the Tenant does not
comply with the notice to that effect of the
Landlord and the persistent breach of the Tenant of
this clause is a breach for the term of this
Agreement justifying the Landlord to exercise. The
rights of re-entry or other remedies herein.
(d) The fancoil units of the air-conditioning service as
stipulated in Clause 4(c) hereof serving the said
premises shall be connected at the Tenant's
<PAGE>
cost to the Tenant's separate electricity meters and
the Tenant shall pay for the electric power consumed
thereby, Any alteration to the location of the
fancoil units shall be at the Tenant's expense and
subject to the Landlord's prior approval (which may
be withheld or granted at the Landlord's sole and
absolute discretion) in writing.
(e) The Landlord shall have the right to provide
alternative entrance to the lift hall on the ground
floor.
(f) Acceptance of rent and/or charges, lees, expenses and
outgoings by the Landlord shall not be deemed to
operate as a waiver by the Landlord of any eight to
proceed against the Tenant in respect of a breach by
the Tenant of any of his obligations hereunder.
(g) If the said premises or any part thereof shall be
destroyed or damaged by storm typhoon fire
earthquake subsidence of the ground landslide or
any other calamity beyond the control of the
Landlord and not attributable to the negligence or
default of the Tenant so as to be unlit for
occupation and use or if the said premises or any
part thereof shall be required to be closed or
demolished by an Order of the Building Authority or
closed by a Closure Order made by the District
Court, the rent hereinbefore stipulated or a fair
proportion thereof according to the nature and
extent of the damage sustained shall cease to be
payable until (a) the said premises shall against
be rendered fit for occupation and use and, where
applicable. (b) the order of the Building Authority
shall cease to be operative, or (c) a notice of
expiry of the said Closure Order shall be served,
PROVIDED that
(i) the Landlord shall be under no obligation to
the Tenant to repair or reinstate the said
premises of any part thereof so destroyed or
damaged;
(ii the Tenant shall not have and shall not be
entitled to any claim for compensation or
damages whatsoever and howsoever from the
Landlord;
(iii) The said premises shall not have been rendered
fit for occupation and use within three
calendar months after the said premises or
any part thereof shall have become unfit for
<PAGE>
occupation and use or it the Order of the
Building Authority aforesaid or the said
Closure Order shall remain In force at the
expiration of three calendar months after the
same is made. then and in any such case. -
(1) the Landlord may at any time after
the expiration of the said three
calendar months by six months'
notice in writing to the Tenant; or
(2) The Tenant may at any time after the
expiration of the said three
calendar months by one month's
notice in writing to Landlord
terminate this Agreement and
thereupon (a) the term hereby
granted shall cease accordingly (b)
neither party shall have any claim
against the other in respect thereof
but so that the right of either
party against the other in respect
to any antecedent breach of any of
the terms and conditions herein
contained shall not be prejudiced or
affected thereby.
(h) The Landlord will not in any circumstances be liable.
In contract tort or otherwise, to the Tenant or any
other person whomsoever in respect at any injury loss
or damage to person or property or loss of profit
whatsoever sustained by the Tenant or any other
person caused by or through.-
(i) any defect in or breakdown of the lifts
escalators fire and security services
equipment and other facilities of the said
building;
(ii any failure malfunction suspension or
explosion of or totaling to the electricity or
water supply to the said building or the said
premises;
(iii) fire or the over now or leakage of water or
escape of fume and/or smoke from anywhere
within the said building or the influx of
water rain water or sea water into the said
building or the said premises or the
activity of termites rats mice roaches or
any other posts or vermins:
(iv the detective or damaged condition, structural
or otherwise, of the said premises or the said
building or any part thereof or the Landlord's
fixtures and findings therein;
<PAGE>
(v) the prohibition or restriction imposed by
any competent authority on the Tenant from
using the said premises in any particular
manner or lot any particular purpose;
Nor shall the Landlord in any circumstances be liable
to the Tenant or any other person whomsoever for the
security or safekeeping of the said premises or any
persons or contents therein. Not (subject to Clause
4(g) hereof) shall the rent or other charges payable
hereunder or any part thereof abate or cease to be
payable on account hereof.
(i) The Tenant further agrees that if any damage is
caused to the Landlord or to any person whomsoever
directly or indirectly by or through or owing to
the escape of fumes, smoke, fire or any other
substance or the overflow of water from any part or
portion of the said promises or any detective or
damaged condition of any part of the interior of
the said premises (including doors windows and
Tenant's fixtures) or caused by the negligence of
or resulting or arising in any way from the breach
non-observance or non compliance of any of the
terms restrictions conditions or obligations herein
contained by the Tenant or his servants occupiers
visitors and/or licensees the Tenant shall be
wholly responsible therefor and shall make good the
same by payment or otherwise and shall fully
Indemnify the Landlord against all claims demands
actions and legal proceedings whatsoever made upon
the Landlord by any person 4n respect thereof.
(j) Any notice required to be served hereunder on
either the Landlord or the Tenant shall be
sufficiently served on the party to be served if
delivered to it by registered post or left
addressed to it at its last known address and/or
registered office in Hong Kong. A notice sent by
post shall be deemed to have been received by such
party at the lime when in due course of post it
would be delivered at the address to which it is
sent.
(k) During the two months immediately preceding the
determination of the said term of tenancy the
Landlord shaft be at liberty to affix and retain
without interference upon any external part of the
said premises a notice for reletting or selling the
same and the Tenant shall permit persons with
written authority from the Landlord or his agents
at all times of the day to view the said premises
or any part thereof.
<PAGE>
(l) For the purpose of these presents any act default or
omission of the agents servants employees and
licensees of the Tenant shall be deemed to be the act
default or omission of the Tenant
(m) For the purpose of the Distress for Fient Part IIII
of the Landlord and Tenant (Consolidation)
Ordinance (Cap. 7) and for the purpose of these
presents the rent in respect of the said premises
shall be deemed to be In arrear if not paid in
advance at the time stipulated by paragraph I
hereof. Ali costs and expenses and outgoings
payable by the Tenant hereunder shall be deemed to
form part of the rent stipulated herein and shall
be recoverable as such by the Landlord by way of
distraint or otherwise.
(n) All legal costs and expenses incurred by the
Landlord (on a full indemnity basis) in demanding
payment of rent or in connection with any legal
proceedings (including but not limited to distress
proceedings) taken by the Landlord against the
Tenant as a result of default of payment of rent by
the Tenant or the Tenant's non-performance or non-
observance of any terms or conditions herein
contained shall be recoverable by the Landlord from
the Tenant as a debt and be deductible by the
Landlord from the deposit held by the Landlord
hereunder.
(o) The Landlord gives no warranty that the said premises
are fit to be used for any trade business or
profession of the Tenant.
(p) The Tenant shall deliver up vacant possession or the
said premises to the Landlord at the expiration or
sooner determination of the said term of tenancy
notwithstanding any rule of law or equity to the
contrary.
(q) in so far as the Tenant can lawfully do so, the
Tenant hereby expressly agrees to deprive himself of
his rights to protection against ejectment provided
by the existing or future legislation, if any, should
such legislation be applicable to the said premises.
(r) In the event of fire, typhoon or other contingencies
which in the opinion of the Landlord may cause or
threaten to cause damage or injury to the said
premises, the Landlord shall have power in the
absence of the Tenant to break open any doors
<PAGE>
or windows of the said premises and to do such other
thing as may be necessary to prevent the said
premises from being damaged or injured and in such
event the Landlord shall not be answerable to the
Tenant for any less or damage which the Tenant may
sustain thereby.
12. It is hereby agreed that the tenant paying the rent
herein contained and performing and observing the terms
herein contained on the part of the Tenant shall upon
giving at least seven calendar months' previous notice in
writing to the Landlord prior to the expiration of the
said term hereby created have the option of renewing the
tenancy of the said premises for a further tem of two
years at the then open market rent or existing rent
whichever is the higher which in case cannot be
compromised has to be referred to a chartered surveyor to
be nominated by agreement between the Landlord and the
Tenant and failing agreement the surveyor shall be
nominated by the president for the time being of the Hong
Kong Institute of Surveyors on the application of either
party hereto for final judgment and the cost so involved
will be borne by both parties in equal shares subject to
the same terms and conditions herein save and except that
such renewed agreement shall not contain this option for
renewal and subject to the signing of a renewal tenancy
agreement and subject to payment of the additional
deposit by the tenant to the Landlord and if the tenant
shall not have exercised his option to renew as aforesaid
before the expiration of the said term hereby created the
tenancy of the said premises shall forthwith be
determined at the expiration of the said term hereby
created and the Tenant shall then forthwith yield up
vacant possession of the whole of the said premises in
manner as aforesaid.
13. Notwithstanding any contrary provision herein, to grant
to the Tenant a rent free period from the 10th day of
March, 2000 to the 9th day of June 2000 both days
inclusive (hereinafter referred to as "the said period")
to use and occupy the said promises for the sole purpose
of decorating the said premises without requiring the
Tenant to make payment of rent or otherwise but it is
expressly agreed that the Tenant Is still responsible
during the said period for all Rates, fees payable under
the Deed of Covenants, air-conditioning and maintenance
charges and all other charges and outgoings relating to
the use and occupation of the said premises payable by
the Tenant under Clause Z(b) hereof PROVIDED ALWAYS that
If the said term of tenancy shall by reason of any
default whatsoever on the Tenant's part terminated by the
Landlord within the said period, the foregoing part of
this clause 13 shall be treated as void ab Initio and the
<PAGE>
rent which would have been payable but for the said foregoing
parl of this clause 13 shall become payable and be paid
forthwith without prejudice to the Landlord's right to claim
damages against the Tenant.
14. notwithstanding any contrary provision herein. to grant
to the Tenant another rent free period from the 10th day
of March 2001 to the 9th day of May 2001 both days
Inclusive (hereinafter referred to as "the said second
period") to use and occupy the said premises without
requiring the Tenant to make payment of rent or otherwise
but it is expressly agreed that the Tenant is still
responsible during the said second period for all Rates,
fees payable under the Deed of Covenants, air-
conditioning and maintenance charges and all other
charges and outgoings relating to the use and occupation
of the said premises payable by the Tenant under Clause
2(U) hereof PROVIDED ALWAYS that If the said term of
tenancy shall by reason of any default whatsoever the
Tenant's part terminated by the Landlord within the said
second period, the foregoing part of this clause 14 shall
be treated as void ab initio and the rent which would
have been payable but for the said foregoing part of this
clause 13 shall become payable and be paid forthwith
without prejudice to the Landlord's right to claim
damages against the Tenant.
15. If the Landlord shall enter Into a sale and purchase
agreement In respect of the said premises or the said
building or If the Landlord shall resolve to demolish and
rebuild the said building (which intention to demolish
and rebuild shall be sufficiently evidenced by a copy of
a Resolution of its Directors certified to be true and
correct by its Secretary) than in either of such events
the Landlord shall be entitled to give six calendar
months' notice in writing expiring at the end of any
calendar month during the term of tenancy hereby created
terminating this Agreement and immediately upon the
expiration of such notice this Agreement and everything
herein contained shall cease and be void but without
prejudice to the rights and remedies of either party
against the other in respect of any antecedent claim or
breach of any of the agreements or stipulations herein
set out.
<PAGE>
THE SCHEDULE ABOVE REFERRED TO
PART 1 The Landlord HIGH TIME INVESTMENTS LIMITED
c/o Hang Seng Real Estate Management
Limited of 3rd Floor Hang Seng
Building
77 Des Voeux Road Central Hong Kong
PART 2 The Tenant LEPI CHINA LIMITED
of 289 Sha Tsui Road, 13th Floor
Hang Seng Tsuen Wan Building,
New Territories
PART 3 The said premises 13th Floor of
No. 289 SHA TSUI ROAD, TSUEN WAN,
NEW TERRITORIES, which is erected on
ALL THAT piece or parcel of land
registered in the Land Office as LOT
NO. 2172, D.D. 449 and now known as
HANG SENG TSUEN WAN BUILDING
PART 4 Term of Tenancy (THREE) YEARS from the 10th day of
March 1999 to the 9th day of March
2002 (both days inclusive).
PART 5 The Rent DOLLARS THIRTY THREE THOUSAND NINE
HUNDRED THIRTY ONLY ($33,930.00)
Hong Kong Currency (exclusive of
rates and air-conditioning
charges/building management fees)
per calendar month.
PART 6 Air-conditioning DOLLARS ELEVEN THOUSAND EIGHT
charges/building HUNDRED SEVENTY FIVE AND CENTS FIFTY
management fees ONLY ($11,875.50) Hong Kong
Currency per calendar month.
PART 7 The Rental Deposit DOLLARS ONE HUNDRED EIGHTY NINE
THOUSAND THREE HUNDRED THIRTY ONLY
($189,330.00) Hong Kong Currency.
PART 8 Air-conditioning Normally from 8:00 a.m. to 6:30 p.m.
service on weekdays and from 8:00 a.m. to
2:00 p.m. on Saturdays but no such
service will be supplied on Sundays
and public holidays.
<PAGE>
SIGNED by WONG SIU HON the Landlord by his attorney
for and on behalf of Hang HANG SENG REAL ESTATE MANAGEMENT
Seng Real Estate Management LIMITED For and on behalf of
Limited, the lawful HANG SENG ESTATE MANAGEMENT LIMITED
attorney of the Landlord
in the presence of:-
[illegible signature]
---------------------
Authorized Signature(s)
SIGNED by the Tenant in
the presence of :-
For and on behalf of
RECEIVED the day an year LEPI China Limited
first above written and from [illegible signature]
the Tenant the sum of DOLLARS ---------------------
One Hundred Eighty Nine Authorized Signature
Thousand Thirty Only Hong
Kong Currency being the
deposit money expressed the Landlord by his attorney
above to be paid by the HANG SENG REAL ESTATE MANAGEMENT
Tenant to the Landlord LIMITED
For and on behalf of
HANG SENG REAL ESTATE MANAGEMENT
LIMITED
[illegible signature]
---------------------
Authorized Signature(s)
HK$189,330.00
<PAGE>
Lease
Lessor: (Owner) Liu, Haijun (Referred henceforth as Party A)
Lessee: LEPI China Limited (Referred henceforth as Party B)
Both parties agree to enter into the following contract and abide by all the
terms.
(01) Party A agrees to lease to Party B the Unit located at Yaoshan Tower,
Building 17, Floor 4, Apt # D, Bihuali Hill, Zhongshan City, Guangdong Province.
Both parties have agreed upon the amount of the rent at One Thousand Five
Hundred RMBYuan ( (Yuan)1,500), and the duration of the lease will be from
February 1, 1999 to January 31, 2001.
(02) It is expressly agreed that Party B shall not share or sub-let the Unit to
any other individual and that Party B shall not make use of any space beyond the
Unit leased. Both parties in principle shall not terminate the lease; in case of
special circumstances, the lease can be terminated with prior consent of the
other party. In the event that Party B chooses to renew or terminate the lease
upon expiration of the lease, it must notify Party A in writing one month prior
to expiration. (Renewal will not be valid unless a new lease is signed.)
(03) The rent for the Unit must be paid on the first day of each month and shall
not be delayed under any pretext. In the event that the payment of the rent is
late for up to ten days or that Party B breaches any terms in the contract,
Party A shall have the legal right to terminate this contract, lease the Unit to
other individuals and collect all overdue rent from Part B.
(04) Party A shall have the right to give house tours to visitors when the lease
is three months from expiry, but Party A must notify Party B in advance for
proper arrangement. In the meantime, Party A shall have the right to make a spot
check of the Unit once every two months so as to assure that the Unit is in good
condition, and Party B shall be obligated to accommodate Party A's arrangement
in this matter.
(05) Party B shall vacate the Unit upon moving out and conclude the lease in a
proper manner. In the event that Party B uses pretexts not to return the key to
the Unit or leave behind miscellaneous articles so as not to move out or play
stalling tactics, Party A shall have the right to dispose of the articles Party
B leaves behind. Party A shall treat this as a waive of rights by Party B and
have the right to sell or dispose of the articles together with one witness
rather than going through the due process through the court of law, and Party B
shall not take exception.
(06) Party B shall not have to pay for construction or transfer fees to Party A,
but Party B shall pay Party A a security deposit equal to three months of rent
at the amount of Four Thousand Five Hundred RMB Yuan (RMB (Yuan)4,500.00).
Within one month after Party B has moved out upon expiration of the lease, Party
A shall refund to Party B the full sum without any interest accrual in exchange
for the receipt from Party B. In the event that Party B has not paid up for all
the charges due for the duration of the lease, Party A shall deduct the amount
from the security deposit. Party B shall not use the deposit for the purpose of
paying the rent for the concluding quarter.)
(07) Party B shall pay for all the expenses concerning the Unit, including the
maintenance, miscellanies, water, electricity, telephone, gas, etc.
(08) Party B shall, upon moving out, dismantle all renovations and decorations
it has made after it moves into the Unit and maintain the original condition of
the Unit. Upon inspection and proof by Party A, Party B shall make compensation
for any deliberate damages done that corresponds with the degree of the damage.
The damages shall be deducted from the security deposit; and if there is a
shortfall, Party A shall have the right to collect the remainder due and Party B
shall not take exception.
(09) This Unit shall be used only for residential purposes. Party B shall not
keep in the Unit any contraband and shall not commit any act in the Unit that
violates the law of the Chinese Government.
(10) Party B shall receive from Party A a total of ___ keys to the Unit and
shall return all of them to Party A when moving out upon expiration of the lease
and pay for their loss at cost. In the event that there arise matters that are
not covered by this contract, both parties shall make a new contract that will
not take effect until both parties have affixed their signatures.
(11) This lease is in duplicate copies, with each party holding one copy as
proof.
(12) The lease for the said Unit shall not be terminated in the first year of
the lease (i.e. between February 1, 1999 and January 31, 2000), otherwise the
security deposit will be forfeited. In the event that the lease needs to be
terminated prior to expiration between February 1, 2000 and January 31, 2001,
lessee must notify lessor in writing one month in advance.
Party A: Liu, Haijun (Signature): Party B: LEPI China Limited (Seal)
ID Number:
Telephone #:
Date: 01/21/99
<PAGE>
SPACE REDUCTION AGREEMENT
DATE: JUNE, 1999
LANDLORD: FEDERAL STORAGE WAREHOUSE, INC.
A. New Jersey Corporation
(Successor in interest to Center Realty, L.P.)
300 Raitan Central parkway
P.O. Box 7815
Edison, New Jersey 08818-7815
TENANT: LEADING EDGE PACKAGING, INC.
A Delaware Corporation
176 Northfiled Avenue
Edison, New Jersey 08837
EXISTING PREMISED: Approximately 65,594 square feet of gross space
Located within Building #409
176 Northfiled Avenue
Raritan Center Business Park
Edison, New Jersey 08837
REDUCED PREMISES: Approximately 33,408 square feet of gross space
Located within Building #409
176 Northfiled Avenue
Raritan Center Business Park
Edison, New Jersey 08837
BASE NET RENT FOR THE
REDUCED PREMISES: $12,528.00 per month net
PRIOR AGREEMENTS
IN EFFECT: Lease dated August, 1996
Spaced Expansion Agreement dated August, 1997
Spaced Expansion Agreement dated December, 1997
- -----------------------------------------------------------------------------
The Landlord and the Tenant hereby agrees to the terms of this Agreement.
1. The Tenant is currently occupying the Existing Premises under the
terms of the Prior Agreements.
2. The Tenant shall vacate and deliver possession of approximately
32,186 square feet of gross space within the Existing Premises to the Landlord
no later than the end of the day on June 30, 1999. The Tenant shall pay all rent
and additional rent related to that square feet of space due through June 30,
1999. The Tenant's premises, therefore, shall be reduced to
<PAGE>
approximately 33,408 square feet of space as shown on the plan attached hereto
as "Exhibit A" (the "reduced Premises").
3. Beginning on July 1, 1999, and continuing through the end of the
Term on October 31, 2001, the Tenant shall pay the Base Net Rent as set forth
above and its percentage of Additional Rent as per the terms of clause 2 of the
Lease dated August, 1996. An estimate of the Tenant's monthly additional rent
expenses is attached hereto as "Exhibit B."
4. With regard to the 32,186 square feet of space to be vacated, per
the terms of this Agreement, the Tenant, at its own expense, shall comply with
the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. ("ISRA"),
effecting all steps necessary to obtain one of the following from the New Jersey
Department of Environmental Protection ("NJDEP").
a) an approval of a nonapplicability application;
b) an approval of a Negative Declaration; or
c) an approval of a completed cleanup.
The Tenant shall promptly provide the Landlord with copies of all communications
between the Tenant and the NJDEP. The Landlord shall assist the Tenant in
connection with the preparation of any documentation required in connection with
the compliance with ISRA.
5. Upon signing this Agreement, the Tenant shall pay to the Landlord
the sum of $17,833.00 representing the unauthorized real estate commissions and
attorneys' fees.
<PAGE>
6. Except as specifically amended herein, all of the terms of the Prior
Agreement shall remain in effect and shall apply to the Reduced Premises.
7. This Agreement binds the Landlord and all parties which rightfully
succeed to its rights or take its place. This agreement binds the Tenant and all
parties which rightfully succeed to its rights or take its place with the
Landlord's consent in accordance with the terms of the Lease.
8. This Agreement contains the entire agreement made by the Landlord
and the Tenant. The terms of this Agreement shall not be changed or amended,
except by the terms of a subsequent written agreement signed by the Landlord and
the Tenant.
WITNESS/ATTEST: LANDLORD/FEDERAL STORAGE
WAREHOUSE, INC.
- ------------------------ ------------------------------
By: Bernadette Grabowski By: Peter Visceglia
President
WITNESS/ATTEST: TENANT/LEADING EDGE
PACKAGING, INC.
- ------------------------- ----------------------------
By: By:
<PAGE>
TO SPACE REDUCTION AGREEMENT BETWEEN
AND
LEADING EDGE PACKAGING, INC.
The Premises and the specifications related thereto are shown on the plans
entitled Area to be Vacated by Leading Edge 176 Northfiled Avenue Building 409,
prepared by David Cochran, dated June 9, 1999.
The Landlord, at the Landlord's cost, shall perform the work as specified on the
plan attached hereto.
<PAGE>
Zhong Shan Torch High & New Tech Industrial &
Commercial Co., Ltd.
Contract on Dormitory Lease
Lessor (Referred to henceforth as Party A): Zhong Shan Torch High & New Tech
Industrial & Commercial Co., Ltd.
Lessee (Referred to henceforth as Party B): LEPI (Zhongshan) Manufacturing
Company Limited
So as to support Party B in its effort to conduct business in the Zhong Shan
High-Tech Development Zone, Parties A & B, following consultation, have agreed
of choice to the following terms according to the needs of Party B:
1. Party A agrees to lease to Party B the sections in the High-tech Residential
Zone (See Appendix for details), with a built-up area of 40 rooms per
dormitory as the residence of Party B's employees. Party B agrees to
undertake the lease by choice.
2. Duration of the Lease: From March 1, 1999 to March 1, 2000 for one year.
3. Rent, Maintenance Charge and Payment Method 1) Rent Computation: The
dormitory Party A leases to Party B shall be handed over for use upon
inspection and acceptance by Parties A & B. For monthly rent, see Appendix.
(Electricity and water facilities and toilet are included. Lamps and
fluorescent lights are provided on a one-time basis and the lessee shall be
responsible for replacement and repair in the future.) Party A virtually
leases sixty-nine rooms to Party B, and Party B shall pay to Party A a total
of RMB (Yuan)33,350 per month for rent. 2) Throughout the duration of the
lease, Party A shall collect a general maintenance fee of (Yuan)0.50/M2 per
month based on floor space. Since Party B rents dormitories equaling
2,760M2, it shall pay Party A (Yuan)1,380/month as general maintenance fees.
4. Payment Method On the day Parties A&B sign this contract, Party B shall pay
Party A, on a lump sum basis, one month's rent and general maintenance fees
totaling RMB (Yuan)34,730, with the rent being (Yuan)33,350 and the general
maintenance fee being (Yuan)1380, which totals RMB (Yuan)34,730. Starting
from the fourth month, Party B shall pay rent to Party A on a quarterly
basis prior to the tenth day of the month. In the event that Party B is late
in paying the rent or does not pay for up to one month, Party A has the
right to repossess the leased property and set the deadline for Party B to
pay the overdue rent and other charges so as to compensate Party A for its
financial loss.
5. Date of Dormitory Transfer The transfer formalities for the dormitory Party
A leases to Party B shall be completed on March 1, 1999 by representatives
of both parties. After the lease takes effect, Party B shall be responsible
for arranging for the residence of its employees and for maintaining the
public facilities.
6. Certain Rules and Regulations Regarding the Execution of this Contract 1)
During its use of the dormitory, Party B shall instruct its employees to
abide by the law and edicts of the People's Republic of China, observe
social ethics, safeguard public facilities and interests, comply with all
the management and regulations of Zhong Shan Torch High & New Tech
Industrial and Commercial Co., Ltd., be obligated to maintain social order
in the residential zone and pay the general maintenance fees and water,
electricity charges in time. 2) Party B shall not, without permission, make
changes in the structure and the function of the dormitory. If decoration of
the interior structure is necessary, Party B must apply for approval by
Party A in advance; otherwise, Party B shall assume full responsible for the
consequences arising therefrom. 3) Party B shall not move or change
facilities in the dormitory. In the event that facilities need to be moved
or changed, the facilities shall be provided by Party A; otherwise, Party B
shall be held accountable for the compensation. 4) Kitchens and cooking are
strictly forbidden in the dormitory. 5) Upon signing of this contract, both
parties must rigorously abide by all the terms in this contract and shall
not unilaterally alter or terminate this contract. In the event that there
are matters that are not covered by the terms in this contract or that the
contract needs to be terminated, both parties shall seek proper resolution
through concerted consultation. In the event that the contract is changed or
terminated unilaterally, the party that breaches the contract shall
compensate the other party for the virtual financial loss. 6) For those
matters regarding repairs and maintenance, please contact the General
Service Department at 5596818-2003.
7. Party B shall pay a security deposit equal to two months' rent. Party A
shall return the deposit to Party B on a lump sum basis when the dormitory
is returned on condition that no damage has been done to the facilities in
the dormitory.
8. This contract takes effect on the day of signing.
9. This contract shall be in duplicate copies, with each party holding one
copy. Both copies shall have equal legal power.
<PAGE>
Seal of Party A: Zhong Shan Torch High & New Tech Industrial & Commercial Co.,
Ltd.
Signature of representative:
Telephone:
Seal of Party A: LEPI (Zhongshan) Manufacturing Company Limited
Signature of representative:
Telephone:
Date: year 199__ month_____ day_____
<PAGE>
ZHONG SHAN TORCH HIGH & NEW TECH INDUSTRIAL & COMMERCIAL CO., LTD.
Appendix
<TABLE>
<CAPTION>
<S> <C> <C> <C>
High-tech Residential Zone
Bldg. 1: Apt 908 1 bedroom (Yuan)450/rm/month Total: (Yuan) 450
Bldg. 2: Apt 801, 808 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 901-908 8 bedroom (Yuan)450/rm/month Total: (Yuan)3,600
Bldg. 3: Apt 201, 206, 209, 403-406 9 bedroom (Yuan)500/rm/month Total: (Yuan)4,500
703, 704
Apt 108 1 bedroom (Yuan)400/rm/month Total: (Yuan) 400
Apt 905-912 8 bedroom (Yuan)450/rm/month Total: (Yuan)3,600
Bldg. 4: Apt 207, 208 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 811, 812 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 906, 910, 911, 912 4 bedroom (Yuan)450/rm/month Total: (Yuan)1,800
Bldg. 6: Apt. 202,207 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 601-608 8 bedroom (Yuan)500/rm/month Total: (Yuan)4,000
Bldg. 7: Apt 205, 208 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 301-310 10 bedroom (Yuan)500/rm/month Total: (Yuan)5,000
Apt 501-505, 507, 509, 510 8 bedroom (Yuan)500/rm/month Total: (Yuan)4,000
Apt 601, 606 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Total 96 bedrooms Total (Yuan)33,350
</TABLE>
Remark: Apartments total 69 rooms, with a total monthly rent of (Yuan)33,350 and
a maintenance fee of 1380 Yuan.
70 double bunks X (Yuan)70 = (Yuan)4900 Total: (Yuan)37,160
<PAGE>
ZHONG SHAN TORCH HIGH & NEW TECH INDUSTRIAL & COMMERCIAL CO., LTD.
Appendix
<TABLE>
<CAPTION>
<S> <C> <C> <C>
High-tech Residential Zone
Bldg. 1: Apt 908 1 bedroom (Yuan)450/rm/month Total: (Yuan) 450
Bldg. 2: Apt 801, 808 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 901-908 8 bedroom (Yuan)450/rm/month Total: (Yuan)3,600
Bldg. 3: Apt 201, 206, 209, 403-406 9 bedroom (Yuan)500/rm/month Total: (Yuan)4,500
703, 704
Apt 108 1 bedroom (Yuan)400/rm/month Total: (Yuan) 400
Apt 905-912 8 bedroom (Yuan)450/rm/month Total: (Yuan)3,600
Bldg. 4: Apt 207, 208 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 811, 812 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 906, 910, 911, 912 4 bedroom (Yuan)450/rm/month Total: (Yuan)1,800
Bldg. 6: Apt. 202,207 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 601-608 8 bedroom (Yuan)500/rm/month Total: (Yuan)4,000
Bldg. 7: Apt 205, 208 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Apt 301-310 10 bedroom (Yuan)500/rm/month Total: (Yuan)5,000
Apt 501-505, 507, 509, 510 8 bedroom (Yuan)500/rm/month Total: (Yuan)4,000
Apt 601, 606 2 bedroom (Yuan)500/rm/month Total: (Yuan)1,000
Total 96 bedrooms Total (Yuan)33,350
</TABLE>
Remark: Apartments total 69 rooms, with a total monthly rent of (Yuan)33,350 and
a maintenance fee of 1380 Yuan.
70 double bunks X (Yuan)70 = (Yuan)4900 Total: (Yuan)37,160
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements of Leading Edge Packaging, Inc. and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 226,785
<SECURITIES> 0
<RECEIVABLES> 805,349
<ALLOWANCES> 1,324,425
<INVENTORY> 2,608,496
<CURRENT-ASSETS> 5,458,486
<PP&E> 1,984,653
<DEPRECIATION> 238,480
<TOTAL-ASSETS> 7,443,139
<CURRENT-LIABILITIES> 7,587,688
<BONDS> 0
0
1,750,000
<COMMON> 55,625
<OTHER-SE> (19,787,097)
<TOTAL-LIABILITY-AND-EQUITY> 7,443,139
<SALES> 6,414,657
<TOTAL-REVENUES> 0
<CGS> 6,484,342
<TOTAL-COSTS> 6,484,342
<OTHER-EXPENSES> 6,929,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (187,138)
<INCOME-PRETAX> (8,310,950)
<INCOME-TAX> 1,560,000
<INCOME-CONTINUING> (16,750,950)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,770,074)
<EPS-BASIC> (3.01)
<EPS-DILUTED> (3.01)
</TABLE>
