<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JAZZ PHOTO CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW JERSEY 5134 22-337358
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
600 BLAIR ROAD, CARTERET, NEW JERSEY 07088
(908) 499-7945
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
ROGER F. LORENZINI, PRESIDENT
JAZZ PHOTO CORP.
600 BLAIR ROAD
CARTERET, NEW JERSEY 07088
(908) 499-7945
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN C. KAHR, ESQ. ROBERT STEVEN BROWN, ESQ.
Greenberg & Kahr DEIRDRE L. FLETCHER, ESQ.
230 Park Avenue, 26th Floor Brock, Fensterstock, Silverstein,
New York, New York 10169 McAuliffe & Wade, LLC
(212) 297-0130 153 East 53rd St., 56th Floor
New York, New York 10022
(212) 371-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act please check the following box
and list the registration statement number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
REGISTERED REGISTERED PRICE PER SHARE (4) OFFERING PRICE (4) FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value......... 1,150,000 shares(1) $6.00 $6,900,000 $2,299.00
Warrants to purchase shares of Common
Stock, $0.01 per share 100,000 warrants(2) $0.001 $100 $1.00
Common Stock, par value $0.01 per
share............................... 100,000 shares(3 ) $6.60 $660,000 $220.00
Total............................. -- -- $ 7,560,100 $ 2,520.00
</TABLE>
(1) Includes up to 150,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Warrants to be sold to the Representative of the several Underwriters.
(3) Issuable upon exercise of Warrants.
(4) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
JAZZ PHOTO CORP.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY PART I OF FORM S-1
<TABLE>
<CAPTION>
ITEM LOCATION IN FORM S-1
NO. CAPTION PROSPECTUS
----- ---------------------------------------------------------------------- -----------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page of Facing Page; Front Cover Page
Prospectus..........................................................
2. Inside Front and Outside Back Cover Pages of Prospectus............... Inside Front Cover Page; Outside
Back Cover Page
3. Summary Information, Risk Factors, and Ratio of Earnings to Fixed Prospectus Summary: Summary
Charges............................................................. Financial Information The Company;
Risk Factors.
4. Use of Proceeds....................................................... Use of Proceeds
5. Determination of Offering Price....................................... Underwriting
6. Dilution.............................................................. Dilution
7. Selling Security Holders.............................................. Management: Principal and Selling
Shareholder
8. Plan of Distribution.................................................. Front Cover Page Prospectus
Summary: The Offering
9. Description of Securities to be Registered............................ Description of Securities
10. Interests of Named Experts and Counsel................................ Not Applicable
11. Information with Respect to the Registrant
a) Description of Business............................................ Prospectus Summary: The Company;
Business
b) Description of Property............................................ Business--Property
c) Legal Proceedings.................................................. Business--Legal Proceedings
d) Market Price of and Dividends on the Registrant's Common Equity and Dividend Policy; Description of
Related Stockholders Matters........................................ Securities: Shares Eligible for
Future Sale; Underwriting
e) Financial Statements............................................... Index to Consolidated Financial
Statements: Consolidated Financial
Statements
f) Selected Financial Data............................................ Selected Consolidated Financial
Data
g) Supplementary Financial Information................................ Not Applicable
h) Management's Discussion and Analysis of Financial Condition and Management's Discussion and
Results of Operations............................................... Analysis of Financial Condition and
Results of Operations
i) Disagreements with Accountants on Accounting and Financial Not Applicable
Disclosure..........................................................
j) Directors and Executive Officers................................... Management
k) Executive Compensation............................................. Management
l) Security Ownership of Certain Beneficial Owners and Management..... Principal and Selling Shareholders
m) Certain Relationships and Related Transactions..................... Certain Transactions
12. Disclosure of Commission Position on Indemnification for Securities Not Applicable
Act Liability.......................................................
</TABLE>
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, APRIL 7, 1997
1,000,000 SHARES
[LOGO]
JAZZ PHOTO CORP.
COMMON STOCK
JAZZ Photo Corp. (the "Company") is hereby offering 1,000,000 shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock"), of the
Company.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that any such market will develop upon
completion of this offering. The initial public offering price per Share is
anticipated to be $5.00. The Company has applied for inclusion of the Common
Stock on the Nasdaq National Market under the symbol "JAZZ " and has applied for
the listing of the Common Stock on the Pacific Stock Exchange under the symbol
"JAZ." For a description of the factors to be considered in determining the
initial public offering price, see "Underwriting."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total (3)................................................ $ $ $
</TABLE>
(1) Does not include additional consideration to be received by Hampshire
Securities Corporation, as the representative (the "Representative") of the
several underwriters (the "Underwriters"), in the form of (a) a 3%
non-accountable expense allowance and (b) warrants entitling the
Representative to purchase up to 100,000 shares of Common Stock (the
"Representative's Warrants"). The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting".
(2) Before deducting estimated expenses of this offering payable by the Company
of , including the Representative's non-accountable expense allowance.
(3) The Company and a principal shareholder of the Company (the "Selling
Shareholder") have granted the Representative an option, exercisable within
45 days after the date of this Prospectus, to purchase up to an aggregate of
150,000 shares of Common Stock, on the same terms as set forth above, solely
to cover over-allotments, if any. If the Representative exercises such
option in full, the Total Price to Public, Total Underwriting Discounts and
Commissions, Total Proceeds to Company and Total Proceeds to the Principal
Shareholder will be $ , $ , $ and $
respectively. See "Principal and Selling Shareholders" and "Underwriting."
------------------------------
The Shares are being offered by the several Underwriters, subject to prior
sale, when, as and if delivered to, and accepted by, them and subject to their
right to reject orders in whole or in part and certain other conditions. It is
expected that delivery of certificates will be made against payment therefor at
the offices of Hampshire Securities Corporation on or about , 1997.
------------------------
HAMPSHIRE SECURITIES CORPORATION
----------------
The date of this Prospectus is , 1997
<PAGE>
[inside front cover]
The Company is the exclusive worldwide distributor of camera products
bearing the Bell + Howell-Registered Trademark- name, a registered trademark of
The Bell & Howell Company.
- --------------------------------------------------------------------------------
[Photograph of Bell + Howell-Registered Trademark- and JAZZ -TM- products]
- --------------------------------------------------------------------------------
An application to register the trademark JAZZ -TM- has been filed.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
All dollar ("$") amounts set forth herein are in U.S. dollars.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, THIS PROSPECTUS DOES NOT GIVE EFFECT TO (I) THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) THE REPRESENTATIVE'S WARRANTS, (III)
UP TO 385,000 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS
WHICH MAY BE GRANTED UNDER THE COMPANY'S 1997 LONG TERM INCENTIVE PLAN (THE
"PLAN"), UNDER WHICH OPTIONS EXERCISABLE FOR AN AGGREGATE OF 161,000 SHARES OF
COMMON STOCK HAVE BEEN GRANTED AND ARE CURRENTLY OUTSTANDING, AND (IV) 60,000
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF WARRANTS CURRENTLY
OUTSTANDING. THIS PROSPECTUS GIVES RETROACTIVE EFFECT TO A RECAPITALIZATION (THE
"RECAPITALIZATION") OF THE COMPANY EFFECTED ON MARCH 19, 1997. AS USED IN THIS
PROSPECTUS, AND UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS
TO THE COMPANY AND THE SUBSIDIARIES THEREOF.
THE COMPANY
The Company is engaged in the design, development, importation and wholesale
distribution of cameras and other photographic products primarily in the United
States. The Company's products, which have been designed to have pricing and
features with mass consumer appeal, are marketed by the Company to (i) leading
mass merchandisers, including Wal-Mart Stores ("Wal-Mart"), Sears, Roebuck & Co.
("Sears"), Hills' Department Stores ("Hill's") and Home Shopping Network ("HSN")
and (ii) private label customers, such as Albertson's ("Albertson's").
The Company's current product offerings consist of (i) single use and
promotionally priced reusable 35 millimeter format ("35mm") cameras marketed
under the Company's JAZZ-TM- brand name and a number of private labels, (ii)
higher priced multiple featured 35mm cameras marketed under the Bell +
Howell-Registered Trademark- trademark pursuant to an exclusive agreement with
Bell & Howell Company ("Bell & Howell") renewable through 2007, (iii) a
newly-introduced family of cameras which utilizes the advanced photographic
system format ("APS"), and (iv) photographic accessories, including vinyl and
leather pouches and carrying cases, for its cameras marketed under the JAZZ-TM-
brand name and a number of private labels. Each of the Company's products is
manufactured by the Company's contract manufacturers in the People's Republic of
China (the "PRC") and has been designed in accordance with Company
specifications.
The Company has experienced substantial growth since inception with revenues
and net income (loss) increasing from $332,000 and ($260,000), respectively, for
the period from June 21, 1995 (inception ) to December 31, 1995 to $7,619,000
and $667,000, respectively, for the six months ended December 31, 1996.
The United States market for consumer photographic products currently is
estimated by industry sources to be in excess of $12.5 billion. The single use
camera segment of this market has grown at more than 15% per year in unit sales
since introduction. The Company's products are designed specifically to target
the single use segment, which includes newly introduced APS cameras and
conventional 35mm cameras. Industry sources have estimated that the APS segment
of such market will grow by 10% to 20% per year and will represent as much as
25% of the consumer photographic market by the year 2000.
The Company believes that it is in an advantageous position to capitalize on
the anticipated growth in its segment of the consumer photographic market for
the following reasons:
- SEASONED TEAM OF MARKETING PROFESSIONALS. The Company has a seasoned team
of marketing professionals with substantial experience in the development
and marketing of mass merchandised cameras at price points and with
features that have effectively penetrated the consumer camera market;
- STRATEGIC PARTNERSHIPS. The Company has developed a number of strategic
partnerships with contract manufacturers which produce quality products in
accordance with the Company's timing requirements and at competitive
prices; and
1
<PAGE>
- RELATIONSHIPS WITH LARGE CUSTOMERS. The Company has developed
relationships with large customers, which have significantly reduced the
cost of maintaining inventory domestically for the United States market.
The Company's business strategy is to continue to grow and capture a larger
share of its targeted segment of the consumer photographic market by (i)
increasing its marketing efforts in the United States and Canadian markets; and
(ii) continuing to develop cameras and related products with mass consumer
appeal.
The Company was incorporated under the laws of the State of New Jersey on
June 21, 1995. The Company's executive offices are located at 600 Blair Road,
Carteret, New Jersey 07088 and its telephone number is (908) 499-7945.
The founder and former Chief Executive Officer and a former Director of the
Company, Jack C. Benun, has been permanently enjoined from serving as an officer
or director of a public company. Mr. Benun currently serves as a consultant to
the Company. It is anticipated that, at management's request, Mr. Benun will
perform substantial services for the Company in the areas of product development
and sales and marketing. See "Management".
Mr. Benun is the founder, and until 1994 was the Chief Executive Officer of
Concord Camera Corp. ("Concord"), a public company and a direct competitor of
the Company.
Mr. Benun was the subject of a proceeding commenced by the Securities and
Exchange Commission (the "Commission") alleging among other things, that he had
misappropriated funds from Concord. The proceeding was settled in 1994 by an
order (the "Order") to which Mr. Benun consented without either admitting or
denying the allegations in the Commission's complaint, under which Mr. Benun
paid $150,000 (the alleged amount of the misappropriation) plus interest to
Concord and $150,000 to the Commission as a penalty. Mr. Benun is currently
engaged in litigation with Concord relating to the Commission's allegations. See
"Management--Consultant's Regulatory History and Litigation With Concord Camera
Corp."
Mr. Benun is a member of the family which currently owns 99.5% of the
outstanding shares of Common Stock prior to this Offering and will continue to
own 68.5% of such stock on completion of this offering. See "Principal and
Selling Shareholders." All of the Principal Shareholders have entered into a
voting agreement with the Company which precludes them from voting their shares
or Common Stock in opposition to the recommendation of the Board of Directors of
the Company for election or removal of directors.
See "Principal and Selling Shareholders--Voting Agreement."
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered hereby........ 1,000,000 shares
Shares of Common Stock Outstanding prior to
this Offering.............................. 2,210,000 shares
Shares of Common Stock Outstanding following
this Offering.............................. 3,210,000 shares
Use of Proceeds.............................. To reduce dependence on short term financing
of receivables and inventory, to repay
certain short-term debt, and for general
corporate and working capital purposes.
Risk Factors and Dilution.................... The shares of Common Stock offered hereby
involve a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
Proposed Nasdaq [National] Market symbol..... JAZZ
Proposed Pacific Stock Exchange symbol....... JAZ
</TABLE>
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following selected statement of operations data for the period from June
21, 1995 (inception) through June 30, 1996 and the six month period ended
December 31, 1996, and the selected historical balance sheet data at December
31, 1996, are derived from the Consolidated Financial Statements of the Company
and Notes thereto included elsewhere, such consolidated financial statements
herein were audited by Richard A. Eisner & Company, LLP, independent auditors
for the Company. The selected statement of operations data for the six months
ended December 31, 1995 is derived from the unaudited Consolidated Financial
Statements of the Company, which have been prepared on a basis consistent with
the audited Consolidated Financial Statements of the Company and, in the opinion
of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations. The results of operations for any interim
period are not necessarily indicative of results to be expected for the entire
year. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FROM
JUNE 21,1995 SIX-MONTHS ENDED
(INCEPTION) DECEMBER 31
THROUGH ------------------------
JUNE 30, 1996 1995 1996
------------- ---------- ------------
<S> <C> <C> <C>
Net sales............................................................... $ 1,166,000 $ 332,000 $ 7,619,000
Cost of goods sold...................................................... 976,000 315,000 5,835,000
------------- ---------- ------------
Gross profit............................................................ 190,000 17,000 1,784,000
Operating expenses...................................................... 825,000 196,000 998,000
------------- ---------- ------------
Operating income (loss)................................................. (635,000) (179,000) 786,000
Other expense, net...................................................... (164,000) (81,000) (61,000)
------------- ---------- ------------
Income (loss) before income taxes and minority interest................. (799,000) (260,000) 725,000
Provision for income taxes.............................................. -- -- 40,000
------------- ---------- ------------
Income (loss) before minority interest.................................. (799,000) (260,000) 685,000
Minority interest....................................................... -- -- 18,000
------------- ---------- ------------
Net income (loss)....................................................... (799,000) (260,000) 667,000
------------- ---------- ------------
------------- ---------- ------------
PRO FORMA SUPPLEMENTAL DATA:
Net income (loss): 667,000
Pro forma executive compensation........................................ 190,000
------------
Pro forma net income (1)................................................ 477,000
------------
------------
Net income (loss) per share of Common Stock and for the six months ended
December 31, 1996 as adjusted to give effect to executive compensation
on a pro forma basis.................................................. (0.34) (0.11) 0.20
Weighted average number of shares outstanding (2)....................... 2,349,000 2,349,000 2,349,000
</TABLE>
- ------------------------
(1) The pro forma income statement data reflects an adjustment to the historical
income statement data assuming the Company had paid compensation to its
Chief Executive Officer during the six month period ended December 31, 1996.
(2) Net income (loss) per share of Common Stock is based on the weighted average
number of shares outstanding during each period, as modified in accordance
with the rules of the Commission. Under these rules, the weighted average
number of shares outstanding during each period includes the dilutive effect
of options and warrants issued during the 12 month period preceding the date
of the initial filing of the Registration Statement, of which this
Prospectus forms a part, computed using the treasury stock method as if the
shares issuable upon the exercise of such options and warrants were
outstanding for all periods.
4
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS
HISTORICAL PRO FORMA(1) ADJUSTED(1)(2)
---------- ------------ ----------------
Cash................................................................ $ 171,000 $ 686,000 $ 3,836,000
Working capital..................................................... 507,000 1,022,000 4,172,000
Total assets........................................................ 1,611,000 2,261,000 5,326,000
Notes payable, net of current portion............................... 20,000 524,000 20,000
Notes payable - stockholder and other related parties, net of
current portion................................................... 709,000 709,000 709,000
Accumulated deficit................................................. (132,000) (132,000) (313,000)
Shareholders' Equity (capital deficiency)........................... (82,000) 64,000 3,633,000
</TABLE>
- ------------------------
(1) Gives effect to the sale in March 1997 of notes (the "Notes") issued in a
private placement (the "Private Placement") in the aggregate principal
amount of $600,000, repayable from the proceeds of this offering, and the
allocation to capital of the portion of the proceeds of such sale ($96,000)
attributable to the common stock purchase warrants issued to the purchasers
of the Notes in the Private Placement.
(2) Adjusted to give effect to the sale of the Shares at an assumed initial
public offering price of $5.00 per Share, after the deduction of
underwriting discounts and commissions and estimated offering expenses and
giving effect to the anticipated application of the net proceeds of
$3,750,000 of this offering as set forth in "Use of Proceeds." Deferred
interest applicable to the Notes ($96,000) and the estimated expenses of the
Private Placement ($85,000) will be charged to operations upon the repayment
of the Notes from the proceeds of this offering.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE, INVOLVES A
HIGH DEGREE OF RISK AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT
DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER MATTERS REFERRED TO
HEREIN, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO,
THE RISK FACTORS SET FORTH BELOW.
LIMITED OPERATING HISTORY; RECENT LOSSES; CAPITAL DEFICIENCY AND ACCUMULATED
DEFICIT. The Company was incorporated in June 1995 and commenced operations in
August 1995. During the period from June 21, 1995 (inception) through June 30,
1996, the Company recorded net sales and a net (loss) of $1,166,000 and
($799,000), respectively, and, during the six months ended December 31, 1996,
the Company recorded net sales and net income of $7,619,000 and $667,000,
respectively. After taking account of the pro forma effect of executive
compensation during the six months ended December 31, 1996, net income would
have been $477,000. At June 30, 1995 and December 31, 1996, the Company had a
capital (deficiency) of ($749,000) and ($82,000), respectively, and an
accumulated deficit of ($799,000) and ($132,000), respectively. Accordingly, in
light of the foregoing, prospective investors have only a limited operating
history by which to judge the Company and its prospects for success. The
likelihood of the future success of the Company must be considered in light of
such limited operating history, as well as the problems, expenses, difficulties,
risks, and complications frequently encountered by developing companies. In
addition, the Company's future plans are subject to known and unknown risks and
uncertainties that may cause the Company's actual results in future periods to
be materially different from any future performance suggested herein. There can
be no assurance that future revenues of the Company will be significant or that
the Company's operations will continue to be profitable. See "Risk
Factors--Possible Need for Additional Financing," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Contract Manufacturing; Quality Control."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; MANAGEMENT OF WORKING
CAPITAL. As the Company ships its products on the basis of customer purchase
orders which generally are not received by the Company until immediately prior
to the customer's desired shipment date, operating results in any quarter are
highly dependent on orders booked and shipped in that quarter and, accordingly,
may fluctuate materially from quarter to quarter. The Company's operating
expense levels and production schedules are based on preliminary orders, as well
as the Company's internal forecasts of future demand and not on firm customer
orders. Failure by the Company to achieve these internal forecasts could result
in higher expense levels and orders for larger production runs from its contract
manufacturers than are justified by actual revenues, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, based upon the timing of such events, the Company's
working capital could be adversely affected, thereby limiting the Company's
ability to continue to implement its expansion plans. Moreover, the Company's
quarterly results may also be affected by fluctuating demand for the Company's
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources."
MANAGEMENT OF GROWTH. The Company has experienced substantial growth since
inception with consolidated revenues and consolidated net income (loss)
increasing from $1,166,000 and ($799,000), respectively, for the period from
June 21, 1995 (inception) through June 30, 1996, to $7,619,000 and $667,000,
respectively, for the six months ended December 31, 1996. After taking account
of the pro forma effect of executive compensation during the six months ended
December 31, 1996, net income would have been $477,000. There can be no
assurance that such growth will continue. While management has successfully
managed such growth to date and the Company's infrastructure has been sufficient
to support such growth, there can be no assurance that, if such growth
continues, the Company's infrastructure will continue to be sufficient to
support a larger enterprise. In the event that such growth continues, the
management thereof may require expansion of the Company's management and
financial controls, and could place a significant strain on the Company's
resources. None of the Company's current officers (other than Roger F.
Lorenzini, the Company's President, Chief Executive Officer and a Director) has
had experience in managing a public company or a company that has expenditures
as large as the anticipated
6
<PAGE>
expenditures of the Company. While the Company intends to hire additional
experienced personnel, there can be no assurance that these or other measures
implemented by the Company will effectively increase the Company's capabilities
to manage such growth in a timely and cost-effective manner. See "Risk
Factors--Dependence on Key Personnel; Recruitment of Additional Personnel,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Employees" and "Management."
POSSIBLE NEED FOR ADDITIONAL FINANCING. Based on the Company's operating
and expansion plan, the Company believes that the estimated net proceeds of this
offering, together with funds from operations, will be sufficient to satisfy its
capital requirements and finance its plans for expansion for at least the next
18 months. This belief is based on certain assumptions, and there can be no
assurance that such assumptions are correct. In addition, contingencies or
opportunities may arise which would require the Company to obtain additional
capital. Accordingly, there can be no assurance that the Company's financial
resources will be sufficient to satisfy the Company's capital requirements for
such period. After such 18 month period, the Company may require additional
financing. Such financing may take the form of the issuance of common or
preferred stock or debt securities, or may involve bank financing. There can be
no assurance that the Company will be able to obtain such financing on a timely
basis, on favorable terms or at all. See "Use of Proceeds" and
"Business--Business Strategy." In any of such events, the Company may be unable
to implement its current plans for expansion.
CUSTOMER CONCENTRATION. During the six months ended December 31, 1996, ,
Wal-Mart represented approximately 75% of the Company's net sales during such
period. The loss of, or substantial diminution in orders from,Wal-Mart could
have a material adverse effect on the Company. None of the Company's customers
has entered into any long-term minimum purchase agreements with the Company.
Accordingly, purchases from the Company by such customers in any prior period
may not be indicative of orders or purchases in any future period, and there can
be no assurance that these companies will remain customers of the Company.
Further, in the event that any one of such customers were to change the terms
upon which it purchases products from the Company, the Company could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business--Major Customers."
RISKS ASSOCIATED WITH RECYCLING CAMERAS. Single-use cameras are designed to
be disposable. Approximately 95% of the single use cameras produced by the
Company's contract manufacturers and purchased by the Company are made from
recycled plastic camera shells. The manufacturers of single-use cameras have
continually taken steps to discourage their recycling, making it increasingly
difficult for the Company to utilize such components in its business. While the
Company's current contract manufacturers to date have overcome barriers designed
to prevent recycling of single-use cameras, there can be no assurance that the
original manufacturers of the cameras will not successfully develop technologies
that prevent their recycling. Moreover, because the Company's manufacturers'
ability to acquire recycled cameras is dependent on a continual supply of
cameras that may be recycled in a cost-efficient manner, there can be no
assurance that recycled cameras will continue to be available at a reasonable
cost or at all. During the six months ended December 31, 1996, net sales from
single use cameras were approximately $5,161,000, representing approximately 68%
of total net sales for such period. Since recycled cameras shells generally are
available at substantially lower cost than newly manufactured shells, the
Company's manufacturers' inability to continue to acquire recycled single-use
cameras could have a material adverse affect on the Company's business. See
"Business--Contract Manufacturing; Quality Assurance."
DEPENDENCE ON CONTRACT MANUFACTURERS. The Company maintains no production
facilities and its products are, and are anticipated to continue to be,
manufactured in accordance with Company specifications by contract manufacturers
headquartered in Taiwan and Hong Kong with production facilities in the PRC.
Such manufacturers purchase components utilized in the manufacture of the
Company's products from third parties. Consequently, the Company is dependent
upon its contract manufacturers and their suppliers for timely delivery of
products and quality workmanship. Delays in production or shipment,
7
<PAGE>
quality control problems, and unavailability of components could have a material
adverse effect on the Company. See "Business--Manufacturing; Quality Control."
POLITICAL AND ECONOMIC DEVELOPMENTS AFFECTING HONG KONG. The Company's
foreign distribution, shipping, and engineering development management and
contract manufacturing management offices and several of its principal contract
manufacturers and suppliers are headquartered in Hong Kong, a British Crown
Colony. Consequently, the Company may be materially adversely affected by
factors affecting Hong Kong's political situation and its economy or its
international political and economic relations. On December 19, 1984, the
governments of the PRC and Britain signed a Joint Declaration (the "Joint
Declaration") regarding the future of Hong Kong. Under the Joint Declaration,
China will recover sovereignty over the British Crown Colony of Hong Kong on
July 1, 1997, and Hong Kong will become a Special Administrative Region (the
"SAR") within China. The Joint Declaration provides that the basic policies of
China regarding Hong Kong will be stipulated in a Basic Law, which was adopted
April 4, 1990, (the "Basic Law"). Although the Basic Law provides that the SAR
will have a high degree of legislative, judicial, and economic autonomy (except
in foreign and defense affairs), and it is anticipated that the laws currently
in force in Hong Kong will remain basically unchanged (the Joint Declaration
contemplates that the policies expressed therein will remain in effect for a
period of at least 50 years from July 1, 1997), there can be no assurance as to
the continued stability of political, economic, or commercial conditions in Hong
Kong or that the Company's financial condition and results of operations will
not be adversely affected as a consequence of these events. For the six months
ended December 31, 1996, approximately 68% of the Company's net sales to United
States customers were made through Jazz (Hong Kong) Limited ("Jazz-HK"), its
Hong Kong subsidiary.
HONG KONG CURRENCY. A substantial portion of the Company's net sales and
expenses through Jazz-HK are denominated in the Hong Kong dollar. The exchange
rate between the Hong Kong dollar and the U.S. dollar currently is fixed within
a narrow range. The Company has converted all Hong Kong dollars to U.S. dollars
in accordance with generally accepted accounting principlesin the United States.
There can be no assurance that the exchange rate of the Hong Kong dollar will
not fluctuate in the future and that such fluctuations will not have a material
adverse affect on the Company's business and results of operations. See
"Consolidated Financial Statements and the Notes thereto."
DEPENDENCE ON KEY PERSONNEL. The Company depends to a large extent on the
abilities and continued participation of Jack C. Benun, formerly the President,
Chief Executive Officer and a Director of the Company, and currently principal
consultant to the Company, and of Roger F. Lorenzini, the current President,
Chief Executive Officer and a Director of the Company. Mr. Benun resigned his
offices with, and became a consultant to the Company on April 1, 1997 when Mr.
Lorenzini assumed his offices with the Company. The Company's consulting
agreement with Mr. Benun expires December 31, 2001 and its employment contract
with Mr. Lorenzini expires December 31, 2000. The loss of the services of Mr.
Benun or Mr. Lorenzini would have a material adverse effect on the Company's
business. The Company has agreed with the Representative to obtain and become
the sole beneficiary of a keyman life insurance policy on the life of Mr.
Lorenzini in the amount of $1,000,00 and intends to obtain keyman life insurance
in a comparable amount on the life of Mr. Benun. See "Management."
The ability of the Company to attract and retain management and other
personnel when needed is critical to the operations and expansion of the
Company. The Company faces competition for such personnel from other companies
and organizations, many of which have significantly larger operations and
greater financial, marketing, human, and other resources than the Company. To
date, the Company has been able to attract and retain the personnel necessary
for its operations. However, there can be no assurance that the Company will be
able to do so in the future, particularly in light of the Company's plans for
expansion. If the Company is unable to attract and retain personnel with
necessary skills when needed, its business and expansion plans could be
materially adversely affected.
COMPETITION. The consumer photographic products market is highly
competitive and requires substantial capital. The Company competes with, and
will compete with, numerous international and regional
8
<PAGE>
companies, many of which have significantly larger operations and greater
financial, marketing, human, and other resources than the Company. No assurance
can be given that the Company will successfully compete in any market in which
it conducts or may conduct operations. See "Business -- Competition."
CONTINUED CONTROL BY PRINCIPAL SHAREHOLDERS; VOTING AGREEMENT. After this
offering, the Principal Shareholders will beneficially own approximately 68.5%
of the outstanding Common Stock. All of the Principal Shareholders have entered
into a voting agreement with the Company which precludes them from voting their
shares of Common Stock in opposition to the recommendation of a majority of the
Board of Directors of the Company with respect to the election or removal of
directors and from initiating a change in the majority of director. See
"Principal and Sellling Shareholders."
DEPENDENCE ON SHORT-TERM FINANCING. A substantial portion of the Company's
working capital is represented by borrowings from Mr. Benun's family, the
proceeds of the sale of the receivables of the Company to a commercial factoring
firm and the sale of customers' negotiable letters of credit. The Company has in
the past experienced difficulty in obtaining sufficient credit and has been
forced to accept credit terms which the Company believes are unfavorable. The
Company believes that the inability of the Company to obtain sufficient credit
on competitive terms has limited the Company's operations and growth from
inception. The termination of any of the Company's existing sources of credit
would limit the ability of the Company to continue to implement its plans for
expansion, which could have a material adverse effect on the Company. In
addition, the Company could be adversely affected if its major customer,
Wal-Mart, which accepts deliveries of Company products FOB Hong Kong with
payment by negotiable letters of credit, were to materially change the terms of
purchase by, for example, accepting delivery FOB New Jersey which would
materially increase the period between payment by the Company of its contract
manufacturers and payment to the Company by its customers. The Company is
seeking to secure bank lines of credit in order to replace its current
short-term credit arrangements. There can be no assurance that the Company will
obtain any such line of credit on terms acceptable to the Company or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."
EXISTENCE OF PERSONAL GUARANTEES. Currently all of the Company's third
party credit and financing arrangements are personally guaranteed by Jack C.
Benun, the former President, Chief Executive Officer and a Director of the
Company and currently the principal consultant to the Company. There can be no
assurance that Mr. Benun will be willing to guarantee any new or extended credit
or financing arrangements for the Company in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
IMPORTATION OF PRODUCTS. The importation of camera products into the United
States and into other jurisdictions in which the Company'intends to sell its
products are subject to numerous risks, including shipping delays, fluctuation
in currency exchange rates, and import duties. There can be no assurance that
the United States, the PRC or Hong Kong or such other governments will not in
the future impose trade restrictions which could adversely affect the Company's
activities. Currently, there is a 1.2% duty on cameras imported into the United
States and there are no United States import quotas on the type of products
manufactured and distributed by the Company. However, there can be no assurance
that quotas, taxes, or further or greater duties or taxes will not be imposed in
the future. See "Business -Import Restrictions and Foreign Taxes."
The United States has considered revocation of the PRC's most favored nation
("MFN") trade status, which provides the PRC with the trading privileges
available generally to trading partners of the United States, and the United
States and the the PRC have recently been involved in controversies relating to
the protection in the PRC of intellectual property rights. Such controversies
have threatened a trade war between the countries. President Clinton has
extended the PRC's MFN status until July 3, 1997, and the United States and the
PRC reached an agreement that averted a trade war and a United States embargo
against the importation of certain products manufactured in the PRC, including
electronic and audio products. While cameras were not listed among the products
subject to the threatened embargo and trade
9
<PAGE>
wars have been avoided in the past, if trade restrictions were imposed on camera
products imported into the United States, the Company's ability to import camera
products from the PRC or Hong Kong could be materially adversely affected. There
can be no assurance that future controversies will not arise that again threaten
the status quo involving trade between the United States and the PRC, or that
the United States will not revoke or refuse to extend the PRC's MFN status. In
either of such events, the Company would be materially adversely affected.
ABILITY TO DEFER FOREIGN EARNINGS. The Company's Hong Kong subsidiary,
Jazz-HK, is a controlled foreign corporation ("CFC") for United States tax
purposes. Under certain circumstances, the United States shareholder of a CFC
may be required to include some portion or all of the CFC's earnings in its own
taxable income currently as if the CFC had distributed those earnings to the
shareholder as a dividend. The inclusion of such earnings in the Company's
taxable income depends on whether the income of the CFC consists of certain
categories of income which are enumerated in several provisions of the Internal
Revenue Code of 1986, as amended, as well as on the absence of adverse tax
legislation in the future. Although the Company believes it will be able to
defer the current income from the CFC in accordance with current tax laws, there
can be no assurance that the Company will be able to defer United States
taxation of all or some of its subsidiary's income in the future. See
"Business--Possible United States Taxation of Foreign Earnings."
SUBSTANTIAL PORTION OF NET PROCEEDS ALLOCATED FOR GENERAL CORPORATE AND
WORKING CAPITAL PURPOSES; BROAD DISCRETION OF MANAGEMENT. Approximately
$3,100,000 (82.7%) of the estimated net proceeds from the sale of the Shares at
an assumed public offering price of $5.00 per Share has been allocated for
general corporate and working capital purposes. Such proceeds may be utilized in
the discretion of the Board of Directors. Accordingly, investors will not know
in advance how the Company will utilize such estimated net proceeds and
management will have broad discretion as to the allocation and use of such
proceeds. See "Use of Proceeds."
SUBSTANTIAL OPTIONS AND WARRANTS RESERVED. The Company has reserved 385,000
shares of Common Stock for issuance pursuant to the Plan and may reserve
additional shares of Common Stock in the future. To date, options to purchase an
aggregate of 161,000 shares of Common Stock have been granted pursuant to the
Plan, warrants issued in the Private Placement to purchase an additional 60,000
shares. The Company also will sell to the Representative in connection with this
offering, for nominal consideration, warrants to purchase an aggregate of 60,000
shares of Common Stock at a price per Share equal to 110% of the public offering
price per share, subject to adjustment. The exercise of such options and
warrants and subsequent sale of the underlying shares of Common Stock in the
public market could adversely affect the market price of the Company's
securities. The existence of the Representative's Warrants, the outstanding
options issued under the Plan, and such other warrants may prove to be a
hindrance to future financings, since the holders of such warrants and options
may be expected to exercise them at a time when the Company would otherwise be
able to obtain additional equity capital on terms more favorable to the Company.
See "Risk Factors--Possible Need For Additional Capital" and "Underwriting."
The holders of the Representative's Warrants will have certain demand and
"piggy back" registration rights with respect to such warrants and the shares of
Common Stock underlying such warrants (the "Warrant Shares") commencing one year
after the date hereof. If the Representative should exercise its registration
rights to effect a distribution of the Representative's Warrants or the Warrant
Shares, the Representative, prior to and during such distribution, will be
unable to make a market in the Company's securities, which may therefore be
limited. If the Representative ceases to make a market in the Common Stock, the
Company could lose the ability to list the Common Stock on the Nasdaq [Small
Cap] Market because of that market's requirement of at least [three] [two]
market makers, the market and market prices for the Common Stock could be
materially adversely affected, and holders thereof may be unable to sell or
otherwise dispose of shares of Common Stock. See "Shares Eligible For Future
Sale" and "Underwriting."
10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of substantial numbers of
shares of Common Stock (including shares issued upon the exercise of stock
options and warrants) after this offering by the existing shareholders, the
Representative, or the executive officers or directors of the Company, or the
perception that such sales could occur, could adversely affect the market price
for the Common Stock. In that regard, holders of approximately 68.5% of the
3,210,000 shares of Common Stock outstanding immediately after the offering and
the holders of outstanding options under the Plan, including the officers and
directors of the Company, have agreed not to sell publicly or otherwise dispose
of any shares of Common Stock (other than the portion of the Representatives'
over-allotment option to be sold by the Selling Shareholder) for a period of 18
months after the date of this Prospectus without prior written consent of the
Representative. Commencing immediately following the termination of such 18
month period, all the shares of Common Stock currently owned by the Company's
shareholders prior to the offering (2,210,000 shares of Common Stock) will be
eligible for resale in the public market pursuant to Rule 144 under the
Securities Act. In addition, the Company has granted certain parties, including
the Representative (which owns Representative's Warrants to purchase 100,000
shares of Common Stock) and holders of warrants acquired in a Private Placement
(exercisable for an aggregate of 60,000 shares of Common Stock) registration
rights, which rights may be exercised commencing one year and 18 months,
respectively, after the date of this Prospectus. See "Risk Factors--Substantial
Options and Warrants Reserved" and "Shares Eligible for Future
Sale--Registration Rights."
DILUTION. The offering price per share of Common Stock is substantially
higher than the net tangible book value per share of the Common Stock at
December 31, 1996. Purchasers of Shares in this offering will experience
immediate and substantial dilution of $3.91 (78.2%) in the pro forma net
tangible book value per share of Common Stock assuming an initial public
offering price of $5.00 per share. To the extent outstanding options and
warrants to purchase shares of Common Stock are exercised, there will be further
dilution. See "Dilution."
DIVIDEND POLICY. The Company has never declared or paid, and is not
anticipated in the foreseeable future to declare or to pay, a dividend on the
Common Stock, and the Company expects that the Company's future earnings will be
retained for expansion or development of the Company's business. Whether the
Company will pay dividends on the Common Stock in the future will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements and surplus, the
general financial condition of the Company, restrictive covenants in loan or
other agreements to which the Company may become subject, and such other factors
as the Board of Directors of the Company may deem relevant. The Company's
agreement with its commercial factors requires the factor's prior written
consent to the payment by the Company of any cash dividends. See "Dividend
Policy" and "Description of Securities--Common Stock."
ARBITRARY OFFERING PRICE. The initial public offering price of the Shares
will be determined by negotiation between the Company and the Representative and
may not be indicative of the price at which the Shares will trade after the
completion of the offering. Among the factors to be considered in such
negotiations are (i) an assessment of the Company's future prospects, (ii) the
experience of the Company's management, (iii) the current financial position of
the Company, (iv) the prevailing conditions in the securities markets, including
the market value of the publicly traded common stock of companies in similar
industries, (v) the market conditions for new offerings of securities and (vi)
the demand for similar securities of comparable companies. See "Underwriting."
NO PRIOR MARKET FOR THE COMMON STOCK. Prior to this offering, there has
been no public market for the Common Stock, and there can be no assurance that
an active trading market therefore will develop or, if any such market develops,
that it will be sustained. Accordingly, purchasers of the Shares may experience
difficulty selling or otherwise disposing of their shares of Common Stock.
POSSIBLE VOLATILITY OF STOCK. The market prices for securities of newly
public companies have historically been highly volatile. Future announcements
concerning the Company or its competitors, including
11
<PAGE>
operating results, technological innovations or new commercial products,
government regulations, or foreign and other competition, could have a
significant impact on the market price of the Common Stock. In addition, the
stock markets in the United States have, from time to time, experienced
significant price and volume fluctuations that are unrelated or disproportionate
to the operating performance of individual companies. Such fluctuations could
materially adversely affect the price of the Common Stock. See "Underwriting."
NASDAQ ELIGIBILITY AND MAINTENANCE; POSSIBLE DELISTING OF SECURITIES FROM
NASDAQ. In September 1991, the Commission approved rules that establish the
currently effective criteria for initial and continued listing of securities on
the Nasdaq SmallCap Market. Under such rules, for initial listing, a company
must have at least $4,000,000 in total assets, at least $2,000,000 in
shareholders' equity and a minimum bid price of $3.00 per share. For continued
listing, a company must maintain at least $2,000,000 in total assets, at least
$1,000,000 in shareholders' equity, and a minimum bid price of $1.00 per share.
The Common Stock is expected to be eligible for initial listing on the
Nasdaq SmallCap Market under these rules upon completion of this offering.
However, in November 1996, the NASD proposed rules which revise the criteria for
initial and continued listing on such market. Under the proposed rules, for
initial listing, a company must have at least $4,000,000 net tangible assets, a
minimum bid price of $4.00 per share, and a public float of at least $5,000,000.
For continued listing, a company must maintain $2,000,000 in net tangible
assets, a minimum bid price of $1.00, and a public float of at least $1,000,000.
If the Company should experience losses from operations, it may be unable to
maintain the standards for continued listing and the Common Stock could be
subject to delisting from the Nasdaq SmallCap Market. Trading, if any, in the
Common Stock would thereafter be conducted in the over-the-counter market on the
OTC Bulletin Board established for securities that do not meet the Nasdaq
SmallCap Market listing requirements or in what are commonly referred to as the
"pink sheets." As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the Shares.
The Company proposes to make application for inclusion on the Nasdaq
National Market. Currently, among other criteria, Nasdaq initial inclusion
criteria require that the applicant have net tangible assets of $4,000,000 and
net income and pre-tax earnings in two of the three last years of $400,000 and
$750,000, respectively. The Company believes that it would meet these current
initial inclusion criteria, however, these criteria are being amended by the
Nasdaq Stock Market, Inc. to increase the required level of net tangible assets
to $6,000,000, to eliminate the net income criterion and to increase the pre-tax
earnings criterion to $1,000,000. In the event the Company's application to
include the Common Stocks on the Nasdaq National Market is reviewed using the
proposed criteria, there can be no assurance that such application will be
approved. Accordingly, the Company has elected to file also for inclusion of the
Common Stock on the Nasdaq SmallCap Market.
RISK OF LOW-PRICED STOCKS In the event the Common Stock quoted on the
Nasdaq SmallCap Market, were delisted from such market and no other exclusion
from the definition of a "penny stock" under the Exchange Act were available,
such securities would be subject to the penny stock rules that impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally
defined as investors with net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with a spouse). For transactions covered
by these rules, the broker-dealer must make a special suitability determination
for the purchase, and must have received the purchaser's written consent to the
transaction prior to sale. Consequently, such delisting, if it were to occur,
could materially adversely affect the ability of broker-dealers to sell the
Shares and the ability of purchasers in this offering to sell their Shares in
the secondary market.
ELIMINATION OF LIABILITY FOR DIRECTORS. The Company's Certificate of
Incorporation limits the liability of a director of the Company to the Company
and its shareholders for monetary damages for breach of
12
<PAGE>
fiduciary duty to the fullest extent permitted by the New Jersey Business
Corporation Act ("NJBCA"). The NJBCA permits elimination of a directors'
officers' and agents' personal liability for monetary damages for acts in good
faith in a manner they reasonably believed to be in, or not opposed to, the best
interests of the Company and, with respect to a criminal proceeding, for which
such persons had no reasonable cause to believe were unlawful. As a result of
such provisions, the rights of Company shareholders to recover monetary damages
from directors, officers, and agents of the Company for certain breaches of
their fiduciary duties may be significantly limited. See "Management."
PREFERRED STOCK; NJBCA; POSSIBLE ANTI-TAKEOVER EFFECTS. The Company's
Certificate of Incorporation authorizes the Board of Directors to issue up to
1,000,000 shares of preferred stock. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include,
among other things, voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights, and sinking fund provisions. At the date hereof, no shares of
preferred stock are outstanding. The Company has no present plans for the
issuance of any preferred stock. However, the issuance of any such preferred
stock could materially adversely affect the rights of holders of Common Stock
and, therefore, could reduce the value of the Common Stock. In addition,
specific rights granted to future holders of preferred stock could be used to
restrict the Company's ability to merge with, or sell its assets to, a third
party. The ability of the Board of Directors to issue preferred stock could
discourage, delay or prevent a takeover of the Company, thereby preserving
control of the Company by the current shareholders. The NJBCA restricts certain
business combinations with an interested shareholder (typically a beneficial
owner of 10% or more of the outstanding voting shares of the Company's capital
stock, excluding certain persons) without meeting stringent conditions. This
provision could discourage a third party from pursuing a takeover of the Company
at a price considered attractive by many shareholders, since such provision
could have the effect of delaying an acquiring party from gaining control of the
Company and its Board of Directors. See "Description of Securities."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby
are estimated to be approximately $3,750,000 (approximately $3,967,000 if the
Representative's over-allotment option is exercised in full) assuming an initial
public offering price of $5.00 per share, after deducting
Underwriters'discounts, commissions and expenses and the estimated expenses of
the offering payable by the Company.
The Company intends to utilize approximately $650,000 (17.3%) of the
estimated net proceeds of this offering to repay the principal amount of, and
accrued and unpaid interest on, the Notes issued by the Company in the Private
Placement which notes bear interest at the rate of 10% per annum. The Notes
mature on the closing of the offering made hereby. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources."
The Company intends to utilize the remainder of the estimated net proceeds
of this offering, approximately $3,100,000 (82.7%), for general corporate and
working capital purposes, including maintaining inventory in finished camera
products in the United States, leasehold improvements, developing new products
and hiring personnel. The Company intends to utilize working capital to avoid
the need to sell its receivables in order to reduce its dependence on a
commercial factoring arrangement, which permits advances of up to 70% of
purchased uncollected receivables at the rate of interest equal to 2.5% above
the prime rate of interest plus commissions. Obligations under this facility are
guaranteed by Jack C. Benun, formerly the President, Chief Executive Officer and
a Director of the Company and currently a consultant to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."
The Company will not receive any of the proceeds from the sale of up to
100,000 shares of Common Stock by the Selling shareholder in the event the
over-allotment option granted by her to the Representative is exercised.
The Company intends to allocate the net proceeds from the sale of up to
50,000 shares of Common Stock sold by the Company upon the exercise of the
over-allotment option for general corporate and working capital purposes.
The foregoing represents the Company's best estimate of its allocation of
the estimated net proceeds of the sale of the Shares based upon the Company's
currently contemplated operations, the Company's business plan and current
economic and industry conditions and is subject to reapportionment among the
categories listed above or to new categories in response to, among other things,
changes in its plans, economic and industry conditions, and future revenues and
expenditures. The amount and timing of expenditures will vary depending on a
number of factors, including changes in the Company's contemplated operations or
business plan and changes in economic and industry conditions.
Based on the Company's business plan, the Company believes that the net
proceeds of this offering, together with funds generated by continuing
operations, will be sufficient to permit the Company to conduct its operations
as currently contemplated for at least the next months. Such belief is
based on, among other things, budgeted revenues from product sales and budgeted
expenses, and there can be no assurance that such resources will be sufficient
for such purpose. The Company may be required to raise substantial additional
capital in the future in order to expand operations. In addition, contingencies
may arise which may require the Company to obtain additional capital. There can
be no assurance that the Company will be able to obtain such capital from any
other sources, on a timely basis, on favorable terms or at all. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Pending utilization of the net proceeds of this offering, the Company
intends to invest such net proceeds in short term interest bearing securities.
14
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid, and in the forseeable future is not
anticipated to declare or to pay, a dividend on the Common Stock. The Company
expects that the Company's future earnings will be retained for expansion or
development of the Company's business. Whether the Company will pay dividends on
the Common Stock in the future will be at the discretion of the Company's Board
of Directors and will depend upon, among other things, future earnings,
operations, capital requirements and surplus, the general financial condition of
the Company, restrictive covenants in loan or other agreements to which the
Company may become subject, and such other factors as the Board of Directors of
the Company may deem relevant. The Company's agreement with its commercial
factors requires the factor's prior written consent to the payment by the
Company of any cash dividends. See "Description of Securities--Common Stock."
15
<PAGE>
CAPITALIZATION
The following table sets forth the short term debt and capitalization of the
Company at December 31, 1996 (i) on an historical basis, (ii) on a pro forma
basis to reflect the Private Placement of the Notes and the Recapitalization and
(iii) on a pro forma as adjusted basis, to reflect repayment of the Notes and
the Recapitalization and to give effect to the receipt and application by the
Company of the estimated net proceeds from the sale of the Shares. See "Use of
Proceeds." This table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
<S> <C> <C> <C>
PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED(4)
---------- ----------- --------------
Long-term debt:
Notes payable, net of current portion......................................... $ 20,000 524,000 $ 20,000
Notes payable, stockholder and related parties, net of current portion........ 709,000 709,000 709,000
Capital deficiency:
Common stock, par value $.01.(2)(3)
10,000,000 shares authorized,
2,200,000 shares issued and outstanding--historical 2,210,000 shares issued
and outstanding-pro forma and
3,210,000 Shares issued and outstanding--pro forma, as adjusted............. 22,000 22,100 32,100
Class A common stock, par value $.01 per share, 500,000 authorized; none
issued...................................................................... -- -- --
Preferred stock par value $1.00 per share; 1,000,000 shares authorized; none
issued...................................................................... -- --
Additional paid-in capital(1)................................................. 28,000 173,000 3,913,900
(Accumulated Deficit)......................................................... (132,000) (132,000) (313,000)
Shareholders' Equity (capital deficiency)..................................... (82,000) 64,000 3,633,000
</TABLE>
- ------------------------
(1) As adjusted to reflect the sale of $600,000 aggregate principal amount of
Notes and warrants (the "Warrants") to purchase an aggregate of 60,000
shares of Common Stock for net proceeds of $120,000. Of the gross proceeds
of such purchase, $96,000 has been allocated to the Warrants and reflected
in capital for reporting and tax purposes.
(2) After giving effect to the Recapitalization of the Company pursuant to which
a stock split effected as a stock dividend was made to the principal
shareholders who have become the owners of 2,200,000 shares of Common Stock
and 10,000 shares of Common Stock purchased by Bell & Howell. See "Business
-- Bell & Howell License."
(3) Does not reflect the exercise of the Warrants or the exercise of options to
purchase 161,000 shares of Common Stock which the Company has granted under
the Plan prior to the date of this Prospectus. See "Management--1997 Long
Term Incentive Plan."
(4) Gives effect to the sale of the Shares, at an assumed initial public
offering price per Share of $5.00 and the application of the estimated net
proceeds of ($3,750,000) as set forth herein in "Use of Proceeds." The
deferred interest applicable to the Notes of $96,000 and the estimated
expenses of the Private Placement ($85,000) will be charged to operations
upon repayment of the Notes from the proceeds of this offering.
16
<PAGE>
DILUTION
The pro forma net tangible book value (deficiency) of the Common Stock at
December 31, 1996 was ($71,000) or $0.03 per share after giving effect to the
Private Placement and the Recapitalization. Pro forma net tangible book value
(deficiency) per share is determined by dividing the pro forma net tangible book
value (deficiency) of the Company (total tangible assets less total liabilities)
by the number of shares of Common Stock outstanding. Without taking into account
any changes in net tangible book value after December 31, 1996, other than to
give effect to the sale of the 1,000,000 shares of Common Stock offered by the
Company (at an assumed public offering price of $5.00 per share) and the
application of the net proceeds therefrom as described under "Use of Proceeds",
the adjusted pro forma net tangible book value of the Company at December 31,
1996 would have been $3,583,000 or $1.12 per share. This represents an immediate
increase in net tangible book value of $1.09 per share to existing shareholders
and an immediate dilution of net tangible book value of $3.91 per share to new
investors. The following table illustrates this dilution per share:
<TABLE>
<CAPTION>
PER SHARE
----------------------
<S> <C> <C>
Assumed initial public offering.......................................... $ 5.00
Pro forma net tangible book value as of December 31, 1996................ $ (0.03)
Increase in net tangible book value to the existing stockholders......... $ 1.12
As adjusted pro forma net tangible book value after the offering......... $ 1.09
Dilution to new investors................................................ $ 3.91
</TABLE>
The following table sets forth, as of December 31, 1996, the number of
shares of Common Stock purchased from the Company, the percentage of total
shares of Common Stock purchased, the total consideration paid, the percentage
of total consideration paid and the average price per share of Common Stock paid
by the investors in this offering and the current shareholders of the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Shareholders.............. 2,210,000 68.8% $ 50,000(1) 0.9% $ 0.02
New Investors...................... 1,000,000 31.2% $ 5,000,000 99.1% $ 5.00
---------- --- ------------ ---
Total.............................. 3,210,000 100% $ 5,050,000 100%
---------- --- ------------ ---
---------- --- ------------ ---
</TABLE>
- ------------------------
(1) Consideration does not include a $50,000 deferred charge representing the
issuance of 10,000 shares of Common Stock to Bell & Howell in consideration
of modification and extension of it's licensing agreement with the Company
at $0.01 per share computed at $5.00 per share See "Business -- Bell &
Howell License."
At April 3, 1997, there were outstanding options for 161,000 shares of
Common Stock at an exercise price per share of $1.50 under the Plan and 60,000
warrants which are exercisable for shares of Common Stock (which number excludes
the issuance of the Representative's Warrants to purchase 100,000 shares of
Common Stock), at a weighted average conversion price or exercise price as
applicable of $1.64 per share. To the extent these securities or additional
securities issued after the date hereof at conversion or exercise prices below
the initial public offering price per Share are exercised, there will be further
dilution to new investors. See "Risk Factors," "Capitalization," and Note B(10)
of "Notes To Consolidated Financial Statements."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected statement of operations data for the period from June
21, 1995 (inception) through June 30, 1996 and the six month period ended
December 31, 1996, and the historical selected balance sheet data at June 30,
1996 and December 31, 1996 are derived from the Consolidated Financial
Statements of the Company and Notes thereto included elsewhere herein; such
Consolidated Financial Statements were audited by Richard A. Eisner & Company,
LLP, independent auditors for the Company. The selected statement of operations
data for the six months ended December 31, 1995 is derived from the unaudited
Consolidated Financial Statements of the Company and the Notes thereto, which
have been prepared on a basis consistent with the audited Consolidated Financial
Statements of the Company and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position and results of operations. The
results of operations for any interim period are not necessarily indicative of
results to be expected for the entire year.. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and Notes thereto included elsewhere in this Prospectus.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FROM
JUNE 21,1995 SIX-MONTHS ENDED
(INCEPTION) DECEMBER 31
THROUGH --------------------------
JUNE 30, 1996 1995 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net sales.............................................................. $ 1,166,000 $ 332,000 $ 7,619,000
Cost of goods sold..................................................... 976,000 315,000 5,835,000
------------- ------------ ------------
Gross profit........................................................... 190,000 17,000 1,784,000
Selling expenses....................................................... 281,000 35,000 397,000
General and administrative expenses.................................... 544,000 161,000 601,000
Operating expenses..................................................... 825,000 196,000 998,000
------------- ------------ ------------
Operating income (loss)................................................ (635,000) (179,000) 786,000
Other expense, net..................................................... (164,000) (81,000) (61,000)
------------- ------------ ------------
Income (loss) before income taxes and minority interest................ (799,000) (260,000) 725,000
Provision for income taxes............................................. -- -- 40,000
Minority interest...................................................... -- -- 18,000
Net income (loss)...................................................... (799,000) (260,000) 667,000
------------- ------------ ------------
------------- ------------ ------------
Net income............................................................. 667,000
Pro forma executive compensation....................................... (190,000)
Pro forma net income(1)................................................ 477,000
------------
------------
Net income (loss) per share............................................ $ (0.34) $ (0.11) $ 0.20
Weighted average shares of common stock and equivalents(1)............. 2,349,000 2,349,000 2,349,000
</TABLE>
- ------------------------
(1) The pro forma income statement data reflects an adjustment to the historical
income statement data assuming the Company had paid compensation to its
chief executive officer during the six month period ended December 31, 1996.
(2) Net Income (loss) per share of Common Stock is based on the weighted average
number of shares outstanding during each period, as modified in accordance
with the rules of the Commission. Under these rules, the weighted average
number of shares outstanding during each period includes options and
warrants issued during the 12 month period preceding the date of the initial
filing of the Registration Statement of which the Prospectus forms a part,
computed using the treasury stock method as if the Shares issuable upon the
exercise of such options and warrants were outstanding for all periods.
18
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
JUNE 30, 1996 --------------------------
HISTORICAL HISTORICAL PRO FORMA(1)
------------- ------------ ------------
<S> <C> <C> <C>
Cash................................................................... $ 10,000 $ 171,000 $ 686,000
Working capital (deficiency)........................................... (31,000) 507,000 1,022,000
Total assets........................................................... 1,115,000 1,611,000 2,261.000
Notes payable, net of current portion.................................. 12,000 20,000 524,000
Notes payable, stockholder and other related parties, net of current
portion.............................................................. 818,000 709,000 709,000
Accumulated deficit.................................................... (799,000) (132,000) (132,000)
Shareholders' Equity (capital deficiency).............................. (749,000) (82,000) 64,000
</TABLE>
- ------------------------
(1) Gives effect to the sale in the Private Placement of the Notes in the
aggregate principal amount of $600,000 repayable from the proceeds of this
offering, and the allocation to capital of the portion of proceeds of such
sale, $96,000, attributable to the Warrants issued to the purchasers of the
Notes in the Private Placement.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the design, development, importation, and
wholesale distribution of cameras and other photographic products primarily in
the United States. The Company's products, which have been designed to have
pricing and features with mass consumer appeal, are marketed by the Company to
(i) leading mass merchandisers, including Wal-Mart, Sears, Hills', and HSN, and
(ii) private label customers, such as Albertson's.
During the six months ended December 31, 1996,, Wal-Mart represented
approximately 75% of net sales. None of the Company's customers has entered into
any long-term minimum purchase agreements with the Company.
The following table, sets forth, for the periods indicated, Statement of
Operations data expressed as a percentage of net sales represented by the
following expense and earnings (loss) items:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 21, 1995
(INCEPTION) DECEMBER 31,
THROUGH --------------------
JUNE 30,1996 1995 1996
--------------- --------- ---------
<S> <C> <C> <C>
Net sales......................................................................... 100.0% 100.0% 100.0%
Cost of goods sold................................................................ 83.7 94.9 76.6
----- --------- ---------
Gross profit...................................................................... 16.3 5.1 23.4
Operating expenses................................................................ 70.8 59.0 13.1
----- --------- ---------
Income (loss) from operations..................................................... (54.5) (53.9) 10.3
Financing expense................................................................. (9.5) (12.7) (1.1)
Other income (expense) net........................................................ (4.5) (11.7) 0.3
----- --------- ---------
Income before provision for income taxes and minority interest.................... (68.5) (78.3) 9.5
Provision for income taxes........................................................ -- -- 0.5
----- --------- ---------
Net income (loss) before minority interest........................................ -- -- 9.0
Minority interest................................................................. -- -- 0.2
----- --------- ---------
Net income (loss)................................................................. (68.5) (78.3) 8.8
----- --------- ---------
----- --------- ---------
Net income........................................................................ 8.8
Pro forma executive compensation.................................................. 2.5
---------
Pro forma net income.............................................................. 6.3
---------
---------
</TABLE>
RESULTS OF OPERATIONS
JUNE 21, 1995 (INCEPTION) THROUGH JUNE 30, 1996
NET SALES. Net sales of the Company were $1,166,000 in the period from
inception to June 30, 1996. These revenues resulted from shipments to customers,
primarily in the United States. The Company commenced shipping its products at
the end of the three months ended September 30, 1995. Approximately 40% of net
sales were attributable to sales to its largest customer, Wal-Mart, in this
period. Gross margin, expressed as a percentage of sales, was 16.3% for the year
ended June 30, 1996.
OPERATING EXPENSES. Operating expenses consisting of selling expenses of
$281,000 and general and administrative expenses of $544,000, together,
constituted 70.8% of net sales for the year ended June 30, 1996, reflecting the
costs of commencing the operations of the Company.
20
<PAGE>
FINANCING EXPENSES. Interest costs required to finance inventory and
accounts receivable levels totalled $111,000, or 9.5% of net sales, during such
period. During this period, the Company lost $86,000 from sales of marketable
securities.
Primarily as a result of the costs relating to the commencement of the
operations of the Company. and low gross margins on products sold, the Company
lost $799,000 during the period from June 21, 1995 (inception) through June 30,
1996.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NET SALES. Net sales increased by $7,287,000, or approximately 2195%, to
$7,619,000 for the six months ended December 31, 1996, as compared to $332,000
for the six months ended December 31, 1995. Such increase in sales was primarily
attributable to significant increases in the Company's customer base and the
marketing by the Company of additional products added to the Company's product
portfolio subsequent to December 31, 1995.
COST OF GOODS SOLD. Cost of goods sold for the six months ended December
31, 1996 was $5,835,000, representing 76.6% of sales during such period, as
compared to $315,000, representing 94.9% of sales, during the six months ended
December 31, 1995. The increase in the cost of goods sold is attributable to
increases in sales during the six month period ended December 31, 1996 over the
comparable period in 1995, while the decrease in cost of goods sold as a
percentage of sales during this period in 1996 over the comparable period in
1995 is attributable to economies of scale as a result of increased volume
purchases at lower effective prices by the Company during such period and a more
profitable mix of products therefore increasing gross margins.
OPERATING EXPENSES. Operating expenses increased by $802,000, or
approximately 409.2%, to $998,000 ($1,188,000 on a pro forma basis) for the six
months ended December 31, 1996, as compared to $196,000 for the six months ended
December 31, 1995. Such increase is primarily attributable to, among other
things, an increase in net sales.
INCOME (LOSS) FROM OPERATIONS. Income from operations increased by
$965,000, to $786,000 ($596,000 on a pro forma basis) or approximately 548.3%
for the six months ended December 31, 1996, as compared to a loss from
operations of $179,000 for the six months ended December 31, 1995. Such increase
is attributable to (i) the increase in net sales described above, (ii) a
decrease in cost of sales as a percentage of sales and (iii) decreases in
operating expenses as a percentage of net sales in such period in 1996 as
compared to such period in 1995.
FINANCING INCOME (EXPENSE), NET. Financing expenses, increased by $45,000,
or approximately 107.1%, to $87,000 for the six months ended December 31, 1996,
from $42,000 for the six months ended December 31, 1995. Such increase is
primarily attributable to increased utilization of factoring of receivables.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital (deficit) of $$507,000 and ($31,000) at
December 31, 1996 and June 30, 1996, respectively. Since inception, the Company
has been dependent on short-term financing from credit facilities in order to
satisfy its working capital requirements. The Company has experienced
difficulties in obtaining sufficient credit to satisfy its working capital
requirements and has been forced to accept financing on terms which the Company
believes to be unfavorable. As a result of such limited working capital, the
Company's operations and growth have been limited.
21
<PAGE>
OPERATING ACTIVITIES.
For the six months ended December 31, 1996 and 1995, net cash provided by
(used in) operating activities was approximately $593,000 and ($499,000),
respectively, and net income (loss) was approximately $667,000 and ($260,000),
respectively. The primary changes in the Company's working capital from December
31, 1995 to December 31, 1996 were: (A)(i) an increase in cash and cash
equivalents by $111,000, or approximately 185%, to $171,000 at December 31,
1996, as compared to $60,000 at December 31, 1995; (ii) an increase in trade
receivables by approximately $14,000, or 127%, to $25,000, at December 31, 1996,
as compared to $11,000, at December 31, 1995; (iii) an increase in the balance
due from the factor by approximately $46,000, or 45%, to $147,000 at December
31, 1996, as compared to $101,000 at December 31, 1995; (iv) an increase in
inventories by approximately $586,000, or 234%, to $836,000 at December 31,
1996, as compared to $250,000 at December 31, 1995; (v) a decrease in prepaid
expenses and other current Assets by approximately $16,000, or 18.60%, to
$70,000 at December 31, 1996, as compared to $86,000 at December 31, 1995; (vi)
a decrease in the loans receivable from others by approximately $86,000 or 29.5%
to $204,000 at December 31, 1996 offset by (B) (i) an increase in current
maturities of long-term loans by approximately $14,000 as a result of borrowing
for equipment purchases as compared to -0- at December 31, 1995; (ii) an
increase in trade payables, and accrued expenses by approximately $704,000 or
393.2% to $883,000 at December 31, 1996, as compared to $179,000 at December 31,
1995 and (iii) an increase in income taxes payable by approximately $40,000 at
December 31, 1996, as compared to $-0- at December 31, 1995, (iv) a decrease in
the current portion of the notes payable to shareholders to approximately
$736,000 at December 31, 1995 as compared to $82,000 at December 31, 1996, (v)
an increase in the loan from officer of $9,000 at December 31, 1996 as compared
to zero at December 31, 1995.
INVESTMENT ACTIVITIES. Investment activities during the six months ended
December 31, 1996 and 1995 were comprised primarily of (i) purchases by the
Company of fixed assets for $38,000 and $24,000, respectively, (ii) net loans to
the Chief Executive Officer of the Company for $156,000 and $290,000,
respectively and (iii) purchases of marketable securities for $133,000 and
$986,000.
FINANCING ACTIVITIES. For the six months ended December 31, 1996 and
December 31, 1995, net cash provided by (used in) financing activities was
($239,000) and $1,099,000, respectively, the activity was principally comprised
of loans made by shareholders to the Company which were subsequently repaid, the
issuance of 2,200,000 shares of common stock par value $.01 for $50,000 and
proceeds received from another note payable for $100,000.
The Company has a financing arrangement with Rosenthal & Rosenthal, Inc.,
commercial factors, under which the Company sells its receivables without
recourse to the factor and may borrow up to 70% of the face amount of the
receivables accepted for sale in advance of collection. Borrowings bear interest
at 2 1/2% above the prime rate of The Chase Manhattan Bank N.A. In addition, the
factor receives a commission of 1.125% of the invoice of each receivable
accepted for sale and at higher surcharge rates (ranging from 1% to 2 1/2%) on
the receivables of certain less creditworthy customer. All advances against
receivables are secured by a lien on the Company's inventory and are guaranteed
by Mr. Benun. Recently, the factor has allowed advances of up to 75% of
aggregate receivables purchased. In practice, the Company has found that the
factor has been unwilling to approve new customer accounts on a timely basis or
to factor large single customer orders at the full advance percentage. This has
inhibited the Company from expanding sales. It is seeking more liberal credit
terms from its factors. The Company intends to use a portion of the estimated
net proceeds of this offering to reduce its dependence on its commercial factor.
Jazz HK currently has an agreement for credit facility with the Hong
Kong--Shanghai Bank under which the bank has agreed to purchase negotiable
documentary letters of credit in amounts of up to $775,000 drawn to the Company
from its customers upon shipment of product FOB Hong Kong. The bank discounts
the letters of credit at a rate of 8 1/2% per annum. This credit facility is
guaranteed by Mr. Benun and Ms. Szeto, Managing Director of Jazz HK.
22
<PAGE>
The Company generally ships its products on the basis of customer purchase
orders which generally are not received by the Company until immediately prior
to the customer's required shipment date. The Company is often required to make
payments to vendors and contract manufacturers significantly prior to the time
it receives payments from its customers, and must maintain substantial inventory
in the case of sales FOB New Jersey. As a result of such timing differences, the
Company's working capital may be adversely affected, thereby limiting the
Company's ability to continue its expansion plans. See "Risk Factors--Potential
Fluctuations in Operating Results; Management of Working Capital."
Based on the Company's business plan, the Company believes that the net
proceeds of this offering, together with funds generated by continuing
operations, will be sufficient to permit the Company to conduct its operations
as currently contemplated for at least the next 18 months. Such belief is based
on, among other things, budgeted revenues from product sales and budgeted
expenses; but, there can be no assurance that such resources will be sufficient
for such purpose. The Company may be required to raise substantial additional
capital in the future in order to expand operations. In addition, contingencies
may arise which may require the Company to obtain additional capital. There can
be no assurance that the Company will be able to obtain such capital from any
other sources on favorable terms or at all. See "Capitalization."
23
<PAGE>
BUSINESS
GENERAL
The Company is engaged in the design, development, importation, and
wholesale distribution of cameras and other photographic products primarily in
the United States. The Company's products, which have been designed to have
pricing and features with mass consumer appeal, are marketed by the Company to
(i) leading mass merchandisers, including Wal-Mart, Sears, Hills', and HSN and
(ii) private label customers, such as Albertson's.
The Company's current product offerings consist of (i) single use and
promotionally priced 35mm cameras marketed under the Company's JAZZ-TM- brand
name and a number of private labels, (ii) higher priced multiple featured 35mm
cameras marketed under the Bell + Howell-Registered Trademark- trademark,
pursuant to an exclusive agreement with Bell & Howell Company ("Bell & Howell")
renewable through 2007 (iii) a newly-introduced family of cameras utilizing the
APS format, and (iv) photographic accessories, including vinyl and leather
pouches and carrying cases, for its cameras marketed under the JAZZ-TM- brand
name and a number of private labels. Each of the Company's products is
manufactured by the Company's contract manufacturers in the PRC and has been
designed in accordance with Company specifications.
The Company has experienced substantial growth since inception with net
sales and net income (loss) increasing from $332,000 and ($279,000)
respectively, for the six months ended December 31, 1995 to $7,619,000 and
$725,000, respectively, for the six months ended December 31, 1997. After taking
account of the pro forma effect of executive compensation during the six months
ended December 31, 1996, net income would have been $477,000.
The Company conducts its operations directly and through its subsidiaries,
Jazz HK and Jazz Photo Canada Corp. ("Jazz Canada"). In the United States, the
Company primarily conducts marketing, sales, and administrative activities. The
Company manages its contract manufacturing and product design and engineering
activities, as well as its product and component inspection, quality control,
and shipping activities, through Jazz HK, located in Hong Kong. The Company
markets and sells its products in Canada through Jazz Canada. During the six
months ended December 31, 1996, substantially all of the Company's sales were
made to customers in the United States.
BUSINESS STRATEGY
The United States market for consumer photographic products currently is
estimated by industry sources to be in excess of $12.5 billion. The single use
segment of the camera market has continued to grow at more than 15% per year in
unit sales since introduction. The Company's products are designed specifically
to target the single use segment within such market, which includes newly
introduced APS cameras and conventional 35mm cameras. Industry sources have
estimated that the APS segment will grow by 10% to 20% per year and will
represent as much as 25% of the consumer photographic market by the year 2000.
The Company believes that it is in an advantageous position to capitalize on
the anticipated growth in its segment of the consumer photographic market for
the following reasons:
- SEASONED TEAM OF MARKETING PROFESSIONALS. The Company has a seasoned team
of marketing professionals with substantial experience in the development
and marketing of mass merchandised cameras at price points and with
features that have effectively penetrated the consumer camera market;
- STRATEGIC PARTNERSHIPS. The Company has developed a number of strategic
partnerships with contract manufacturers which produce quality products in
accordance with the Company's timing requirements and at competitive
prices; and
- RELATIONSHIPS WITH LARGE CUSTOMERS. The Company has developed
relationships with large customers, which have significantly reduced the
cost of maintaining inventory domestically for the United States market.
24
<PAGE>
The Company's business strategy is to continue to market its product lines
to mass merchandisers at pricing and with features that have mass consumer
appeal in order to increase its market share. Although there can be no assurance
thereof, the Company believes that its excellent relationships with its contract
manufacturers, the broad line of products it offers and the wide consumer
recognition of the Bell & Howell name should permit growth while maintaining
profit margins.
PRODUCTS
The Company's current product offerings consist of (i) single use and
promotionally priced 35mm cameras, (ii) higher priced multiple featured 35mm
cameras marketed under the Bell + Howell-Registered Trademark- trademark,
pursuant to an exclusive worldwide licensing agreement with Bell & Howell
renewable through 2007, (iii) a newly-introduced family of cameras utilizing the
APS format, and (iv) photographic accessories for its cameras marketed under the
JAZZ-TM- brand name and a number of private labels. Each of the Company's
products is manufactured by the Company's contract manufacturers in the PRC and
has been designed in accordance with Company specifications. See
"Business--Contract Manufacturing; Quality Assurance."
SINGLE USE AND PROMOTIONALLY PRICED 35MM CAMERAS. The Company's single use
cameras are made from new or recycled shells and are the lowest priced cameras
offered by the Company. Each of such cameras, except for outdoor-only models,
include integrated electronic flash units and are priced at between $1.99 and
$8.95 per unit for sale to retailers. Such cameras are marketed under the
Company's JAZZ-TM- brand name and a number of private labels.
Multiple Featured 35mm Bell + Howell-Registered Trademark- Cameras. Pursuant
to an exclusive trademark licensing agreement with Bell & Howell renewable
through 2007, the Company markets higher priced multiple featured 35mm cameras
for sale under the Bell + Howell-Registered Trademark- trademark. Such cameras
feature, depending on the model and price, motorized film drives, auto-focus,
automatic film loading, red eye reduction, large view finders, macro close-up,
and self -timing. The Company is currently adding to its Bell +
Howell-Registered Trademark- line cameras with 2:1 and 3:1 power zoom at
wholesale prices of between $70 and $145 per unit to retailers. See
"Business--Bell & Howell License."
APS CAMERAS. The Company is currently expanding its single use and
promotionally priced 35 mm cameras by developing models which utilize the APS
format. The APS film and camera technology was introduced by a consortium of
major film and camera manufacturers in 1996. The system enables a single use
camera using standard APS film to take high resolution and panoramic as well as
conventional photographs. APS cameras have the capacity to record on the
developed print data about the physical environment in which the film was
exposed, as well as messages selected by the user.
PHOTOGRAPHIC ACCESSORIES. The Company also distributes other photographic
accessories and packaged camera kits which include batteries and film
manufactured by Eastman Kodak Company as well as vinyl and leather pouches and
carrying cases.
BELL & HOWELL LICENSE
The Company has entered into a trademark licensing agreement with Bell &
Howell, renewable through December 31, 2007, under which the Company is
authorized as exclusive distributor to market and sell cameras bearing the Bell
+ Howell-Registered Trademark- trademark worldwide. One year prior to the
expiration of the initial term at year end 2002, the Company is required to
exercise its renewal option. The channels of distribution for these cameras, the
models sold and the production facilities for the cameras are subject to
approval by the licensor. Under the terms of the licensing agreement, the
Company is required to pay the licensor a royalty of 3% of gross revenues, as
defined. To maintain the license, the Company is required to make minimum
royalty payments of $300,000 for the year 2000 and $350,000 for the year 2001
and a minimum annual royalty payment of $400,000 for each of the remaining years
of the Agreement. In addition, Bell & Howell may terminate its agreement with
the Company if the Company fails to achieve 15% year to year growth in royalty
payments or if Mr. Benun ceases to be associated with the Company. In
25
<PAGE>
connection with the extension and modification of the agreement with Bell &
Howell in March 1997, the Company agreed to sell 10,000 shares of common stock
to Bell & Howell for nominal consideration.
The Company believes that the wide consumer recognition of the name Bell +
Howell-Registered Trademark- brand name and its association with high quality
camera products has materially enhanced the marketing of the Company's products.
CONTRACT MANUFACTURING; QUALITY ASSURANCE
All of the Company's cameras are produced by its contract manufacturers in
accordance with Company specifications. The Company currently purchases product
made to its specifications from four major contract manufacturers headquartered
in Hong Kong and Taiwan with production facilities in the PRC. The Company
believes it is not dependent on any single manufacturer for the production of
its products.
Except for molds held at one contract manufacturer in the PRC, the Company
does not own any of the molds, tooling, or equipment for the manufacture of its
cameras or for their components. Except for film which the Company sometimes
procures for delivery to its contractors, the Company's contractors purchase
required components from many non-affiliated suppliers. The Company does not
maintain any parts inventory for delivery to its contractors. The Company
believes that its contract manufacturers are not dependent on any one or more
suppliers for such components and that they could find alternate sources on
short notice and at prices competitive with those they currently pay. Through
Jazz HK, the Company assists its manufacturers in identifying, and in some cases
negotiating for, components. The Company is constantly seeking alternate sources
of supply for its camera components at prices competitive with those its
manufacturers pay.
The Company requires its contract manufacturers to maintain vigorous quality
control operations which include inspection and testing at various stages of
production of its camera products. Quality control procedures include, without
limitation, testing of components and raw materials when purchased or produced,
testing during the manufacturing process and final quality control testing of
the finished product by independent engineering firms hired by Jazz HK. The
Company's terms with most of its United States customers include the right to
return defective merchandise for credit. The Company experiences returns of
approximately 2%, which the Company believes is better than the industry average
and is a result of its quality control programs.
The Company plans to use a portion of the proceeds of this offering to
finance additional finished goods inventory to be maintained in the United
States.. See "Use of Proceeds."
PRODUCTION SCHEDULING AND SHIPPING; CUSTOMERS' TERMS OF PURCHASE
Production schedules are determined by the Company on the basis of
anticipated United States sales and orders placed by the Company's large
customers. Because of the distance its product must travel, the Company must
initiate its overseas production from six to twelve weeks prior to receiving the
finished product in the United States depending on the model and quantities.
Production schedules for United States sales are determined in accordance with
preliminary orders as well as the Company's evaluation of demand for its
product. These schedules are updated regularly on the basis of additional
information received from customers concerning changes in their anticipated
needs for Company products. Often, written orders are not received by the
Company until immediately prior to the customer's desired shipment date. The
amount of unfilled orders at a particular time is affected by a number of
factors, including the placement of firm orders, seasonal fluctuations and
schedule of manufacturing and shipping of product. Accordingly, the amount of
unfilled orders from period to period is not necessarily meaningful, and may not
be indicative of actual shipments to be made in any future period. At December
31, 1996, the Company had unfilled written orders of approximately $2.2 Million.
The Company often must make substantial advance commitments to its contract
manufacturers ranging from one to three months prior to the receipt of firm
orders from the Company's customers. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and
26
<PAGE>
Capital Resources." Many of these early commitments are subject to change with
respect to number, assortment or delivery dates. Generally, manufacturers
require a payment of 30% of the purchase price upon placement of the order and
the balance upon delivery, and in several cases, three weeks prior thereto.
Where the Company has been able to do so, it has made delivery FOB Hong Kong to
avoid, to the extent possible, the minimum four weeks time for shipment by sea
on deliveries to United States customers, prior to delivery to customers FOB New
Jersey. On occasion, to meet required deliveries on recently purchased product,
the FOB New Jersey, the Company has been forced to airship product to the United
States at significantly increased freight cost. Terms to customers are generally
net 30 days, except on large single customer orders where the Company has
negotiated better terms in exchange for volume discounts. Where necessary in
order to fill key orders, the Company has shipped product to the United States
by air at substantially increased cost.
Substantially, all Company products sold by the Company to its large United
States customers are currently sold FOB Hong Kong. The Company holds inventory
for United States sales at its New Jersey warehouse. See "Business--Property and
Equipment."
PRODUCT DESIGN AND ADVERTISING
The Company's products are developed, designed and engineered in Hong Kong
and Taiwan by product engineers and technicians employed by its contract
manufacturers. The Company also designs and contracts the production of
packaging styles and materials for, and makes cosmetic revisions to, all camera
models in accordance with the orders of specific customers.
To date, the Company has not expended significant amounts on advertising and
marketing and does not anticipate any significant expenditures in the
foreseeable future. Except for occasional one time agreements for advertising
allowances on very large orders, a small amount of direct advertising in the
trade press and attendance at annual industry trade shows, the Company engages
in a limited amount of advertising.
COMPETITION
The consumer photographic products market is highly competitive and requires
substantial capital. The Company competes with, and will compete with, numerous
international and regional companies, many of which have significantly larger
operations and greater financial, marketing, human, and other resources than the
Company. No assurance can be given that the Company will successfully compete in
any market in which it conducts or may conduct operations.
The Company considers Concord Camera Corp. and Unique Photo Products to be
its primary competitors in the United States for its single use 35 mm and APS
cameras, as well as several small Taiwanese and Hong Kong camera companies. With
respect to its reusable camera business, the Company considers Seattle Film
Works, Vivitar, Ansco Photo Products, and Concord Camera Corp. to be its primary
competitors. The Company's higher priced multifeatured cameras compete with the
cameras of very large established manufacturers with brand names such as Nikon,
Olympus, and Yashica.
EMPLOYEES
As of December 31, 1996, the Company had 11 employees working in the United
States. Of these employees, eight worked in executive, administrative or
clerical capacities, two worked in merchandising and sales, and one in
warehousing facilities. None of the Company's employees is represented by a
union. The Company considers its working relationship with its employees to be
satisfactory and has never experienced any interruption in its operations due to
any kind of labor dispute. See also "Management-- Employment Agreements and
Consulting Arrangements."
As of December 31, 1996, Jazz HK had two full-time employees, each working
in Hong Kong and both of whom work in executive, administrative or clerical
capacities. The Company has entered into an employment agreement with Ms. Jessie
Szeto, Managing Director of Jazz HK. See "Management-- Employment Agreement and
Consulting Arrangements."
27
<PAGE>
IMPORT RESTRICTIONS AND FOREIGN TAXES
The importation of camera products into the United States and in other
jurisdictions in which the Company's products are sold is subject to numerous
risks including non-Company related labor strikes and shipping delays,
fluctuation in currency exchange rates and import duties. There is no assurance
that the United States, the PRC, Hong Kong, or such other governments will not
in the future impose trade restrictions which could adversely affect the
Company's operations. Jazz HK will pay a Hong Kong income tax on profits, if
any, for the year ending December 31, 1997. Currently, there is a 1.2% duty on
imports to the United States, but there are no United States import quotas
imposed on the type of products manufactured and distributed by the Company.
There can be no assurance, however, that such quotas, taxes or additional or
greater taxes or duties will not be imposed in the future.
POSSIBLE UNITED STATES TAXATION OF FOREIGN EARNINGS
The Company's Hong Kong subsidiary, Jazz HK, is a controlled foreign
corporation ("CFC") for United States tax purposes. Under certain circumstances,
the United States shareholder of a CFC may be required to include some portion
or all of the CFC's earnings in its own taxable income currently as if the CFC
had distributed those earnings to the shareholder as a dividend. The inclusion
of the subsidiary's earnings in the Company's taxable income depends on whether
the income of the CFC consists of certain categories of income which are
enumerated in several provisions of the Internal Revenue Code of 1986 (the
"Code"), as amended, as well as on the absence of adverse tax legislation in the
future. Although the Company believes it will be able to defer the current
income from the CFC in accordance with current tax laws, there can be no
assurance that the Company will be able to defer United States taxation of all
or some of its subsidiary's income in the future.
The United States Company would be taxed currently on Jazz HK's "foreign
base company income" if such income were equal to or greater than $1,000,000 or
5% of such subsidiary's gross income. "Foreign base company income" is defined
to include income derived from certain types of activities, including, "foreign
personal holding company income" and "foreign base company sales income." The
Company does not anticipate that Jazz HK will earn foreign base company sales
income to the extent that its earnings are attributable to selling activities as
opposed to manufacturing or production activity. Although the Company cannot
foreclose the possibility that Jazz HK may have some foreign base company sales
income in the future, the Company believes that even if it has such income, the
income will not be a large percentage of its total income.
Another provision of the Code would tax the Company currently if Jazz HK
makes investments in United States property. An investment in United States
property includes, among other things, ownership of tangible property in the
United States or stock or obligations of United States persons or a guarantee of
an obligation of a United States person. There is an exception to the rule
regarding obligations of United States persons for obligations arising in
connection with the sale of property if the amount of the obligation is not
commercially excessive in terms of what would have been needed to carry on the
sales activity between unrelated persons. The Company does not believe that its
obligations to Jazz HK arising from such sale of the subsidiary's products will
be in an amount or on terms such as would cause such obligations to be deemed
commercially excessive, and it will attempt to secure its necessary financing
without requiring Jazz HK to guarantee such debt.
If Jazz HK's earnings are taxed to the Company as deemed dividends from the
subsidiary, prior to the time that the earnings actually are remitted to the
Company as dividends, the Company can claim a foreign tax credit on the deemed
dividends just as if actual dividends had been paid. If and to the extent that
the Company is subject to United States tax for any portion of Jazz HK's
earnings, Jazz HK may dividend an amount equal to such previously taxed earnings
without additional tax consequences to the Company.
In the event that Jazz HK pays dividends to the Company, the dividends will
constitute taxable income to the Company. However, the Company will be entitled
to a foreign tax credit to the extent that the dividend earnings already have
been subject to an income tax in Hong Kong. The Company does not intend in the
foreseeable future to declare dividends on Jazz HK's ordinary shares.
28
<PAGE>
TRADEMARKS AND PATENTS
The Company has made application to the Commissioner of Patents and
Trademarks for registration of the trademark JAZZ -TM- for cameras and related
photographic equipment in the United States.
PROPERTY AND EQUIPMENT
The Company currently does not own any real property and leases its required
facilities.
The Company has entered a five year lease for combined office and warehouse
space of approximately 23,000 square feet in Carteret, New Jersey for a monthly
rental of $8,663 in the first year, to be increased to $11,455 in the fifth
year, plus an operating allowance payable to the landlord of $2,887.50 per month
in the first year to be increased based on the landlord's future operating
expenses. The Company took occupancy of its new premises on April 1, 1997.
Jazz HK leases office space in Hong Kong at a rental rate of approximately
$710 per month. Such sublease terminates in August 1997.
The Company believes it will have sufficient space in the United States and
Hong Kong to conduct its operations currently and as it anticipates conducting
them in the foreseeable future. Although the Company believes it could obtain
additional space if needed on short notice, there can be no assurance that such
space will be available at comparable prices to what the Company currently pays,
if at all.
The Company does not own or lease any material equipment for use in its
business.
LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation nor, to the
knowledge of the Company, is any such material litigation threatened or
contemplated.
29
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the executive
officers (including a former executive officer) and a key consultant and
Directors (including a Director designate and a former Director) of the Company.
EXECUTIVE OFFICERS, DIRECTORS, AND CONSULTANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Roger F. Lorenzini................................... 61 President,Chief Executive Officer and a Director
James Carfagno, Sr................................... 64 Executive Vice President, Direct Mail Sales
Jeffrey G. Burkard................................... 37 Vice President, Operations
Jerrold Cohen........................................ 43 Vice President, Sales and Marketing
Jessie Szeto Suk Yee................................. 30 Managing Director of Jazz HK
Elie Housman(1)...................................... 60 Director Designate
Henry A. D'Ambrosio.................................. 51 Director
David Mizrahi........................................ 54 Director
Jack C. Benun(2)..................................... 45 Principal Consultant
</TABLE>
- ------------------------
(1) Mr. Housman has agreed to become a Director of the Company upon the
completion of this offering.
(2) Mr. Benun, formerly President, Chief Executive Officer and a Director of the
Company, currently is the principal consultant to the Company through his
wholly-owned consulting company, JCB Consultants, Inc. See "Consulting
Arrangements."
Directors of the Company hold office until the next annual meeting of
shareholders and until their successors are elected and qualified. Officers of
the Company serve at the discretion of the Board of Directors, subject to the
terms of their agreements with the Company. See "Employment Agreements."
The Board of Directors is currently composed of three directors, two of whom
are non-management directors. An additional non-management director will join
the Board upon completion of the offering. Directors of the Company currently do
not receive compensation for serving as such. Non-management Directors are
reimbursed for reasonable expenses. The Company has agreed that for a period of
three years following the closing of the offering made hereby, the
Representative may designate an observer to attend all meetings of the Board of
Directors. See "Underwriting." The Company has made application to purchase
officers' and directors' liability insurance in the amount of $2 million.
The following is a summary of the principal occupations and employments of
each of the Directors and executive officers and of a former officer and a
designated Director named above.
ROGER F. LORENZINI is the President, Chief Executive Officer and a Director
of the Company and has served as such since April 1, 1997. Mr. Lorenzini has
held various positions at Minnesota Mining & Manufacturing Company ("3M") for
more than twenty years, most recently as the Business Director of the Photo
Color Systems Division in which position he directly supervised sales and
marketing operations and coordinated technical service, quality functions and
United States manufacturing. He also chaired the United States Management
Committee and sat on the Global Operating Committee of that division when
requested. In June 1996, he commenced employment with Imation Corporation
("Imation"), composed of
30
<PAGE>
former subsidiaries of 3M engaged in film manufacturing. Mr. Lorenzini and the
Company have agreed with Imation that Mr. Lorenzini will not personally solicit
sales of single use cameras from specified customer accounts of Imation for a
two-year period following the termination of his employment with Imation. See
"Certain Transactions."
JAMES CARFAGNO, SR. has served as Executive Vice President, Direct Mail
Sales of the Company since March 1997 and has 35 years of experience in the
photo industry in mail order, special markets and original equipment
manufacturing sales. Mr. Carfagno has served as an officer of a number of
corporations in the camera industry. He is currently, and has been for more than
the last five years, the President and Chief Executive Officer of Affiliated
Enterprises, Inc., a direct mail fulfilment company. Prior thereto, he served
from 1990 to 1992 as Executive Vice President of Concord and President of the
Argus Division of Concord, a manufacturer and distributor of cameras and direct
competitor of the Company. Mr. Carfagno also served in executive capacities in a
number of corporations which operated the business of Argus.
JERROLD COHEN has served as Vice President, Sales and Marketing of the
Company since December 1995. Mr. Cohen has been responsible for forming and
directing the Company's independent sales force and for developing its marketing
strategies. Prior to joining the Company, he served in a variety of positions in
the consumer electronics industry, most recently as Vice President Sales and
Marketing for the TimeX Audio Division of SDI Technology Incorporated from 1993
to 1995; National Accounts Vice President of Craig Electronics from 1992 to
1993; and a Vice President of Sales of Dynascan Corp., a public company, from
1992 to 1993.
JEFFREY G. BURKARD has served as the Vice President, Operations of the
Company since October 1995. Prior to joining the Company in 1995 he was employed
by Concord for more than ten years in a variety of positions, most recently as
manager of operations.
JESSIE SZETO SUK YEE has been Managing Director of Jazz HK since its
acquisition in 1996 and is primarily responsible for the operation of that
subsidiary. Prior thereto, from 1985 through June 1995, Ms. Szeto served in
various capacities as an employee of Concord is Hong Kong subsidiary, most
recently as Assistant Managing Director since 1990.
HENRY A. D'AMBROSIO has served as a director of the Company since April 1,
1997. Since 1992, he has been Vice President, Administration of Bell & Howell
Operating Company and Chairman of its Investment Committee.
DAVID MIZRAHI has served as a director of the Company since April 2, 1997.
For more than the last five years, Mr. Mizrahi has served as the Chief Executive
Officer of Fantasia Accessories, Ltd., an importer of costume jewelry. He was a
director of Concord from 1988 to 1995. He is active in numerous religious and
philanthropic organizations.
ELIE HOUSMAN has consented to serve as a director of the Company upon
completion of this offering. He has been a principal of Charterhouse Group
International, Inc., investment bankers, and President of Satellite Trading
Technology, Inc., a manufacturer of automobile alarm and security systems, since
1988.
JACK C. BENUN is currently a principal consultant to the Company through an
agreement between the Company and JCB Consulting, Inc., an affiliate of Mr.
Benun. Mr. Benun served as President, Chief Executive Officer and a Director of
the Company and was employed full time by the Company since June 21, 1995 of the
Company through March 31, 1997, and may be deemed to be the founder of the
Company. Mr. Benun was also a Director of Jazz HK and Jazz Canada. Mr. Benun is
the founder of Concord, a direct competitor of the Company, and until 1994 was
its Chief Executive Officer. Until he founded the Company in June 1995, he was a
private investor. See "Management--Consultant's Regulatory History and
Litigation with Concord Camera Corp" and "Certain Transactions." Mr. Benun has
over twenty years of experience in manufacturing, financing and marketing
photographic products. Mr. Benun is a member of the family of the principal
shareholders of the Company. See "Principal and Selling Shareholders."
31
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid or accrued by the
Company for the period from June 21, 1995 (inception) to June 30, 1996 (the
"Year") and for the six month period ended December 31, 1996 (the "Six Months")
for each of the current and a former executive officer of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
<S> <C> <C> <C> <C> <C>
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION PERIOD SALARY BONUS COMPENSATION COMPENSATION
- --------------------------------------------- --------------- --------- --------- ------------- -------------
James Carfagno, Sr. ......................... Six Months $ 11,500(2)
Executive Vice President, Year 7,000(2)
Direct Mail Sales
Jerrold Cohen(3)............................. Six Months 67,000
Vice President, Sales Year 50,000
and Marketing
Jeffrey G. Burkard(4)........................ Six Months 51,000
Vice President, Operations Year 39,000
Jessie Szeto Suk Yee......................... Six Months(5) 38,800
Managing Director of Jazz HK Year
Jack C. Benun................................ Six Months --(1)
Former President and Chief Executive Year $ 25,000
Officer; Principal Consultant
</TABLE>
- ------------------------
(1) Mr. Benun agreed to forego a salary during this period. See "Certain
Transactions" and "Management--Consulting Arrangements."
(2) Mr. Carfagno acted as a consultant to the Company during the periods
indicated. He became an employee effective March 1, 1997 for a period of two
years at an annual salary of $75,000.
(3) Mr. Cohen has entered into a three-year employment agreement effective
January 1, 1997, providing for an annual salary of $175,000. See
"Management--Employment Agreements."
(4) Mr. Burkard has entered into a three-year employment agreement effective
January 1, 1997 at an annual salary of $104,000.
(5) Jazz HK was acquired as of July 1, 1996. Ms. Szeto Suk Yee was paid at a
rate of approximately $6,400 per month or $38,800 for the period. She has
entered into an employment agreement with the Company and Jazz HK effective
April 1, 1997 for an annual salary of $100,000.
EMPLOYMENT AGREEMENTS
The Company has entered into executive employment agreements with each of
its executive officers. With the exception of Mr. Carfagno's agreement, which is
effective March 1, 1997, Ms. Szeto's agreement which is effective April 1, 1997
and Mr. Lorenzini's agreement which is effective on April 1, 1997, each of the
agreements is effective January 1, 1997. All except Mr. Carfagno's agreement
provide for a three year term. Each of the agreements prevents the respective
employee from competing with the Company for a two-year period after
termination.
32
<PAGE>
The annual salary under the agreement for Mr. Lorenzini is $315,000. In
addition, Mr. Lorenzini's agreement provides for a housing allowance of $60,000
per year. See "Certain Transactions." The Company intends to make application
for, be the sole beneficiary of, and be the owner of a key-man life insurance
policy in the face amount of $1,000,000 on the life of Roger F. Lorenzini naming
the Company as sole beneficiary.
In addition to his salary, Mr. Carfagno's agreement calls for commissions on
Direct mail sales from which no other agent or employee of the Company receives
coupons at the rate of 2% of such sales and a 1% override commission on all
direct mail sales and sales to professional photographic supply stores.
CONSULTING ARRANGEMENTS
Mr. Benun resigned as President, Chief Executive Officer and a Director of
the Company on April 1, 1997 and became a key consultant to the Company under a
five-year agreement with his wholly-owned consulting company, JCB Consultants,
Inc. Under the terms of the consulting agreement, from January 1, 1997, his
company would receive compensation at the rate of 2.25% of Net Sales up to
$10,000,000, compensation at the rate of 4.5% of Net Sales for Net Sales which
exceed $10,000,000 but which do not exceed $20,000,000 and compensation at the
rate of 2.25% of Net Sales which exceed $20,000,000. Under the agreement,
advances against such compensation are required at the monthly rate of $15,000
below the level of $10,000,000 of Net Sales and at the monthly rate of $25,000
above such level. In addition, the consultant is entitled to a commission of 10%
of any commission revenue earned by the Company for the sale of the products of
third parties to others for which such consultant is responsible. Any such
compensation may not exceed $300,000 in any year of the agreement and the
consulting company's compensation on Net Sales also cannot exceed 8% of Gross
Profit (as defined) of the Company in any year under the agreement.
CONSULTANT'S REGULATORY HISTORY AND LITIGATION WITH CONCORD CAMERA CORP.
Mr. Benun, the founder, former Chief Executive Officer, President and a
former Director of the Company,, has been permanently enjoined from serving as
an officer or director of a public company. Mr. Benun has become a consultant to
the Company. Mr. Benun was the subject of a proceeding commenced by the
Commission alleging, among other things, that he had misappropriated funds from
Concord. The proceeding was settled in 1994 by the Order of the Federal District
Court of the District of Columbia permanently enjoining Mr. Benun, among other
things, from serving as an officer or director of a public company. Mr. Benun
consented to the Order without either admitting or denying the allegations in
the Commission's complaint. Under the Order Mr. Benun paid $150,000 (the alleged
amount of the misappropriation) plus interest to Concord and $150,000 to the
Commission as a penalty. The staff of the Commission has not provided the
Company or Mr. Benun with any advice as to what action, if any, it would
recommend that the Commission take if the Company becomes a public company under
the Company's current ownership and management structure as described herein.
The Commission has, however, advised Mr. Benun, through counsel, that if he
seeks to indirectly exercise authority equivalent to an officer or director, it
would consider taking action to enforce the terms of the Order.
Mona Benun, Mr. Benun's wife, two adult and two minor children (currently
through custodianships of which Mrs. Benun is custodian) are the principal
shareholders of the Company. She, together with her four children (the
"Principal Shareholders"), owns 99.5% of the outstanding Common Stock of the
Company. Mrs. Benun has very limited business experience and has relied on her
husband's advice regarding the operation of the Company. Mr. Benun is no longer
able through his former positions as an officer and director to directly control
the management and policies of the Company. He may continue to exercise control
of the Company through his influence on his wife and children who, as the
principal shareholders, will retain the power to control the management and
policies of the Company after closing of the offering made hereby.
33
<PAGE>
Mr. Benun has disclaimed his intention to exert such influence over his wife
and children and has caused the Company to enter into an agreement to employ, as
President, Chief Executive Officer and a Director, Roger F. Lorenzini, a person
with extensive executive experience in the camera and film industry. He and
three non-management directors will serve as the directors of the Company. See
"Management."
In order to avoid any disruption of the management of the Company, the
Principal Shareholders and the Company have entered into an agreement not to
vote their shares of Common Stock in opposition to a recommendation of the Board
of Directors as described in "Principal and Selling Shareholders."
Mr. Benun is the founder, and until 1994 was the Chief Executive Officer of
Concord, a public company, and a direct competitor of the Company. Mr. Benun is
now engaged in an arbitration proceeding with Concord commenced by Concord in
November 1994 seeking to recover $1.5 million which it asserts is the costs of
investigation relating to Mr. Benun's alleged misappropriation and other
unspecified damages. Mr. Benun has counterclaimed in that proceeding (i) for
lost salary and benefits under his agreements with Concord which he asserts were
breached by Concord's wrongful termination of his employment, (ii) for money he
loaned to Concord, (iii) for pledged stock withheld by Concord, and (iv) for
lost profits from securities positions held in a margin account he was forced by
his broker to liquidate when Concord sought to interdict the transfer of Concord
shares he owned and which the broker held as security. Mr. Benun has asserted
that the aggregate damages he has suffered as a result of Concord's actions
substantially exceed Concord's claim. Mr. Benun is also seeking to enforce a
voting agreement which he asserts entitles him to nominate directors for
election to Concord's Board of Directors and indemnification rights for monies
expended in defending a class action relating to his activities at Concord which
was dismissed for failure of prosecution. The arbitration proceedings are in
their preliminary stage. Mr. Benun's original counterclaims were brought in
Superior Court in New Jersey. The Court ordered that the claims be arbitrated
and dismissed Mr. Benun's complaint without prejudice to the renewal of the
claims if they are not disposed of in the arbitration.
SHARES OF HONG KONG SUBSIDIARY
As of July 1, 1996, the Company acquired 95% of the shares of Jazz HK from
Jessie Szeto Suk Yee, its current Managing Director and two other persons
unaffiliated with the Company. Ms. Szeto Suk Yee now owns 5% of the outstanding
capital stock of Jazz HK. As such she would be entitled to a share of the
subsidiary's after-tax profits if dividends were declared. The Company currently
does not intend to declare any such dividends.
1997 LONG-TERM INCENTIVE PLAN
In January 1997, the Board of Directors of the Company and the shareholders
of the Company adopted the Plan. The Plan provides for the grant of options to
purchase up to an aggregate of 385,000 shares of Common Stock and/or Class A
Common Stock to officers, directors, employees and consultants of the Company.
Options may be either "incentive stock options" within the meaning of Section
422 of the United States Internal Revenue Code of 1986, as amended (the "Code"),
or non-qualified stock options. Incentive stock options may be granted only to
employees of the Company, while non-qualified stock options may be issued to
non-employee directors and consultants, as well as to employees of the Company.
The Plan will be administered by the Board of Directors or a committee of
the Board made up of non-employee directors (as defined by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), who will
determine, among other things, the individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of shares of Common Stock issuable upon the exercise of each option and
the option exercise price.
The exercise price per share of Common Stock subject to an incentive stock
option may not be less than the fair market value per share of Common Stock on
the date the option is granted. The exercise price per share of Common Stock
subject to a non-qualified stock option may be established by the Board
34
<PAGE>
of Directors. The aggregate fair market value (determined as of the date the
option is granted) of Common Stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all classes of stock of the Company (a "10%
Stockholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
Non-qualified stock options are not subject to such limitation.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by the optionee, unless otherwise determined by
the Board of Directors or committee. In the event of termination of employment
other than by death or disability, the optionee will have no more than three
months after such termination during which the optionee shall be entitled to
exercise the option, unless otherwise determined by the Board of Directors or
committee. Upon termination of employment of an optionee by reason of death or
disability, such optionee's options remain exercisable for one year thereafter
to the extent such options were exercisable on the date of such termination,
unless otherwise determined by the Board of Directors or committee.
Options under the Plan must be issued within ten years from the effective
date of the Plan, which is March 19, 1997. Stock options granted under the Plan
cannot be exercised more than ten years from the date of grant. Incentive stock
options issued to a 10% Stockholder are limited to five-year terms. Options
granted under the Plan provide for the payment of the exercise price in cash or,
with the approval of the Board of Directors or committee, provide for the
payment of the exercise price by delivery to the Company of shares of Common
Stock already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised. Therefore, such optionee may be
able to tender shares of Common Stock to purchase additional shares of Common
Stock and may theoretically exercise all of his stock options with no additional
investment other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.
Under the terms of the Plan, substantially all of the employees of the
Company have been granted non-incentive stock options to purchase 350,000 shares
of Common Stock or Class A Common Stock at an exercise price of $1.50 per share,
vesting at the rate of one third of the shares subject thereto per year. Messrs.
Lorenzini, Carfagno, Cohen, Burkard and Ms. Szeto Suk Yee have been granted
non-incentive stock options for 70,000, 15,000, 15,000, 15,000 and 20,000
shares, respectively.
35
<PAGE>
CERTAIN TRANSACTIONS
Since its inception, members of Mr. Benun's family, including Mr. Benun's
wife, Mona, who together with her four children own substantially all of the
outstanding Common Stock, have made demand loans to the Company. These loans
bear interest at 12% per annum. Approximately $700,000 of these loans currently
are subordinated as to principal to other indebtedness of the Company, including
obligations to its commercial factor. At December 31, 1996, the Principal
Shareholder and her children were owed $800,000 by the Company. At year end, the
family lenders agreed to defer making demand for payment of the principal in the
amount of $709,000 until January 1, 1998. In March 1997, the lenders accepted
notes accruing interest at the rate of 12% per annun evidencing the Company's
obligations to them maturing on July 1, 1998.
In addition, the Company has made loans to Mr. Benun from time to time. Mr.
Benun has owed the Company as much as $400,000 during the six months ended
December 31, 1996. As of December 31, 1996, Mr. Benun's loan balance was
$200,000. At March 26, 1997, Mr. Benun's loan balance was $380,000.
The Company currently occupies warehouse and office space located at 1459
Pinewood Street, Rahway, New Jersey on a month to month basis. It subleases
approximately 5,000 square feet at the sublessor's cost in a combined office and
warehouse space. The sublessor is controlled by Mr. Benun. For the period from
June 21, 1995 (inception) through June 30, 1996, and for the six months ended
December 31, 1996, the Company's rent was approximately $20,000.
Substantially all of the Company's financing arrangements have been secured
in part or in whole by the personal guarantees of Mr. Benun. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company intends to reduce its
dependence on its commercial factor with a portion of the proceeds of this
offering and to thereby decrease the Company's dependence on these personal
guarantees. See "Use of Proceeds".
The Company from time to time has sold excess products from private label
orders to Milecrest Corp. ("Milecrest"), a corporation owned by Mr. Benun's
brother, Morris C. Benun. The Company has always sold its products to Milecrest
at prices and terms equivalent to those it gives other companies, and Milecrest
purchases excess products produced by the Company under private label at prices
equivalent to those which other purchasers have paid. In addition from time to
time the Company has advanced funds to Milecrest for the purchase of
photographic products which Milcrest has then resold and remitted the proceeds
to the Company and has paid and received commission income from Milecrest for
the sale and purchase of product. See Note H to "Notes to Consolidated Financial
Statements."
Mr. Lorenzini has entered into a month-to-month lease of a house, on
property adjacent to Mr. Benun's, owned by a daughter of Mr. Benun's. Mr. Benun
and the Company believe the rental is on terms no more favorable to Mr. Benun's
daughter nor terms less favorable to the Company than could have been obtained
from an unaffiliated third party. In connection with the release of Mr.
Lorenzini from certain of his non-competition obligations to Imation, his former
employer, the Company has agreed to purchase five million rolls of color print
film from Imation in each of the next two years on terms to be negotiated, but
not to exceed terms on available in the open market.
Mr. D'Ambrosio is an officer of Bell & Howell company with which the Company
has a major licensing agreement. He was not associated with the Company at the
time the agreement was negotiated and will not participate on behalf of the
Company in any matters relating to this agreement. In consideration of a recent
extension and modification of the licensing agreement with Bell &Howell, the
Company sold to Bell & Howell 10,000 shares of Common Stock at $0.01 per share.
Future transactions, if any, between the Company and its officers, directors
or principal stockholders, or affiliates of any of them, will be on terms no
less favorable to the Company than can be obtained from unaffiliated third
parties and will be approved by a majority of the disinterested directors of the
Company.
36
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
Mona Benun, the wife of Jack C. Benun, with her four children are the
Principal Shareholders of the Company. They own 2,200,000 shares representing
99.5% of the outstanding Common Stock, the only class of capital stock currently
outstanding. The following table sets forth the beneficial ownership of shares
of Common Stock and the percentage represented by the ownership of each of the
Principal Shareholders before and after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING COMMON
NUMBER OF STOCK BENEFICIALLY
SHARES OWNED
OF COMMON STOCK --------------------------
NAMES AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER (1) OWNED(2) OFFERING OFFERING (3)
- ------------------------------------------------------------------------ ---------------- ----------- -------------
<S> <C> <C> <C>
Mona Benun.............................................................. 1,601,600 72.3 49.7
Rebecca J. Benun........................................................ 149,600 6.8 4.7
Sabrina J. Benun........................................................ 149,600 6.8 4.7
Mona Benun custodian for Vanessa J. Benun, under the New Jersey Uniform 149,600
Gift to Minors Act ("NJUGMA");........................................ 6.8 4.7
Mona Benun, custodian for Jasmine J. Benun, under the NJUGMA............ 149,600 6.8 4.7
---------------- ----- -----
Principal Shareholders as a group....................................... 2,200,000 99.5% 68.5%
</TABLE>
- ------------------------
* Less than one percent.
(1) Unless otherwise noted, the address for each beneficial owner is c/o Jazz
Photo Corp., 600 Blair Road, Carteret, New Jersey, 07088.
(2) Except as otherwise noted, each individual or entity has sole voting and
investment power with respect to the shares listed. Beneficial ownership is
determined in accordance with the rules of the Commission and generally
includes voting or investment power with respect to securities. In
accordance with Commission rules, shares of the Common Stock which may be
acquired upon exercise of stock options which are currently exercisable or
which become exercisable within 60 days of March 31, 1997 are deemed
beneficially owned by the optionee. Except as indicated by footnote, and
subject to community property and equitable distribution laws where
applicable, the persons or entities named in the table above have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them. See "Voting Agreement" below.
(3) Assumes no exercise of the Underwriters' over-allotment option. In the event
such option is exercised in full, Mona Benun will sell 100,000 shares of
Common Stock and will beneficially own 2,100,000 shares of Common Stock,
representing 64.4% of the outstanding Common Stock
After giving effect to the offering made hereby, the Principal Shareholders
will own 68.5% of the outstanding Common Stock. Assuming the exercise by the
Representative of 100,000 shares of Common Stock or more of the over-allotment
option, 100,000 shares of Common Stock will be purchased from Mrs. Benun. In
such event, members of the Benun family would continue to own 64.4% of such
stock. As such owners, they would continue to control the management and
policies of the Company after the offering and would have the power acting
without the approval of other shareholders, to approve or disapprove any action
requiring or permitting a shareholder vote. To avoid disruption of the
management of the Company the Principal Shareholders have entered into the
Voting Agreement with the Company described below.
In the event the Representative exercises its over-allotment option and
purchases 100,000 shares of Common Stock from her, Mrs. Benun would receive
$435,000 after payment of Underwriter's discounts and commissions. The directors
and executive officers of the Company do not own any shares of Common
37
<PAGE>
Stock. For information with respect to options granted to executive officers,
see "Management--1997 Long Term Incentive Plan."
VOTING AGREEMENT
The shares of Common Stock owned by the Principal Shareholders are subject
to a voting agreement entered into by them and the Company on April 4, 1997
pursuant to which none of such shares will be voted in opposition to, (i) the
election of nominees for election to the Board of Directors of the Company
recommended by a majority of the current directors or their successors so
recommended or (ii) the removal of a director recommended by a majority of such
current or successor directors. In addition, such shareholders may not commence
any action the result of which is, or is designed to cause, a change in the
majority of the Board of Directors. The voting agreement will be in effect for a
period of five years terminating on the earliest of (i) April 2, 2002, (ii) the
date on which Jack C. Benun is no longer enjoined from serving as an officer or
director of a public company, and (iii) the date on which the Principal
Shareholders shall own less than 20% of the outstanding Common Stock. When and
if Jack C. Benun ceases to be subject to the Order and may again serve as an
officer or director of a public company, the Principal Shareholders shall grant
him an irrevocable proxy enforceable under New Jersey law to vote the Shares.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,210,000 shares of
Common Stock outstanding (3,260,000 shares if the Representative's
over-allotment option is exercised in full) and 385,000 shares of Common Stock
reserved for issuance upon the exercise of options that may be granted under the
Plan, under which options to acquire 161,000 shares have been granted and are
currently outstanding, and 60,000 shares of Common Stock issuable upon the
exercise of the Warrants currently outstanding. The 1,000,000 shares of Common
Stock sold in this offering will be freely tradeable without restriction under
the Securities Act, except for any shares purchased by an "affiliate" of the
Company (as that term is defined under the rules and regulations of the
Securities Act), which will be subject to the resale limitations of Rule 144
under the Securities Act. Of the currently outstanding shares of Common Stock,
2,200,000 shares are, and 60,000 shares issuable upon the exercise of the
Warrants will be, "restricted securities" for purposes of Rule 144 and may not
be resold in a public distribution, except in compliance with the registration
requirements of the Securities Act or pursuant to a valid exemption from
registration, including Rule 144.
In general, under Rule 144(e), as currently in effect, a shareholder (or
shareholders whose shares are aggregated), including an affiliate, who has
beneficially owned for at least one year shares of Common Stock that are treated
as "restricted securities", would be entitled to sell publicly, within any two
month period, up to the greater of 1% of the then outstanding shares of Common
Stock (3,210,000 shares immediately after the completion of this offering) or
the average weekly reported trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of sale is given, provided
certain requirements are satisfied. In addition, affiliates of the Company must
comply with additional requirements of Rule 144, in order to sell shares of
Common Stock (including shares acquired by affiliates in this offering). Under
Rule 144, a shareholder deemed not to have been an affiliate of the Company at
any time during the 90 days preceding a sale by him, and who has beneficially
owned for at least two years shares of Common Stock that are treated as
"restricted securities", would be entitled to sell those shares without regard
to the foregoing requirements.
The Company and certain shareholders of the Company, including all directors
and officers who hold options to purchase Common Stock, who after this offering
will own 2,200,000 shares of Common Stock (2,100,000 if the Underwriters
exercise the over-allotment option in full) are subject to lock-up agreements
with Hampshire Securities Corporation, under which these shares and options to
purchase 350,000 shares of Common Stock may not be sold publicly during the 18
month period commencing on the date of this Prospectus without the prior written
consent of Hampshire Securities Corporation. Then and soon thereafter, all those
shares will become eligible for sale under Rule 144 and may be resold in the
public market only in compliance with the registration requirements of the
Securities Act, pursuant to a valid exemption from registration or pursuant to
Rule 144. In addition the Representative has the right and Warrant holders have
the right, exercisable after such 18 month period to have their shares
registered under the Securities Act in certain circumstances. See "Registration
Rights."
REGISTRATION RIGHTS
In connection with this offering, the Company has agreed to sell to the
Representative, individually and not as representative of the several
Underwriters, for $100, warrants to purchase an aggregate of 100,000 shares of
Common Stock. The Company has agreed to file a registration statement with
respect to the shares of Common Stock to be acquired upon the exercise of the
Representative's Warrants (the "Warrant Shares"). See "Underwriting." The
Company has agreed to use its best efforts to cause such registration statement
to be declared effective under the Securities Act.
In addition, commencing 18 months after the closing of the offering made
hereby, the Company has agreed to give advance notice to holders of outstanding
Warrants to purchase 60,000 shares of Common Stock and the underlying Common
Stock of its intention to file a registration statement, and in such case,
holders of the outstanding Warrants and the underlying Common Stock will have
the right to require the Company to include the underlying Common Stock in such
registration statement filed prior to the expiration date of the Warrants at the
Company's expense, exclusive of Underwriter's discounts and commissions and
counsel fees.
39
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 11,500,000 shares of
capital stock, 10,000,000 of which are Common Stock, par value $.01 per share,
500,000 of which are Class A nonvoting Common Stock, par value $.01 per share,
and 1,000,000 of which are Preferred Stock, par value $1.00 per share. On March
31, 1997, there were 2,210,000 shares of Common Stock outstanding; no shares of
Class A Common Stock or Preferred Stock currently are outstanding.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of shareholders, including the election of
directors. There is no cumulative voting in the election of directors;
consequently, the holders of a majority of the outstanding shares of Common
Stock can elect all of the directors then standing for election.
Holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of funds
legally available therefor. Holders of Common Stock have no conversion,
redemption or preemptive rights to subscribe to any securities of the Company.
All outstanding shares of Common Stock are validly authorized and issued, fully
paid and nonassessable. In the event of any liquidation, dissolution or
winding-up of the affairs of the Company, holders of Common Stock will be
entitled to share ratably in the assets of the Company remaining after provision
for payment of liabilities to creditors and the preferences, if any, of holders
of preferred stock. The rights, preferences and privileges of holders of Common
Stock are subject to the rights of the holders of any shares of Preferred Stock
which the Company may issue in the future.
CLASS A COMMON STOCK
The rights of the holders of the Class A Common Stock are identical to the
rights of the holders of the Common Stock, except that the shares of Class A
Common Stock do not entitle the holder to vote on matters submitted to a vote of
shareholders, except as may otherwise be required by law.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of shares
of preferred stock, in one or more series, and to fix by resolution and to the
extent permitted by the NJBCA, the terms and conditions of such series. The
Company believes that the availability of the Preferred Stock issuable in series
will provide it with increased flexibility in structuring financings and
acquisitions and in meeting other corporate needs which might arise. Although
the Board of Directors has no present intention to do so, it could issue a
series of preferred stock that could, depending on its terms, either impede or
facilitate the completion of a merger, tender offer or other takeover attempt.
CERTAIN CERTIFICATE OF INCORPORATION AND NEW JERSEY BUSINESS CORPORATION ACT
PROVISIONS
Applicable New Jersey law includes provisions which are designed to help
assure fair and equitable treatment of the Company's shareholders in the event
that a person or group should seek to gain control of the Company in the future
in a multi-step acquisition and thereby encourages the potential acquirer to
engage in arms-length negotiations with the Board of Directors. Such provisions,
which are discussed below, may make a takeover attempt or change in control more
difficult, whether by tender offer or otherwise. Accordingly, such provisions
may be viewed as disadvantageous to shareholders inasmuch as they might diminish
the likelihood that a potential acquirer would make an offer for the Common
Stock (perhaps at an attractive premium over the market price) or impede a
transaction favorable to the interests of the shareholders.
40
<PAGE>
BUSINESS COMBINATIONS. Sections 14A:10A-1 to 6 of the NJBCA regulates
"business combinations", a term covering a broad range of transactions between
"resident domestic corporations" (as defined, which term would include the
Company) and an "interested stockholder", which is defined as any person
beneficial owning 10% or more of the outstanding voting stock of the resident
domestic corporation or any affiliate or associate of that owner. Under the
statute, a resident domestic corporation may not engage in any business
combination with any interested shareholder, unless (a) if the business
combination is to occur within five years of the date the shareholder acquired
10% or more ownership, either the business combination or the stock acquisition
was previously approved by the Board of Directors, or (b) the business
combination is approved by two thirds of the outstanding voting stock (not
including shares owned by the interested stockholder), which approval may not be
effectively given until approximately five years after the interested
stockholder first attained 10% ownership (the "Stock Acquisition Date"), or (c)
the business combination occurs five years after the interested stockholder's
Stock Acquisition Date and the consideration paid to the non-interested
stockholder meets certain conditions imposed by Section 14A:10A-5 of the BCA.
Section 14A:10A 1-6 of the BCA may discourage other persons from making a tender
offer for, or acquisition of, a number of shares of Common Stock. This could
have the incidental effect of inhibiting changes in management and also may
prevent temporary fluctuations in the market price of the Common Stock that
often result from actual or rumored takeover attempts.
ELIMINATION OF DIRECTOR LIABILITY. In addition, the limited liability
provisions in the Company's Certificate of Incorporation with respect to
directors, officers and agents and the indemnification provisions in the
Company's By-laws may discourage shareholders from bringing a lawsuit against
directors for breach of their fiduciary duty and also may have the effect of
reducing the likelihood of derivative litigation against directors, officers and
agents even though such an action, if successful, might otherwise have
benefitted the Company and its shareholders. Furthermore, a shareholder's
investment in the Company may be adversely affected to the extent the Company
pays the costs of settlement and damage awards against the Company's directors
and officers pursuant to the indemnification provisions in the Company's
By-laws.
WARRANTS
OUTSTANDING WARRANTS. In connection with the sale of Notes in the Private
Placement, the Company sold to investors Warrants to purchase 100,000 shares of
Common Stock at $2.00 per share. The Warrants are exercisable for a period
beginning 18 months after the closing of the offering made hereby and expiring
five years from issuance. Warrant holders have a one time right to include the
Common Stock underlying such warrants in a registration statement at the
Company's expense, except for underwriter discounts and commissions and such
holder's counsel fees. The Warrants contain antidilution provisions providing
for adjustment of the exercise price upon the occurrence of certain events,
including stock dividends, stock splits, recapitalization and sales of Common
Stock below the then current exercise price. The holders of the Warrants have no
voting, dividend or other rights as shareholders of the Company with respect to
shares of Common Stock underlying the Warrants except to the extent the
outstanding Warrants shall have been exercised.
DILUTIVE EFFECT. While any of the Warrants are exercisable, a warrant
holder will have the opportunity to profit from a rise in the market price of
the Common Stock, with a resulting dilution in the interest of other
shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
41
<PAGE>
UNDERWRITING
The Underwriters named below, for which Hampshire Securities Corporation is
acting as Representative, have severally, and not jointly, agreed, subject to
the terms and conditions contained in the Underwriting Agreement, to purchase,
and the Company has agreed to sell, the Shares offered hereby in the amounts set
forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Hampshire Securities Corporation.................................................
1,000,000
----------
----------
</TABLE>
A copy of the Underwriting Agreement has been filed as an exhibit to the
Registration Statement, to which reference is hereby made. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions. The Underwriters shall be obligated to purchase all the
shares, if any are purchased.
Through the Representative, the Underwriters have advised the Company that
they propose to offer the Shares to the public at the public offering price set
forth on the cover page of this Prospectus and that they may allow to certain
dealers who are members of the National Association of Securities Dealers, Inc.
("NASD") and to certain foreign dealers, concessions not in excess of $0. per
share, of which a sum not in excess of $0. per share may be reallowed by such
dealers to other dealers who are members of the NASD and to certain foreign
dealers. After the commencement of this offering, the concessions and
reallowances may be changed by the Representative.
The Company and, if the Representative's over-allotment option is exercised
the Selling Shareholder, on the one hand, and the Underwriters, on the other
hand, have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that they may
be required to make in respect thereof.
The Company has agreed to pay the Representative an expense allowance, on a
non-accountable basis, equal to 3% of the gross proceeds derived from the sale
of 1,000,000 shares in this offering (and any shares sold upon the exercise of
the over-allotment option). The Company has paid $50,000 as an advance on that
allowance. The Company also has agreed to pay certain of the Representative's
expenses in connection with this offering, including expenses in connection with
qualifying the Shares for sale under the laws of the states the Representative
may designate.
The holders of all of the 2,210,000 shares of Common Stock currently
outstanding and all the option holders under the Plan and the holder of the
warrants (to purchase 60,000 shares of Common Stock) have agreed (i) not to
publicly sell, or otherwise dispose of, any shares of Common Stock or shares of
Common Stock issuable upon exercise of options or warrants for a period of 18
months from the date of this offering without the Representative's prior written
consent and (ii) not to privately sell or otherwise dispose of any such shares
during such period unless the proposed transferee agrees to be bound by such
restrictions on transfer. In addition, for a period of 18 months after the date
of this Prospectus, the Company has agreed that, without the Representative's
prior consent, it will not sell any shares of Common Stock or grant any options
or warrants to purchase Common Stock other than (i) the Representative's
Warrants, (ii) options
42
<PAGE>
which may be granted under the Plan, (iii) shares of Common Stock issued in
connection with the exercise of any such options or the Warrants, (iv) shares of
Common Stock issued upon the exercise of options and warrants outstanding on the
date hereof and (v) shares of Common Stock issued in connection with an
acquisition by the Company.
Prior to this offering, there has been no public trading market for shares
of Common Stock. The initial public offering price for the Common Stock was
determined by negotiation between the Company and the Representative. Among the
factors considered in such negotiations were prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalization and stage of development of the Company, estimates of the
business potential of the Company, the present state of the Company's management
team and other factors deemed relevant.
The Underwriters do not intend to confirm sales of Common Stock offered by
this Prospectus to any accounts over which they exercise discretionary
authority.
The Company and the Selling Shareholder have granted the Representative an
option, exercisable during the 45-day period commencing on the date of this
Prospectus, to purchase at the public offering price per share less the
Underwriters' discounts and commissions up to 50,000 and 100,000 shares of
Common Stock, respectively, for the sole purpose of covering over-allotments, if
any. If the Representative's over-allotment option is exercised up to the first
100,000 shares of Common Stock will be purchased from the Selling Shareholder.
After the commencement of this offering, the Representative may confirm sales of
shares of Common Stock subject to this over-allotment option. Purchases of
shares of Common Stock upon exercise of the over-allotment option will result in
the realization of additional compensation by the Representative.
In connection with this offering, the Company has agreed to sell to the
Representative, individually and not as representative of the several
Underwriters, for $100, warrants to purchase 100,000 shares of Common Stock. The
Representative's Warrants are exercisable for four years, commencing one year
from the date of this Prospectus, at a price per share (the "Exercise Price")
equal to 110% of the public offering price per share. The Representative's
Warrants may not be sold, transferred, assigned, pledged or hypothecated for 12
months from the date of this Prospectus, except to members of the selling group
and to officers and partners of the Representative or members of the selling
group. The Representative's Warrants contain antidilution provisions providing
for adjustment of the Exercise Price and the number of shares of Common Stock
issuable upon the exercise thereof upon the occurrence of certain events,
including stock dividends, stock splits, recapitalization and sales of Common
Stock below the then current market price (as defined). The holders of the
Representative's Warrants have no voting, dividend or other rights as
shareholders of the Company with respect to shares of Common Stock underlying
the Representative's Warrants, except to the extent the Representative's
Warrants shall have been exercised.
The Company has agreed that, at the request of the holders of a majority of
the Representative's Warrants and underlying shares of Common Stock ("Warrant
Shares") (and on no more than one occasion), the Company will file a
registration statement under the Securities Act for an offering of the Warrant
Shares during the four-year period beginning on the first anniversary of the
date of this Prospectus; and the Company has agreed to use its best efforts to
cause such registration statement to be declared effective under the Securities
Act and to remain effective for a period of at least nine months (12 months if
such registration statement is on Form S-3). In addition, the Company has agreed
to give advance notice to holders of the Representative's Warrants and Warrant
Shares of its intention to file a registration statement, holders of the
Representative's Warrants and the Warrant Shares will have the right to require
the Company to include the Warrant Shares in such registration statement at the
Company's expense.
While the Representative's Warrants are exercisable, the Representative and
any transferee will have the opportunity to profit from a rise in the market
price of the Common Stock, with a resulting dilution in the interest of other
shareholders. In addition, during that period, the terms of which the Company
will be
43
<PAGE>
able to obtain additional capital may be adversely affected since the
Representative is likely to exercise its warrants at a time when the Company
would, in all likelihood, be able to obtain capital by a new offering of
securities on terms more favorable than those provided in the Representative's
Warrants.
The Company has agreed that, until May , 2000, Hampshire Securities
Corporation may appoint an observer to attend all meetings of the Company's
Board of Directors. The observer has the right to receive notice of all meetings
of the Board of Directors and to attend such meetings. The observer will be
entitled to reimbursement for out-of-pocket expenses for attendance at those
meetings. In addition, the observer will be entitled to indemnification, to the
same extent as the Company's directors. Hampshire Securities Corporation has
advised the Company that its initial designee will be an officer of Hampshire
Securities Corporation.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg & Kahr, New York, New York. Certain legal matters will be
passed upon for the Underwriters by Brock Fensterstock Silverstein McAuliffe &
Wade LLC, New York, New York.
EXPERTS
The audited consolidated Financial Statements in this Prospectus have been
audited by Richard A. Eisner & Company, LLP, independent auditors, as indicated
in their reports with respect to those financial statements, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, as permitted by the rules and regulations of the Commission. For
further information with resect to the Company and the shares of Common Stock
offered hereby, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document that has been filed as an exhibit to the Registration Statement are
qualified in their entirety by reference to such exhibits for a complete
statement of their terms and conditions. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549 or at
certain of the regional offices of the Commission located a 7 World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the
Commission. Copies of such material may be obtained from the Public Reference
section of the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a Web site (http://www.sec.gov)
through which the Registration Statement and the Company's periodic reports and
other information can be retrieved.
As a result of the filing of the Registration Statement and the Commission,
the Company will become subject to the periodic reporting and other
informational requirements of the Exchange Act, as amended, and in accordance
therewith will be required to file reports and other information with the
Commission. Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at its principal
offices.
In addition, as the Common Stock has been approved for quotation on the
Nasdaq national market under the symbol "JAZZ," reports and other information
concerning the Company may be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C.
10006.
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Jazz Photo Corp.
Carteret, New Jersey
We have audited the accompanying balance sheet of Jazz Photo Corp. as at
June 30, 1996 and the consolidated balance sheet of Jazz Photo Corp. and
subsidiaries as at December 31, 1996 and their respective statements of
operations, capital deficiency and cash flows for the period from June 21, 1995
(inception) through June 30, 1996 and for the six months ended December 31,
1996. 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.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Jazz Photo Corp. as at June 30,
1996 and the consolidated financial position of Jazz Photo Corp. and
subsidiaries as at December 31, 1996 and the results of their operations and
cash flows for the respective periods then ended, in conformity with generally
accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
March 26, 1997
With respect to Notes K[2] and K[5]
April 3, 1997
F-1
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------ -------------
<S> <C> <C>
(CONSOLIDATED)
ASSETS
Current assets:
Cash.............................................................................. $ 10,000 $ 171,000
Accounts receivable (net of allowance for doubtful accounts of $5,000 at June 30,
1996 and $6,000 at December 31, 1996)........................................... 25,000
Due from factor................................................................... 100,000 147,000
Inventories....................................................................... 833,000 836,000
Loans receivable--officer and stockholder......................................... 48,000 204,000
Prepaid expenses and other current assets......................................... 12,000 70,000
------------ -------------
Total current assets.......................................................... 1,003,000 1,453,000
Property and equipment, net......................................................... 112,000 158,000
------------ -------------
T O T A L..................................................................... $ 1,115,000 $ 1,611,000
------------ -------------
------------ -------------
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Notes payable--current portion.................................................... $ 21,000 $ 14,000
Notes payable and accrued interest--stockholders current portion.................. 274,000 82,000
Accounts payable and accrued expenses............................................. 637,000 801,000
Income taxes payable.............................................................. 40,000
Customer and other deposits....................................................... 102,000
Loan payable--officer............................................................. 9,000
------------ -------------
Total current liabilities..................................................... 1,034,000 946,000
Notes payable....................................................................... 12,000 20,000
Notes payable and accrued interest--stockholders.................................... 818,000 709,000
------------ -------------
Total liabilities............................................................. 1,864,000 1,675,000
------------ -------------
Minority interest................................................................... 18,000
-------------
Other matters
Capital deficiency:
Preferred stock--$1 par value, 1,000,000 shares authorized; none issued...........
Class A nonvoting common stock--$.01 par value, 500,000 shares authorized, none
issued..........................................................................
Common stock--$.01 par value, 10,000,000 shares authorized, 2,200,000 shares
issued and outstanding.......................................................... 22,000 22,000
Additional paid-in capital........................................................ 28,000 28,000
(Deficit)......................................................................... (799,000) (132,000)
------------ -------------
Total (capital deficiency).................................................... (749,000) (82,000)
------------ -------------
T O T A L..................................................................... $ 1,115,000 $ 1,611,000
------------ -------------
------------ -------------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-2
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUNE 21, 1995
JUNE 21, 1995 SIX MONTHS (INCEPTION)
(INCEPTION) ENDED THROUGH
THROUGH DECEMBER 31, DECEMBER 31,
JUNE 30, 1996 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
(CONSOLIDATED) (UNAUDITED)
Net sales............................................................ $ 1,166,000 $ 7,619,000 $ 332,000
Cost of goods sold................................................... 976,000 5,835,000 315,000
------------- ------------- -------------
Gross profit......................................................... 190,000 1,784,000 17,000
------------- ------------- -------------
Operating expenses:
Selling expense.................................................... 281,000 397,000 35,000
General and administrative expenses................................ 544,000 601,000 161,000
------------- ------------- -------------
Total operating expenses......................................... 825,000 998,000 196,000
------------- ------------- -------------
Income (loss) from operations........................................ (635,000) 786,000 (179,000)
------------- ------------- -------------
Other income (expenses):
Realized and unrealized losses on marketable securities............ (86,000) (26,000) (65,000)
Interest (expense)................................................. (111,000) (87,000) (42,000)
Other income....................................................... 33,000 52,000 26,000
------------- ------------- -------------
Other expense (net).................................................. (164,000) (61,000) (81,000)
Income (loss) before provision for income taxes and minority
interest........................................................... (799,000) 725,000 (260,000)
Provision for income taxes........................................... 40,000
------------- ------------- -------------
Income (loss) before minority interest............................... (799,000) 685,000 (260,000)
Minority interest.................................................... 18,000
------------- ------------- -------------
NET INCOME (LOSS).................................................... $ (799,000) $ 667,000 $ (260,000)
------------- ------------- -------------
------------- ------------- -------------
Net income........................................................... $ 667,000
Pro forma executive compensation..................................... 190,000
-------------
Pro forma net income................................................. $ 477,000
-------------
-------------
Net (loss) earnings per share of common stock and, for the six months
ended December 31, 1996, as adjusted to give effect to executive
compensation on a pro forma basis.................................. $ (.34) $ .20 $ (.11)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................. 2,349,000 2,349,000 2,349,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
STATEMENT OF CAPITAL DEFICIENCY
FOR THE PERIOD BEGINNING JUNE 21, 1995 (INCEPTION) THROUGH
JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON
STOCK
$.01 PAR
VALUE
10,000,000 ADDITIONAL
SHARES PAID-IN (CAPITAL
AUTHORIZED CAPITAL (DEFICIT) DEFICIENCY)
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Issuance of 2,200,000 shares of common stock............. $ 22,000 $ 28,000 $ 50,000
Net (loss) for the period June 21, 1995 (inception)
through June 30, 1996.................................. $ (799,000) (799,000)
----------- ----------- ----------- --------
Balance--June 30, 1996................................... 22,000 28,000 (799,000) (749,000)
Net income for the six months ended December 31, 1996.... 667,000 667,000
----------- ----------- ----------- --------
BALANCE--DECEMBER 31, 1996............................... $ 22,000 $ 28,000 $ (132,000) $ (82,000)
----------- ----------- ----------- --------
----------- ----------- ----------- --------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 21, 1995
JUNE 21, 1995 SIX MONTHS (INCEPTION)
(INCEPTION) ENDED THROUGH
THROUGH DECEMBER 31, DECEMBER 31,
JUNE 30, 1996 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
(CONSOLIDATED) (UNAUDITED)
Cash flows from operating activities:
Net (loss) income.................................................. $ (799,000) $ 667,000 $ (260,000)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities, net of effects from purchase of
Jazz Photo (Hong Kong) Limited:
Provision for doubtful accounts................................ 5,000 1,000 4,000
Depreciation................................................... 12,000 16,000 2,000
Minority interest.............................................. 18,000
Realized and unrealized losses on marketable securities........ 86,000 26,000 65,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable............................ (5,000) (26,000) (15,000)
(Increase) in due from factor, net........................... (100,000) (47,000) (101,000)
(Increase) in inventories.................................... (833,000) (3,000) (250,000)
(Increase) in prepaid expenses and other current assets...... (12,000) (52,000) (86,000)
Increase in accounts payable and accrued expenses............ 637,000 55,000 176,000
Increase in income taxes payable............................. 40,000
Increase (decrease) in customer and other deposits........... 102,000 (102,000)
------------- ------------- -------------
Net cash provided by (used in) operating activities........ (907,000) 593,000 (465,000)
------------- ------------- -------------
Cash flows from investing activities:
Cash received from purchase of Jazz Photo (Hong Kong) Limited...... 30,000
Proceeds from sales of marketable securities....................... 1,266,000 104,000 726,000
Investment in marketable securities................................ (1,352,000) (133,000) (986,000)
Net loans made to officer and stockholder.......................... (48,000) (156,000) (290,000)
Purchase of property and equipment................................. (106,000) (38,000) (24,000)
------------- ------------- -------------
Net cash (used in) investing activities.................... (240,000) (193,000) (574,000)
------------- ------------- -------------
Cash flows from financing activities:
Decrease in bank overdraft......................................... (7,000)
Loan received from officer......................................... 9,000
Loans from stockholders............................................ 1,156,000 (221,000) 949,000
Principal payments on other notes and loans payable................ (171,000) (20,000)
Proceeds from notes payable........................................ 122,000 100,000
Issuance of common stock for cash.................................. 50,000 50,000
------------- ------------- -------------
Net cash provided by (used in) financing activities........ 1,157,000 (239,000) 1,099,000
------------- ------------- -------------
NET INCREASE IN CASH................................................. 10,000 161,000 60,000
Cash--beginning of period............................................ -0 - 10,000 -0 -
------------- ------------- -------------
CASH--END OF PERIOD.................................................. $ 10,000 $ 171,000 $ 60,000
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........................... $ 30,000 $ 70,000 $ 15,000
Supplemental disclosures of noncash investing and financing
activities:
In May 1996, the Company purchased an automobile for $23,000 which
was financed, in part, by a note payable of $18,000.
In July 1996, the Company purchased another automobile for $23,000
which was financed, in part, by a note payable of $20,000.
In July 1996, the Company purchased 95% of the outstanding common
stock of Jazz Photo (Hong Kong) Limited for $5,000.
In conjunction with the acquisition, net assets were acquired as
follows:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Fair value of assets acquired....................... $ 146,000
Liabilities assumed................................. 143,000
---------
Net assets.......................................... $ 3,000
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 IS UNAUDITED)
(NOTE A)--ACQUISITION OF JAZZ PHOTO (HONG KONG) LIMITED AND FORMATION OF JAZZ
PHOTO CANADA CORP.:
Effective July 1, 1996, Jazz Photo Corp. ("JPC") acquired, for a nominal
amount, (which approximated the equity interest) 95% of the outstanding stock of
Fordteam Limited ("Fordteam"), a company incorporated in Hong Kong engaged in
the sale of cameras which are either manufactured by subcontractors located in
Hong Kong or purchased as finished goods. Immediately following the acquisition,
Fordteam changed its name to Jazz Photo (Hong Kong) Limited ("JPHK"). JPHK's
revenue and net assets prior to its acquisition by JPC were not material.
In addition JPC incorporated Jazz Photo Canada Corp. ("JPCC") in November
1996; it has not commenced operations.
(NOTE B)--ORGANIZATION, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING
POLICIES:
[1] THE COMPANY:
JPC was incorporated in the State of New Jersey on June 21, 1995 and
commenced operations in August 1995.
On March 19, 1997, the Company amended its certificate of incorporation
increasing the authorized number of shares of common stock and creating the
following additional classes of stock:
Class A nonvoting common stock--$.01 par value, 500,000 shares authorized
Preferred stock--$1 par value, 1,000,000 shares authorized
Contemporaneously, the Company declared a 4,399 for 1 common stock split
effected as a dividend. All applicable amounts and disclosures included in the
accompanying financial statements give retroactive effect to this split.
Effective July 1, 1996, the Company changed its reporting year from June 30
to December 31.
Jazz Photo Corp. and subsidiaries (collectively, the "Company") is primarily
a wholesaler of single use and 35mm cameras which it sells to chain stores and
photo specialty shops under the "Jazz" private label. The Company also has an
exclusive license to market a new line of 35mm cameras in the United States.
[2] INVENTORIES:
Inventories, consisting principally of finished goods, are valued at the
lower of cost (first-in, first-out method) or market. Inventories (including
goods in transit) physically situated outside the United States amount to
approximately $242,000 and $340,000 at June 30, 1996 and December 31, 1996,
respectively. The Company granted a security interest in its inventory as
collateral for uncollected factored receivables (Note C).
[3] PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets (5 to 7 years).
F-6
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 IS UNAUDITED)
(NOTE B)--ORGANIZATION, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
[4] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[5] STOCK BASED COMPENSATION:
The Company intends to account for stock based compensation based on the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25.
Statement of Financial Accounting Standards No. 123 which became effective in
1996 requires additional disclosures for stock based compensation as if such
compensation was measured at fair value on the date the awards were granted. The
Company intends to make such disclosure, when applicable.
[6] CARRYING VALUE OF NONCURRENT ASSETS:
The Company periodically evaluates the carrying value of long-lived assets
for impairment. Measurement of the amount of impairment loss, if any, is based
upon the difference between the carrying value of the asset and its estimated
fair value. No such losses have been recorded by the Company.
[7] MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company's sales have been derived from a limited number of customers,
the largest of which comprises 75% of sales for the six months ended December
31, 1996. For the period ended June 30, 1996 a customer accounted for 40% of the
Company's sales.
[8] SOURCES OF SUPPLY:
Substantially all merchandise purchases are supplied by a limited number of
vendors and contract manufacturers located in the Far East.
[9] FOREIGN CURRENCY TRANSLATION:
JPHK's financial statements were translated to U.S. dollars in accordance
with SFAS No. 52 "Foreign Currency Translation". The foreign currency
translation adjustment at December 31, 1996 was not material.
[10] EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Earnings (loss) per share of common stock has been based on the weighted
average number of shares outstanding and include, as outstanding for all periods
in accordance with the requirements of the Securities and Exchange Commission,
the dilutive effect of options and warrants issued within twelve months of the
Company's contemplated initial public offering (computed using the treasury
stock method). See (Note K[3]).
F-7
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 IS UNAUDITED)
(NOTE C)--FACTORING ARRANGEMENTS:
In July 1995, JPC entered into an arrangement with a factor whereby it sells
its eligible accounts receivable without recourse. Advances received under this
arrangement are payable with variable interest approximating the prime rate (as
defined) plus 2 1/2% and, among other matters, are limited to 70% of the
uncollected factored receivables. As additional collateral to the factor, JPC
granted the factor a security interest in its inventory and JPC's Chief
Executive Officer has personally guaranteed JPC's obligations to the factor. The
factor has also made letters of credit available to JPC under this facility.
There were no open letters of credit at June 30, 1996 or December 31, 1996. This
arrangement is automatically renewable annually, each July.
(NOTE D)--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
---------- -------------
<S> <C> <C>
(CONSOLIDATED)
Machinery and equipment........................................... $ 46,000 $ 60,000
Automobiles....................................................... 35,000 58,000
Furniture and fixtures............................................ 34,000 48,000
Computers......................................................... 9,000 20,000
---------- -------------
124,000 186,000
Less accumulated depreciation..................................... 12,000 28,000
---------- -------------
Total....................................................... $ 112,000 $ 158,000
---------- -------------
---------- -------------
</TABLE>
Automobiles which were purchased in 1996 for $46,000 and $2,000 of other
equipment are collateral for the notes payable described in Note F.
Approximately $40,000 of equipment used in the assembly of cameras is located on
the premises of a vendor in China.
(NOTE E)--ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
---------- -------------
<S> <C> <C>
(CONSOLIDATED)
Trade accounts payable............................................ $ 553,000* $ 714,000
Accrued professional fees......................................... 45,000 20,000
Other............................................................. 39,000 67,000
---------- -------------
$ 637,000 $ 801,000
---------- -------------
---------- -------------
</TABLE>
- ------------------------
* Includes $158,000 owed to JPHK prior to being acquired by JPC on July 1,
1996.
F-8
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 IS UNAUDITED)
(NOTE F)--NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
--------- -------------
<S> <C> <C>
(CONSOLIDATED)
Note to bank, payable in monthly installments of approximately $600
through April 1999 including interest at 9.5%.................... $ 18,000 $ 15,000
Notes for equipment purchases, payable in varying monthly
installments of up to $800 through July 1999 including interest
at rates varying from 11.1% to 14.9%, respectively............... 19,000
Note payable--other, repaid in August 1996......................... 15,000
--------- -------------
Total........................................................ 33,000 34,000
Less current portion............................................... 21,000 14,000
--------- -------------
Noncurrent portion................................................. $ 12,000 $ 20,000
--------- -------------
--------- -------------
</TABLE>
Payments due on outstanding notes payable at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1997............................................................................... $ 14,000
1998............................................................................... 13,000
1999............................................................................... 7,000
---------
$ 34,000
---------
---------
</TABLE>
(NOTE G)--NOTES PAYABLE--STOCKHOLDERS:
Notes payable to the stockholders bear interest at the rate of 12% per
annum. Interest expense on these notes amounted to approximately $100,000,
$89,000 and $38,000 for the periods ended June 30, 1996, December 31, 1996 and
December 31, 1995, respectively.
Approximately $800,000 and $700,000 of the principal amount of these notes
at June 30, 1996 and December 31, 1996, respectively, are subordinated to
amounts due to the factor.
In March 1997, the terms of the above notes were modified. Under the
modified terms, the principal balance of the notes are payable on demand after
July 1, 1998. Accordingly, the notes have been classified as noncurrent in the
December 31, 1996 balance sheet.
(NOTE H)--INCOME TAXES:
JPC has a net operating loss carryover from June 1996 of approximately
$600,000 which is available to offset future taxable income, if any, through
2010 and a capital loss carryover of approximately $86,000 which expires in
2000. A 100% valuation allowance (approximately $300,000 at June 30, 1996 and
$50,000 at December 31, 1996) has been established against the deferred tax
asset resulting from the net operating
F-9
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 IS UNAUDITED)
(NOTE H)--INCOME TAXES: (CONTINUED)
loss carryover since there is no assurance that the tax benefits will be
realized in the future. The change in the valuation allowance is attributable to
the utilization of net operating loss carryovers which completely offset the
portion of taxes attributable to JPC's income for the six months ended December
31, 1996. Accordingly, the current tax provision represents foreign income taxes
attributable to the operations of JPHK.
(NOTE I)--OTHER MATTERS:
[1] JPC entered into an exclusive licensing agreement (as amended) to market
a line of APS, 35mm and single use cameras worldwide for an initial term
extending through 2002. The licensing agreement requires JPC, among other
matters, to pay royalties at a specified rate, and for minimum royalties of
$300,000, $350,000 and 400,000 for the years 2000, 2001 and 2002, respectively
in order to maintain the license.
[2] JPC subleases its office space and warehouse facility on a
month-to-month basis from a primary tenant who is a related party. The monthly
rent of approximately $2,000 is the same as provided for in the primary lease
which expires in May 1998. Rent expense amounted to approximately $20,000 for
each of the periods ended June 30, 1996 and December 31, 1996, respectively and
$8,000 for the period ended December 31, 1995.
[3] Sales to related parties amounted to $176,000, $33,000 and $144,000 for
the periods ended June 30, 1996, December 31, 1996 and December 31, 1995,
respectively. In addition, the Company earned commission income from a related
party in the amount of $33,000, $23,000 and $26,000 in the periods ended June
30, 1996, December 31, 1996 and December 31, 1995, respectively and paid
commission of $43,000 to a related party during the period ended December 31,
1996. During the period ended December 31, 1995 the Company purchased
merchandise amounting to approximately $95,000 from a related party.
[4] Operations for the period ended June 30, 1996 included $25,000 of
compensation expense for JPC's Chief Executive Officer; said Officer agreed to
forego compensation entirely for the six months ended December 31, 1996.
[5] JPHK has a credit facility with a Hong Kong bank whereby it may sell,
without recourse, up to $775,000 in letters of credit received from customers
discounted at a rate of 8.5% per annum. This facility is personally guaranteed
by the former Chief Executive Officer of JPC and the minority shareholder of
JPHK.
F-10
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 IS UNAUDITED)
(NOTE J)--FOREIGN OPERATIONS:
Summarized data for the Company's foreign operations, which are located in
Hong Kong are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net sales principally to an unaffiliated customer in the United States.......... $5,215,000
Sales to JPC.................................................................... 1,840,000
------------
Total sales............................................................. $7,055,000
------------
------------
Income from operations.......................................................... $ 207,000*
Assets.......................................................................... 856,000
</TABLE>
- ------------------------
* After deduction of commission expense to JPC of $917,000.
On July 1, 1997 the political sovereignty of Hong Kong will revert to the
People's Republic of China.
(NOTE K)--SUBSEQUENT EVENTS:
[1] LOAN RECEIVABLE--OFFICER:
In March, 1997, the Company extended an additional loan to its Chief
Executive Officer in the amount of approximately $180,000 payable on demand.
[2] BRIDGE FINANCING:
In April, 1997, the Company received proceeds of $600,000 from a private
placement offering of 12 units each consisting of a 10% note in the principal
amount of $50,000 and a warrant to purchase 5,000 shares of common stock at an
exercise price of $2.00 per share of common stock. The notes, with accrued
interest, are due on the earlier of July 31, 1998 or the closing of an initial
public offering ("IPO") of the Company's common stock (See [3](below)). The
warrants expire in April, 2002 and may only be exercised commencing eighteen
months after issue, but only if an IPO of the Company's stock has been
consummated. The Company incurred approximately $85,000 of expenses in
connection with the offering.
[3] PROPOSED INITIAL PUBLIC OFFERING:
The Board of Directors has authorized the Company to file a registration
statement for a proposed offering in which the Company expects to offer
approximately 1,000,000 shares of its common stock. There is no assurance that
such offering will be consummated.
[4] STOCK OPTION PLAN:
In March 1997, the Company adopted a long-term incentive plan. Under the
plan, the Company may grant eligible individuals (as defined) incentive and
nonqualified stock options to purchase up to an aggregate of 385,000 shares of
the Company's common stock and/or Class A nonvoting common stock plus other
forms of stock-based compensation. The exercise price of incentive stock options
may not be less than the fair market value of the stock at the date of grant.
The exercise price of nonqualified stock options
F-11
<PAGE>
JAZZ PHOTO CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 IS UNAUDITED)
(NOTE K)--SUBSEQUENT EVENTS: (CONTINUED)
may be fixed by the Board of Directors at the date of grant. All awards vest
over a three-year period and may be exercised for a period of up to ten years
following the date of grant. Contemporaneously, the Company granted its
employees nonqualified stock options to purchase up to an aggregate of 161,000
shares of common stock at $1.50 per share.
[5] EMPLOYMENT AND CONSULTING AGREEMENTS:
The Company has entered into employment agreements with five of its
executive officers, including a new chief executive officer providing, among
other matters for aggregate annual compensation of approximately $770,000. In
addition, the Company's former chief executive officer resigned his position
with the Company, and became a consultant to it under a five-year agreement
providing, among other matters for compensation, based on a formula related to
Net Sales (as defined) and 10% of commission revenue up to a maximum of $300,000
annually.
[6] LEASE COMMITMENT:
In March 1997 the Company entered into a five-year noncancellable operating
lease for office space and warehouse facilities beginning April 1, 1997 and
expiring March 31, 2002. Future minimum rental payments under this lease,
exclusive of the Company's pro rata share of operating expenses, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------
<S> <C>
1997.............................................................................. $ 60,000
1998.............................................................................. 117,000
1999.............................................................................. 129,000
2000.............................................................................. 135,000
2001.............................................................................. 137,000
2002.............................................................................. 35,000
----------
Total....................................................................... $ 613,000
----------
----------
</TABLE>
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................... 1
Risk Factors..................................... 6
Use of Proceeds.................................. 14
Dividend Policy.................................. 15
Capitalization................................... 16
Dilution......................................... 17
Selected Consolidated Financial Data............. 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 20
Business......................................... 24
Management....................................... 30
Certain Transactions............................. 36
Principal and Selling Shareholders............... 37
Shares Eligible for Future Sale.................. 39
Description of Securities........................ 40
Underwriting..................................... 42
Legal Matters.................................... 44
Experts.......................................... 44
Available Information............................ 44
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,000,000 SHARES
[LOGO]
JAZZ PHOTO CORP.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HAMPSHIRE SECURITIES
CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Common Stock being registered hereby. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
SELLING
REGISTRANT SHAREHOLDERS
----------- ------------
<S> <C> <C>
SEC Registration Fee.................................................................... 2,520.00
NASD Filing Fee......................................................................... 1,257.00
*Printing and Engraving Fees and Expenses...............................................
*Accounting Fees and Expenses...........................................................
*Blue Sky Filing Fees and Expenses......................................................
*Legal Fees and Expenses................................................................
*Transfer Agent and Registrar Fees and Expenses.........................................
*Premium Cost of Directors and Officers Liability Insurance Policy......................
*Miscellaneous..........................................................................
Total............................................................................... $ $
----------- ------------
----------- ------------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Jersey Business Corporation Act ('NJBCA") permits a corporation to
indemnify its directors and officers against reasonable expenses (including
attorney's fees), judgments, fines and amounts paid in settlement incurred by
them in connection with any action or proceeding brought by third parties, if
such directors or officers acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe
their conduct was unlawful. In a derivative action (i.e., one by or in the right
of the corporation), indemnification may be made only for reasonable expenses
(including attorneys' fees) incurred by directors and officers in connection
with the defense or settlement of such action if they acted in good faith and in
a manner they reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation unless and only
to the extent that the Superior Court or the court in which such proceeding was
brought determines upon application that, despite the adjudication of liability,
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the Superior Court or
such other court deems proper. The NJBCA further provides that, to the extent
any director or officer has been successful on the merits or otherwise in
defense of any action or proceeding referred to in this paragraph or in defense
of any claim, issue or matter therein, such person shall be indemnified against
reasonable expenses (including attorneys' fees) incurred by him in connection
therewith.
Pursuant to Article 9, of the registrant's Certificate of Incorporation, as
amended, the registrant will indemnify its corporate agents (as defined in the
NJBCA) to the fullest extent permitted by Section 14A:3-5 of the NJBCA and
pursuant to such Article of the registrant's Certificate of Incorporation, as
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED)
amended, the personal liability of the directors and officers is limited to the
fullest extent permitted by Section 14A:1-7(3) of the NJBCA.
The registrant has entered into a certain indemnity agreement with Mrs. Mona
Benun in order to induce her to permit the public offering registered by this
Registration Statement to be effected. Pursuant to such agreement, Mrs. Benun is
indemnified and held harmless by the registrant to the fullest extent permitted
by the NJBCA (as described herein) against all expenses reasonably incurred or
suffered in any action, suit or proceeding involving Mrs. Benun by reason of the
fact that she is a controlling shareholder of the registrant:
The registrant has indemnification insurance under which directors, officers
and agents are insured against certain liabilities that they may incur in their
capacities as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In June 1995, Mona Benun, a principal shareholder of Registrant, acquired
all of the outstanding Common Stock of Registrant for $50,000. She subsequently
gave interests therein to her children in January 1997. In March 1997,
Registrant effected a stock split by stock dividend resulting in the beneficial
ownership of Common Stock by members of the Benun family set forth under the
caption "Principal and Selling Shareholders" in the Prospectus forming a part of
this registration statement.
In March 1997 Registrant concluded a private offering of notes in the
principal amount of $1,000,000 with warrants to purchase 100,000 shares of
Common Stock. In the private offering seven purchasers subscribed for 12 units
each consisting of a note in the principal amount of $50,000 with a warrant to
purchase 5,000 shares of Common Stock.
In March 1997 Bell & Howell Company, agreed to purchase 10,000 shares of
Common Stock for $0.01 per share, or an aggregate purchase price of $100, in
consideration for the negotiation of a modification and extension of a Trademark
Licensing Agreement between Registrant and Bell & Howell Company.
There was no underwriter involved in connection with any transaction set
forth above. The issuances of the securities set forth above were deemed to be
exempt pursuant to Section 4(2) of the Securities Act and Regulation D
promulgated thereunder as a transaction by an issuer not involving a public
offering.
In all of such transactions, the recipients of securities represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the securities issued.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant.
3.2 Amendment to Certificate of Incorporation of Registrant.
3.3 By-laws of Registrant.
4.1 Form of Representative's Warrant.
5.0* Opinion of Greenberg & Kahr.
9.1 Voting Agreement dated April 4, 1997 by and among Registrant and the Principal Shareholders.
10.1 Form of Indemnity Agreement between Company and Mona Benun, a Principal Shareholder.
10.2 (i) Trademark License Agreement between Registrant and Bell & Howell Company.
(ii) Amendment thereto.
(iii) Second Amendment thereto.
10.3 Agreement between Imation Corporation and Registrant dated March 31, 1997.
10.4 Executive Employment Agreement between Registrant and Roger F. Lorenzini dated April 1, 1997.
10.5 Executive Employment Agreement between Registrant and Jerrold Cohen dated March 18, 1997.
10.6 Executive Employment Agreement between Registrant and James Carfagno, Sr. dated February 24, 1997.
10.7 Executive Employment Agreement between Registrant and Jeffrey G. Burkard dated March 18, 1997.
10.8 Executive Employment Agreement between Registrant (and Jazz Photo (Hong Kong) Limited) and Jessie Szeto
Suk Yee dated , 1997.
10.9 Consulting Agreement between Registrant and George Erfurt dated March 18, 1997.
10.10 Consulting Agreement between Registrant and JCB Consulting, Inc., dated April 1, 1997.
10.11 Lease Agreement between Registrant and Deneret Associates Limited Partnership dated March 6, 1997.
10.12 1997 Long Term Incentive Plan of the Company and Forms of Stock Option Agreements.
10.13 Agreement between Rosenthal & Rosenthal, Inc. (the "Factor") and the Company dated July 12, 1995.
Guarantee by Jack C. Benun of even date. Agreements of Subordination and Assignment dated June 30, 1996
between the Principal Shareholders and the Factor.
10.14 Banking Facility letter of The Hong Kong Shanghai Banking Corporation dated March 25, 1997 and joint
and several guarantees of Jack C. Benun and Jessie Szeto Suk Yee of even date.
11.0 Statement re: Computation of Per Share Earnings.
21.0 List of Subsidiaries:
(i) Jazz Photo Canada Corporation (Ontario, Canada)
(ii) Jazz Photo (Hong Kong) Limited (Crown Colony of Hong Kong)
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2* Consent of Greenberg & Kahr.
24.0 Power of Attorney (see signature page).
27.0 Financial Data Schedule.
99.0 Consent of Elie Housman, a person named as Director.
</TABLE>
- ------------------------
* To be supplied by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on April 4, 1997.
JAZZ PHOTO CORP.
By: /s/ ROGER F. LORENZINI
-----------------------------------------
Roger F. Lorenzini
PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roger F. Lorenzini and Jerrold Cohen and each of
them individually, as his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and otherwise), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents the full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or her substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROGER F. LORENZINI President and Chief
- ------------------------------ Executive Officer
Roger F. Lorenzini (Principal Executive
Officer), Chief
Financial Officer
(Principal Financial and
Accounting Officer) and
Director April 4, 1997
/s/ HENRY A. D'AMBROSIO Director April 4, 1997
- ------------------------------
Henry A. D'Ambrosio
/s/ DAVID MIZRAHI Director April 4, 1997
- ------------------------------
David Mizrahi
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE NO.
- ----------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant.
3.2 Amendment to Certificate of Incorporation of Registrant.
3.3 By-laws of Registrant.
4.1 Form of Representative's Warrant.
5.0* Opinion of Greenberg & Kahr.
9.1 Voting Agreement dated April 4, 1997 by and among Registrant and the Principal Shareholders.
10.1 Form of Indemnity Agreement between Company and Mona Benun, a Principal Shareholder.
10.2 (i) Trademark License Agreement between Registrant and Bell & Howell
Company.
(ii) Amendment thereto.
(iii) Second Amendment thereto.
10.3 Agreement between Imation Corporation and Registrant dated March 31, 1997.
10.4 Executive Employment Agreement between Registrant and Roger F. Lorenzini dated April 1, 1997.
10.5 Executive Employment Agreement between Registrant and Jerrold Cohen dated March 18, 1997.
10.6 Executive Employment Agreement between Registrant and James Carfagno, Sr. dated February 24,
1997.
10.7 Executive Employment Agreement between Registrant and Jeffrey G. Burkard dated March 18, 1997.
10.8 Executive Employment Agreement between Registrant (and Jazz Photo (Hong Kong) Limited) and
Jessie Szeto Suk Yee dated , 1997.
10.9 Consulting Agreement between Registrant and George Erfurt dated March 18, 1997.
10.10 Consulting Agreement between Registrant and JCB Consulting, Inc., dated April 1, 1997.
10.11 Lease Agreement between Registrant and Deneret Associates Limited Partnership dated March 6,
1997.
10.12 1997 Long Term Incentive Plan of the Company and Forms of Stock Option Agreements.
10.13 Agreement between Rosenthal & Rosenthal, Inc. (the "Factor") and the Company dated July 12,
1995. Guarantee by Jack C. Benun of even date. Agreements of Subordination and Assignment
dated June 30, 1996 between the Principal Shareholders and the Factor.
10.14 Banking Facility letter of The Hong Kong Shanghai Banking Corporation dated March 25, 1997 and
joint and several guarantees of Jack C. Benun and Jessie Szeto of even date.
11.0 Statement re: Computation of Per Share Earnings.
21.0 List of Subsidiaries:
(i) Jazz Photo Canada Corporation (Ontario, Canada)
(ii) Jazz Photo (Hong Kong) Limited (Crown Colony of Hong Kong)
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2* Consent of Greenberg & Kahr.
24.0 Power of Attorney (see signature page).
27.0 Financial Data Schedule.
99.0 Consent of Elie Housman, a person named as Director.
</TABLE>
- ------------------------
* To be supplied by amendment.
<PAGE>
Exhibit 1.1
DRAFT 033197A
1,000,000 SHARES
JAZZ PHOTO CORP.
UNDERWRITING AGREEMENT
_____________, 1996
Hampshire Securities Corporation
As Representative of the several
Underwriters named in Schedule I
attached hereto
640 Fifth Avenue
New York, New York 10019
Gentlemen:
The undersigned, Jazz Photo Corp., a New Jersey corporation (the
"Company"), and the selling shareholders of the Company indentified in Schedule
II hereto (the "Selling Shareholders") hereby confirm their agreement with
Hampshire Securities Corporation (individually, "Hampshire," and, as
representative (the "Representative") of the several underwriters named in
Schedule I hereto (the "Underwriters")), and the Underwriters as follows:
1. INTRODUCTION.
(a) The Company proposes to issue and sell to the Underwriters an
aggregate of 1,000,000 shares of common stock, par value $.01 per share, of the
Company (the "Common Stock"). Such shares of Common Stock are hereinafter
referred to as the "Firm Stock".
<PAGE>
(b) Solely for the purpose of covering over-allotments, if any, the
Company proposes to grant to Hampshire, individually and not as Representative,
an option (the "Company Over-allotment Option") to purchase from it, in the
aggregate, up to an additional 50,000 shares of Common Stock. Such shares of
Common Stock are hereinafter referred to as the "Company Additional Stock." The
Firm Stock and the Additional Stock are hereinafter referred to as the "Company
Stock."
(c) Solely for the purpose of covering over-allotments, if any, the
Selling Shareholders propose to grant to Hampshire, individually and not as
Representative, an option (the "Shareholder Over-allotment Option") to purchase
from them, in the aggregate, up to an additional 100,000 shares of Common Stock
as set forth in Schedule II hereto. Such shares of Common Stock are
hereinafter referred to as the "Shareholder Additional Stock." The Company
Additional Stock and the Company Additional Stock are hereinafter referred to as
the "Additional Stock." The Firm Stock and the Additional Stock are hereinafter
referred to as the "Stock."
(d) The Company proposes to sell to Hampshire, individually and not
as Representative, 100,000 warrants (the "Representative's Warrants") to
purchase up to an aggregate of 100,000 shares of Common Stock (the "Warrant
Shares") for an aggregate purchase price of $100.00. The Representative's
Warrants shall be substantially in the form filed as an exhibit to the
Registration Statement (as hereinafter defined). The Representative's Warrants
and the Warrant Shares are hereinafter referred to collectively as the
"Representative's Securities." The Stock and the Representative's Securities
are hereinafter referred to collectively as the "Securities."
-2-
<PAGE>
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(1) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have filed one
or more amendments thereto, on Form S-1 (Registration No. 333-_______),
including in such registration statement and each such amendment a related
preliminary prospectus, for the registration of the Securities under the
Securities Act of 1933, as amended (the "Securities Act"). As used in this
Agreement, the term "Registration Statement" shall refer to such registration
statement referred to in the first sentence of this Section 2(a), as amended, on
file with the Commission at the time such registration statement is declared by
the Commission to be effective under the Securities Act (including the
prospectus, financial statements, and exhibits filed as a part thereof,
provided, however, that such registration statement, at the time it is declared
by the Commission to be effective under the Securities Act, may omit such
information as is permitted to be omitted from such registration statement when
it becomes effective under the Securities Act pursuant to Rule 430A of the
General Rules and Regulations of the Commission under the Securities Act (the
"Regulations"), which information (the "Rule 430A Information") shall be deemed
to be included in such registration statement when a final prospectus is filed
with the Commission in accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations); the term "Preliminary Prospectus" shall refer to each prospectus
included in the Registration Statement, or any amendments thereto, before the
Registration Statement is declared by the Commission to be effective under the
Securities Act, the form of prospectus omitting Rule 430A Information included
in the Registration Statement
-3-
<PAGE>
when the Registration Statement becomes effective under the Securities Act, if
applicable (the "Rule 430A Prospectus"), and any prospectus filed by the Company
with the consent of the Representative pursuant to Rule 424(a) of the
Regulations; and the term "Prospectus" shall refer to the final prospectus
forming a part of the Registration Statement in the form first filed with the
Commission pursuant to Rule 424(b)(1) or (4) of the Regulations or, if no such
filing is required, the form of final prospectus forming a part of the
Registration Statement.
(2) When the Registration Statement becomes effective under the
Securities Act, and at all times subsequent thereto up to and including the
Closing Date (as defined in Section 3(a) hereof) and each Additional Closing
Date (as defined in Section 3(b) hereof), and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, and during such longer period until any post-effective
amendment thereto shall become effective under the Securities Act, the
Registration Statement (and any post-effective amendment thereto) and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement to the Registration Statement or the
Prospectus) will contain all statements which are required to be stated therein
in accordance with the Securities Act and the Regulations, will comply with the
Securities Act and the Regulations, and will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no event will
have occurred which should have been set forth in an amendment or supplement to
the Registration Statement or the Prospectus which has not then been set forth
in such an amendment or supplement; if a Rule 430A Prospectus is included in the
Registration Statement at the time it is declared by the Commission to be
effective under the Securities Act, the
-4-
<PAGE>
Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations
will contain all Rule 430A Information and all statements which are required to
be stated therein in accordance with the Securities Act or the Regulations, will
comply with the Securities Act and the Regulations, and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
and each Preliminary Prospectus, as of the date filed with the Commission,
contained all statements required to be stated therein in accordance with the
Securities Act and the Regulations, complied with the Securities Act and the
Regulations, and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; except that no representation or warranty
is made in this Section 2(a)(2) with respect to statements or omissions made in
reliance upon, and in conformity with, written information furnished to the
Company as stated in Section 8(b) with respect to any Underwriter by, or on
behalf of, such Underwriter through the Representative expressly for inclusion
in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto, or with respect to statements or omissions
made in reliance upon, and in conformity with, written information furnished to
the Company as stated in Section 8(c) with respect to any Selling Shareholder
by, or on behalf of, such such Selling Shareholder expressly for inclusion in
the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto.
(3) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order") suspending
the effectiveness of, or preventing or suspending the use of, the Registration
Statement, any Preliminary Prospectus, the
-5-
<PAGE>
Prospectus, or any amendment or supplement thereto, refusing to permit the
effectiveness of the Registration Statement, or suspending the registration or
qualification of the Securities nor has any of such authorities instituted or
threatened to institute any proceedings with respect to a Stop Order.
(4) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the Prospectus has
been properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement has
been filed with the Commission as an exhibit to the Registration Statement.
(5) The following corporations are the only subsidiaries (as
defined in the Regulations) of the Company: Jazz Photo (Hong Kong) Limited, a
Hong Kong corporation, and Jazz Photo Canada Limited, Ontario, Canada
corporation (collectively, the "Subsidiaries"). The Company and each of the
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of its respective jurisdiction of incorporation, with
full power and authority, and all necessary consents, authorizations, approvals,
orders, licenses, certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other governmental authorities and
all courts and other tribunals, to own, lease, license, and use its properties
and assets and to conduct its business in the manner described in the
Prospectus. The Company and each Subsidiary is duly qualified to do business as
a foreign corporation and is in good standing as such in every jurisdiction in
which its ownership, leasing, licensing, or use of property and assets or the
conduct of its business makes such qualification necessary, except where the
failure to so qualify will not have a material adverse effect on the Company's
business, properties, or financial condition on a consolidated basis.
-6-
<PAGE>
(6) The authorized capital stock of the Company consists of
15,000,000 shares of Common Stock, of which 4,000,000 shares are outstanding,
and 5,000,000 shares of preferred stock, par value $.01 per share, of which none
are outstanding. Each outstanding share of Common Stock is validly authorized
and issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, has not been issued and is not owned or held
in violation of any preemptive or similar rights of shareholders. Each share
of capital stock of each Subsidiary is owned of record and beneficially by the
Company. There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or any Subsidiary or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company, except as may be properly
described in the Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company or any Subsidiary, except as may
be properly described in the Prospectus. The certificates evidencing the Common
Stock are in due and proper form.
(7) The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly present, with
respect to the Company, the financial position, the results of operations, the
cash flows, and the other information purported to be shown therein at the
respective dates and for the respective periods to which they apply. Such
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (except to the extent that certain
footnote disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) consistently applied
-7-
<PAGE>
throughout the periods involved, are correct and complete in all material
respects, and are in accordance with the books and records of the Company.
Richard A. Eisner & Company, LLP, the accountants whose report on the audited
consolidated financial statements is filed with the Commission as a part of the
Registration Statement, are, and during the periods covered by their reports
included in the Registration Statement and the Prospectus were, independent
certified public accountants with respect to the Company within the meaning of
the Securities Act and the Regulations. No other financial statements are
required by Form S-1 or otherwise to be included in the Registration Statement
or the Prospectus. There has at no time been a material adverse change in the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company on a consolidated basis from the
latest information set forth in the Registration Statement or the Prospectus,
except as may be properly described in the Prospectus.
(8) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or,
to the best knowledge of the Company, in prospect (or any basis therefor) with
respect to the Company, any Subsidiary, or any of their respective operations,
businesses, properties, or assets, except as may be properly described in the
Prospectus or such as individually or in the aggregate do not now have, and will
not in the future have, a material adverse effect upon the operations, business,
properties, or assets of the Company and the Subsidiaries taken as a whole. To
the best knowledge of the Company, neither the Company nor any Subsidiary is not
in violation of, or in default with respect to, any law, rule, regulation,
order, judgment, or decree, except as may be properly described in the
Prospectus or such as in the aggregate do not now have, and will not in the
future have, a material adverse effect upon the operations, business,
properties, or assets of the Company and the Subsidiaries
-8-
<PAGE>
taken as a whole; nor is the Company or any Subsidiary currently required to
take any action in order to avoid any such violation or default.
(9) The Company and each Subsidiary has good and marketable
title to all properties and assets which the Prospectus indicates are owned by
it, free and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages, except as may be properly described in the
Prospectus or as are not material to the Company and the Subsidiaries taken as a
whole. No real property owned, leased, licensed, or used by the Company or any
Subsidiary lies in an area which is, or to the knowledge of the Company will be,
subject to zoning, use, or building code restrictions which would prohibit, and
no state of facts relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing, or use of any real or
personal property exists or will exist which would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business of the Company and the Subsidiaries, each as presently conducted or as
the Prospectus indicates it contemplates conducting, except as may be properly
described in the Prospectus.
(10) Neither the Company or any Subsidiary nor, to the knowledge
of the Company, any other party, is now, or is expected by the Company to be, in
violation or breach of, or in default with respect to, any provision of any
contract, agreement, instrument, lease, license, arrangement, or understanding
which is material to the Company and the Subsidiaries taken as a whole, and each
such contract, agreement, instrument, lease, license, arrangement, and
understanding is in full force and effect and is the legal, valid, and binding
obligation of the parties thereto and is enforceable as to them in accordance
with its respective terms. The Company and each Subsidiary enjoys peaceful and
undisturbed possession under all leases and licenses under
-9-
<PAGE>
which it is operating. Except as described in the Prospectus, neither the
Company nor any Subsidiary is a party to, or bound by, any contract, agreement,
instrument, lease, license, arrangement, or understanding, or subject to any
charter or other restriction, which has had, or may in the future have, a
material adverse effect on the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the Company
and the Subsidiaries taken as a whole. Neither the Company nor any Subsidiary is
in violation or breach of, or in default with respect to, any term of its
respective certificate of incorporation (or other charter document) or by-laws.
(11) The Company and each Subsidiary owns or possesses adequate
rights to use all patents, patent rights, inventions, trade secrets, licenses,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, and copyrights described or referred to
in the Prospectus as owned or used by it or which are necessary for the conduct
of its business as currently conducted as described in the Prospectus and, to
the best knowledge of the Company, its business as contemplated as described in
the Prospectus. To the best knowledge of the Company, all such patents, patent
rights, licenses, trademarks, service marks, and copyrights are (i) valid and
enforceable, (ii) not being infringed by any third parties which infringement
could, singly or in the aggregate, materially and adversely affect the business,
properties, operations, condition (financial or otherwise), results of
operations, income, or business prospects of the Company and the Subsidiaries
taken as a whole, as presently being conducted or as proposed to be conducted as
described in the Prospectus, and (iii) are uncontested by any third party. The
Company has no knowledge of, nor has it received any notice of, infringement of,
or conflict with, asserted rights of others with respect to any patents, patent
rights, inventions, trade
-10-
<PAGE>
secrets, licenses, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names, or copyrights which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling, or
finding could materially and adversely affect the business, properties,
operations, condition (financial or otherwise), results of operations, income,
or business prospects of the Company and the Subsidiaries taken as a whole, as
presently being conducted or as proposed to be conducted as described in the
Prospectus.
(12) Neither the Company or any Subsidiary, nor, to the best
knowledge of the Company, any director, officer, agent, employee, or other
person associated with, or acting on behalf of, the Company or any Subsidiary,
has, directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds; violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment. The Company's internal accounting controls
and procedures are sufficient to cause the Company and each of the Subsidiaries
to comply in all respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(13) The Company has all requisite power and authority to
execute, deliver, and perform each of this Agreement and the Representative's
Warrants. All necessary corporate proceedings of the Company have been duly
taken to authorize the execution, delivery, and performance by the Company of
this Agreement and the Representative's Warrants. This Agreement has been duly
authorized, executed, and delivered by the Company, is the legal, valid, and
binding obligation of the Company. The Representative's Warrants have been duly
authorized
-11-
<PAGE>
by the Company and, when executed and delivered by the Company, will be legal,
valid, and binding obligations of the Company, each enforceable as to the
Company in accordance with its terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or filing
with, any federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company or any Subsidiary for the execution,
delivery, or performance by the Company of this Agreement or the
Representative's Warrants, except filings under the Securities Act which have
been or will be made before the Closing Date, and consents consisting only of
consents under "blue sky" or securities laws which have been obtained at or
prior to the date of this Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
the Company or any Subsidiary is a party, or to which any of its properties or
assets are subject, is required for the execution, delivery, or performance of
this Agreement and the Representative's Warrants; and the execution, delivery,
and performance of this Agreement and the Representative's Warrants will not
violate, result in a breach of, conflict with, result in the creation or
imposition of any lien, charge, or encumbrance upon any properties or assets of
the Company or any Subsidiary pursuant to the terms of, or, with or without the
giving of notice or the passage of time or both, entitle any party to terminate
or call a default under, any such contract, agreement, instrument, lease,
license, arrangement, or understanding, or violate, result in a breach of, or
conflict with any term of the certificate of incorporation (or other charter
document) or by-laws of the Company, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment, or decree binding on
the Company or any Subsidiary or to which any of their respective operations,
businesses, properties, or assets are subject.
-12-
<PAGE>
(14) The Firm Stock is validly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued, fully paid,
and nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of shareholders, and the Underwriters will receive good title to the shares of
Firm Stock purchased by them, respectively, free and clear of all liens,
security interests, pledges, charges, encumbrances, shareholders' agreements,
and voting trusts. The Company Additional Stock is validly authorized and, when
issued in accordance with the terms hereof, will validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not issued in violation of any preemptive or similar rights of
shareholders. The Shareholder Additional Stock is validly authorized and
issued, fully paid, and nonassessable, without any personal liability attaching
to the ownership thereof, and was not issued in violation of any preemptive or
similar rights of shareholders. The Company Additional Stock has been duly and
validly reserved for issuance. The Stock conforms to all statements relating
thereto contained in the Registration Statement and the Prospectus.
(15) The Warrant Stock is validly authorized and has been duly
and validly reserved for issuance and, when issued and delivered upon exercise
of the Representative's Warrants in accordance with the terms thereof, will be
validly issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not be issued in violation of any
preemptive or similar rights of shareholders; and the holders of the
Representative's Warrants will receive good title to the securities purchased by
them upon the exercise of the Representative's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances, shareholders'
agreements, and voting trusts. The Representative's Securities
-13-
<PAGE>
conform to all statements relating thereto contained in the Registration
Statement and the Prospectus.
(16) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except as may
otherwise be properly described in the Prospectus, neither the Company nor any
Subsidiary has (i) issued any securities or incurred any material liability or
material obligation, primary or contingent, for borrowed money, (ii) entered
into any material transaction not in the ordinary course of business, (iii)
declared or paid any dividend on its capital stock, except dividends by a
Subsidiary to the Company, or (iv) experienced any adverse changes or any
development which may materially adversely effect the condition (financial or
otherwise), net assets or shareholders' equity, results of operations, business,
key personnel, assets, or properties of the Company and the Subsidiaries taken
as a whole.
(17) Neither the Company or any Subsidiary nor any of their
respective officers, directors, or affiliates (as defined in the Regulations),
has taken or will take, directly or indirectly, prior to the termination of the
offering contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Firm Stock or the
Additional Stock.
(18) The Company has obtained from each of its directors,
officers, and shareholders, other than the Selling Shareholders with respect to
the Shareholder Additional Stock, a written agreement, in form and substance
satisfactory to counsel for the Underwriters, that, for
-14-
<PAGE>
a period of 18 months from the date on which the Registration Statement is
declared by the Commission to be effective under the Securities Act, he, she, or
it will not, without the prior written consent of the Representative, publicly
offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, shares of Common Stock or other securities of
the Company, including, without limitation, any shares of Common Stock issuable
pursuant to the terms of any employee stock options; provided, however, that
such persons may offer, sell, contract to sell, grant an option for the sale of,
or otherwise dispose of all or any part of his, her, or its shares of Common
Stock or other such security or instrument of the Company during such period if
such transaction is private in nature and the transferee of such shares of
Common Stock or other securities or instruments agrees, prior to such
transaction, to be bound by all of the provisions of such agreement.
(19) The Company is not, and does not intend to conduct its
business in a manner in which it would be required to register as, an
"investment company" as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations
promulgated thereunder.
(20) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement, which right has not been waived.
(21) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
-15-
<PAGE>
(22) Neither the Company or any Subsidiary, nor any of their
respective affiliates, is presently doing business with the government of Cuba
or with any person or affiliate located in Cuba. If, at any time after the date
on which the Registration Statement is declared by the Commission to be
effective under the Securities Act or with the Florida Department of Banking and
Finance (the "Florida Department"), whichever is later, and prior to the end of
the period referred to in the first clause of Section 2(a)(2) hereof, the
Company and any Subsidiary commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba, the Company will so inform
the Florida Department within 90 days after such commencement of business in
Cuba, and, during the period referred to in Section 2(a)(2) hereof, will inform
the Florida Department within 90 days after any change occurs with respect to
previously reported information.
(23) No officer, director, or shareholder of the Company has any
affiliation or association with the National Association of Securities Dealers,
Inc. (the "NASD") or any member thereof.
(24) Except as disclosed in the Prospectus, the Company and each
of the Subsidiaries has filed all necessary federal, state, local, and foreign
income and franchise tax returns and other reports required to be filed and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been, or, to the knowledge of the Company, might be, asserted against the
Company or any Subsidiary.
(25) To the best knowledge of the Company, none of the activities
or business of the Company or any Subsidiary is in violation of, or will cause
the Company or any Subsidiary to violate, any law, rule, regulation, or order of
the United States, any state, county, or locality, or of any agency or body of
the United States or of any state, county, or
-16-
<PAGE>
locality, the violation of which would have a material adverse effect upon the
condition (financial or otherwise), business, property, prospective results of
operations, or net worth of the Company and the Subsidiaries taken as a whole.
(26) The Common Stock has been approved for quotation on the
Nasdaq [National][SmallCap] Market [and the Pacific Stock Exchange].
(b) Each of the Selling Shareholders severally and not jointly
represents and warrants to, and agrees with, the several Underwriters that:
(1) Such Selling Shareholder has (i) caused a negotiated
certificate or negotiated certificates representing the number of shares of
Shareholder Additional Stock set forth opposite the name of such Selling
Shareholder in Schedule II hereto to be delivered to Abrams & Garfinkel,
attorney-at-law (the "Custodian"), duly endorsed in blank or together with blank
stock powers duly executed, with such Selling Shareholder's signature
appropriately guaranteed by medallion guarantee, such certificate or
certificates to be held by the Custodian pursuant to a letter of transmittal and
custody agreement for delivery, pursuant to the provisions hereof, one or more
Additional Closing Dates and (ii) granted an irrevocable power of attorney to
Jack C. Benun and Stephen C. Kahr (the "Attorneys") to purchase all requisite
stock transfer tax stamps, to execute this Agreement (including agreeing on the
price at which the Shareholder Additional Stock is to be sold to the
Underwriters) and thereafter to modify and amend this Agreement, to settle any
dispute relating to the terms of this Agreement, to waive any condition to the
obligations of such Selling Shareholder, and to execute all other instruments
and documents and to perform all other acts necessary or desirable to carry out
the provisions of this Agreement on behalf of such Selling
-17-
<PAGE>
Shareholder. Such letter of transmittal and custody agreement, together with
such irrevocable power of attorney, are hereinafter referred to as the
"Custodial Agreement".
(2) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or, to the best knowledge of such Selling
Shareholder, investigation pending, threatened, or in prospect (or any basis
therefor) with respect to such Selling Shareholder or any of such Selling
Shareholder's business, properties, or assets, except as otherwise disclosed in
the Registration Statement. Such Selling Shareholder is not in violation of, or
in default with respect to, any law, rule, regulation, order, judgment, or
decree; nor is such Selling Shareholder required to take any action in order to
avoid such violation or default.
(3) Such Selling Shareholder has all requisite power and
authority to execute, deliver, and perform this Agreement and the Custodial
Agreement. This Agreement and the Custodial Agreement have been duly executed
and delivered by such Selling Shareholder, are the legal, valid, and binding
obligations of such Selling Shareholder, and are enforceable as to such Selling
Shareholder in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, or other laws affecting
the rights of creditors generally. To such Selling Shareholder's best
knowledge, no consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is required by such
Selling Shareholder for the execution, delivery, or performance of this
Agreement or the Custodial Agreement, except filings under the Securities Act
which have been or will be made before the Closing Date and such consents
consisting only of consents under "blue sky" or securities laws which have been
obtained at or prior to the date of this Agreement by such Selling Shareholder.
No consent of any party to
-18-
<PAGE>
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which such Selling Shareholder is a party, or to which any of
such Selling Shareholder's properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement or the Custodial
Agreement; and the execution, delivery, and performance of this Agreement and
the Custodial Agreement will not violate, result in a breach of, conflict with,
or result in the creation or imposition of any lien, charge, or encumbrance upon
any properties or assets of such Selling Shareholder pursuant to the terms of,
or, with or without the giving of notice or the passage of time or both, entitle
any party to terminate or call a default under, any such contract, agreement,
instrument, lease, license, arrangement, or understanding, or, to such Selling
Shareholder's best knowledge, violate, result in a breach of, or conflict with,
any law, rule, regulation, order, judgment, or decree binding on such Selling
Shareholder or to which any of such Selling Shareholder's business, properties,
or assets are subject.
(4) Such Selling Shareholder has good title to the shares of
Shareholder Additional Stock to be sold by such Selling Shareholder pursuant to
this Agreement, free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts (except those
created by this Agreement and the Custodial Agreement and those which have been
terminated prior to the execution hereof), and, when and if delivered in
accordance with this Agreement, the Underwriters will receive good title to the
shares of Shareholder Additional Stock purchased by them from such Selling
Shareholder, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts. The Shareholder
Additional Stock conforms to all statements relating thereto contained in the
Registration Statement or the Prospectus.
-19-
<PAGE>
(5) Neither such Selling Shareholder nor any of such Selling
Shareholder's affiliates (as defined in the Regulations) has taken or will take,
directly or indirectly, prior to the termination of the offering contemplated by
this Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Stock or the Additional Stock.
(6) Such Selling Shareholder has reviewed, and is familiar with,
the Registration Statement and all amendments and supplements thereto, if any,
filed with the Commission prior to the date hereof, and with each Preliminary
Prospectus and the Prospectus contained therein, as supplemented, if applicable,
to the date hereof, and all information relating to such Selling Shareholder,
such Selling Shareholder's shares of Common Stock, and any contractual or other
business relationship between such Selling Shareholder and the Company that is
set forth in the Registration Statement, any such amendment or supplement
thereto, each Preliminary Prospectus, and the Prospectus, or any such supplement
thereof, and all other information furnished or to be furnished by, or on behalf
of, such Selling Shareholder for use in the Registration Statement, any such
amendment or supplement thereto, any Preliminary Prospectus, and the Prospectus,
or any such supplement thereto, is and, at the Closing Date and each Additional
Closing Date, will be, true, correct, and complete and does not, and at the
Closing Date and each Additional Closing Date, will not, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make such information not misleading.
-20-
<PAGE>
(7) Such Selling Shareholder has not incurred any liability for
a fee, commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by this
Agreement.
(8) Such Selling Shareholder's decision to sell the Shareholder
Additional Stock has not been based upon any negative or otherwise material
information with respect to the Company which is not set forth in the
Prospectus.
3. PURCHASE, SALE, AND DELIVERY OF THE STOCK AND THE REPRESENTATIVE'S
WARRANTS.
(a) On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the several
Underwriters, and, the Underwriters, severally and not jointly, agree to
purchase from the Company, the numbers of shares of Firm Stock set forth
opposite the respective names of the Underwriters in Schedule I hereto.
The purchase price per share of the Firm Stock to be paid by the several
Underwriters shall be $__________. The initial public offering price per share
of the Firm Stock shall be $_________.
Payment for the Firm Stock by the Underwriters shall be made by certified
or official bank check in New York Clearing House (next day) funds or by
electronic wire transfer of next day funds, payable to the order of the Company,
at the offices of Hampshire Securities Corporation, 640 Fifth Avenue, New York,
New York 10019, or at such other place in the New York City metropolitan area as
the Representative shall determine and advise the Company by at least two full
days' notice in writing, upon delivery of the Firm Stock to the Representative
for the respective
-21-
<PAGE>
accounts of the Underwriters. Such delivery and payment shall be made at 9:00
a.m., New York City local time, on the third business day following the time of
the initial public offering, as defined in Section 11(a) hereof (unless such
time and date is postponed in accordance with the provisions of Section 9(c)
hereof), or at such other time as shall be agreed upon between the
Representative and the Company. The time and date of such delivery and payment
are hereinafter referred to as the "Closing Date."
Certificates representing the Firm Stock shall be registered in such name
or names and in such authorized denominations as the Representative may request
in writing at least two full business days prior to the Closing Date. The
Company shall permit the Representative to examine and package such certificates
for delivery at least one full business day prior to the Closing Date.
(b) The Selling Shareholders hereby grants to Hampshire the Shareholder
Over-allotment Option to purchase up to 100,000 shares of Common Stock,
allocated among the Selling Shareholders as specified in Schedule II hereto, as
may be necessary to cover over-allotments, at the same purchase price per share
to be paid by the several Underwriters to the Company for the Firm Stock as
provided for in this Section 3 hereof. The Company hereby grants to Hampshire
the Company Over-allotment Option to purchase up to 50,000 shares of Common
Stock, as may be necessary to cover over-allotments, at the same purchase price
per share to be paid by the several Underwriters to the Company for the Firm
Stock as provided for in this Section 3 hereof. The Over-allotment Options may
be exercised only to cover over-allotments in the sale of shares by Hampshire.
The Company Over-allotment Option and the Shareholder Over-allotment Option
shall be exercised pro rata to one another. The Over-allotment Options may be
exercised by Hampshire on the basis of the representations, warranties,
covenants, and agreements of the Company and the
-22-
<PAGE>
Selling Shareholder herein contained, but subject to the terms and conditions
herein set forth, at any time and from time to time on or before the forty-fifth
day following the date on which the Registration Statement becomes effective
under the Securities Act, by written notice by Hampshire to the Company and
Custodian. Such notice shall set forth the aggregate number of shares of
Additional Stock as to which the Over-allotment Options are being exercised, the
name or names in which the certificates representing the Additional Stock are to
be registered, the authorized denominations in which the Additional Stock is to
be registered, and the time and date, as determined by Hampshire, when such
shares of Additional Stock are to be delivered (each such time and date are
hereinafter referred to as an "Additional Closing Date"); provided, however,
that no Additional Closing Date shall be earlier than the Closing Date nor
earlier than the second business day after the date on which the notice of the
exercise of the Shareholder Over-allotment Option and the Company Over-allotment
Option shall have been given nor later than the eighth business day after the
date on which such notice shall have been given.
In the event the Company declares or pays a dividend or a distribution on
the Common Stock, whether in the form of cash, shares of Common Stock, or other
consideration, prior to the Additional Closing Date, such dividend or
distribution shall also be paid on the Additional Stock on the later of the
Additional Closing Date and the date on which such dividend or distribution is
payable.
Payment for the shares of Additional Stock by Hampshire shall be made by
certified or official bank check in New York Clearing House (next day) funds or
by electronic wire transfer of next day funds payable to the order of the
Custodian and the Company (pro rata as described above) at the offices of
Hampshire Securities Corporation, 640 Fifth Avenue, New York, New York
-23-
<PAGE>
10019, or at such other place in the New York City metropolitan area as
Hampshire shall determine and advise the Company by at least two full days'
notice in writing, upon delivery of the shares of Additional Stock to Hampshire
for its account.
Certificates for the shares of Additional Stock shall be registered in such
name or names and in such authorized denominations as Hampshire may request in
writing at least two full business days prior to the Additional Closing Date
with respect thereto. The Company shall permit Hampshire to examine and package
such certificates for delivery at least one full business day prior to the
Additional Closing Date with respect thereto.
(c) The Company hereby agrees to issue and sell to Hampshire
and/or its designees on the Closing Date the Representative's Warrants to
purchase the Warrant Shares for an aggregate purchase price of $100.00.
Delivery and payment for the Representative's Warrants shall be made
on the Closing Date. The Company shall deliver to Hampshire, upon payment
therefor, certificates representing the Representative's Warrants in the name or
names and in such authorized denominations as Hampshire may request. The
Representative's Warrants shall be exercisable for a period of four years
commencing one year from the date on which the Registration Statement was
declared effective under the Securities Act at an initial exercise price per
Warrant Share equal to $_____________.
(d) It is understood that the Hampshire may (but shall not be
obligated to) make any and all the payments required pursuant to this Section 3
on behalf of any Underwriters whose check or checks shall not have been received
by the Representative at the time of delivery of the Stock to be purchased by
such Underwriter or Underwriters. Any such payment by the
-24-
<PAGE>
Representative shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
4. OFFERING. The Underwriters are to make a public offering of the Firm
Stock as soon, on or after the date on which the Registration Statement becomes
effective under the Securities Act, as the Representative deems it advisable so
to do. The Firm Stock is to be initially offered to the public at the initial
public offering price as provided for in Section 3(a) (such price being
hereinafter referred to as the "public offering price"). After the initial
public offering, the Representative may from time to time increase or decrease
the public offering price, in the sole discretion of the Representative, by
reason of changes in general market conditions or otherwise.
5. COVENANTS.
(a) The Company covenants that it will:
(1) Use its best efforts to cause the Registration Statement to
become effective under the Securities Act as promptly as possible and notify the
Representative and counsel to the Underwriters immediately, and confirm such
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto become effective under the Securities Act, (ii) of the receipt
of any comments from the Commission or the "blue sky" or securities authority of
any jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Prospectus, or any amendment or supplement thereto,
(iii) of the filing with the Commission of any supplement to the Prospectus, and
(iv) of the receipt of any notification with respect to a Stop Order or the
initiation or threatening of any proceeding with respect to a Stop Order. The
Company will use its best efforts to prevent the issuance of any Stop Order and,
if any Stop Order is issued, to obtain the lifting thereof as promptly as
possible. If the Registration Statement has become or
-25-
<PAGE>
becomes effective under the Securities Act with a form of prospectus omitting
Rule 430A Information, or filing of the Prospectus with the Commission is
otherwise required under Rule 424(b) of the Regulations, the Company will file
with the Commission the Prospectus, properly completed, pursuant to Rule 424(b)
of the Regulations within the time period prescribed and will provide evidence
satisfactory to the Representative of such timely filing.
(2) During the time when a prospectus relating to the Firm Stock
or the Additional Stock is required to be delivered hereunder or under the
Securities Act or the Regulations, comply with all requirements imposed upon it
by the Securities Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of, or dealings in, the Stock in accordance with the
provisions hereof and the Prospectus. If, at any time when a prospectus
relating to the Firm Stock or the Additional Stock is required to be delivered
hereunder or under the Securities Act or the Regulations, any event shall have
occurred as a result of which, in the reasonable opinion of counsel for the
Company or counsel for the Underwriters, the Registration Statement or the
Prospectus as then amended or supplemented contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or if, in the
opinion of either of such counsel, it is necessary at any time to amend or
supplement the Registration Statement or the Prospectus to comply with the
Securities Act or the Regulations, the Company will immediately notify you and
promptly prepare and file with the Commission an appropriate amendment or
supplement (in form and substance satisfactory to the Representative and counsel
to the Underwriters) which will correct such statement or
-26-
<PAGE>
omission or which will effect such compliance and will use its best efforts to
have any such amendment declared effective under the Securities Act as soon as
possible.
(3) Deliver without charge to each of the several Underwriters
such number of copies of each Preliminary Prospectus as may reasonably be
requested by the Underwriters and, as soon as the Registration Statement, or any
amendment thereto, becomes effective under the Securities Act or a supplement is
filed with the Commission, deliver without charge to the Representative two
signed copies of the Registration Statement, including exhibits, or such
amendment thereto, as the case may be, and two copies of any supplement thereto,
and deliver without charge to each of the several Underwriters such number of
copies of the Prospectus, the Registration Statement, and amendments and
supplements thereto, if any, without exhibits, as the Representative may request
for the purposes contemplated by the Securities Act.
(4) Endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective under the Securities Act, to qualify the Securities for offering and
sale under the "blue sky" or securities laws of such jurisdictions as may be
designated by the Representative; provided, however, that no such qualification
shall be required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then subject.
In each jurisdiction where such qualification shall be effected, the Company
will, unless the Representative agrees in writing that such action is not at the
time necessary or advisable, file and make such statements or reports at such
times as are or may be required by the laws of such jurisdiction.
-27-
<PAGE>
(5) Make generally available, within the meaning of Section
11(a) of the Securities Act and the Regulations, to its security holders as soon
as practicable, but not later than November 12, 1998, an earnings statement,
which need not be certified by independent certified public accountants unless
required by the Securities Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Securities Act and the Regulations, covering
a period of at least 12 months beginning after the date on which the
Registration Statement was declared effective under the Securities Act.
(6) For a period of 18 months after the date of the Prospectus,
not, without the prior written consent of the Representative, offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of Common Stock or other securities of
the Company, or any security or other instrument which by its terms is
convertible into, or exercisable or exchangeable for, shares of Common Stock,
except as contemplated by Section 3 hereof and except for (i) the issuance of
stock options, or shares of Common Stock issuable upon the exercise thereof,
which have been or may be granted pursuant to the Company's 1997 Long-Term
Incentive Plan, up to an aggregate of _______ shares of Common Stock, all as
properly described in the Prospectus, (ii) upon the exercise of warrants
outstanding on the date hereof, as properly described in the Prospectus, (iii)
the issuance of shares of Warrant Stock issuable upon exercise of the
Representative's Warrants, and (iv) the issuance of shares of Common Stock in
connection with an acquisition by the Company.
(7) For a period of five years after the date on which the
Registration Statement was declared effective under the Securities Act furnish
you, without charge, the following:
-28-
<PAGE>
(i) within 90 days after the end of each fiscal year, one
copy of financial statements certified by independent certified public
accountants, including a balance sheet, statement of income, and statement of
changes in cash flows of the Company and its then existing subsidiaries, if any,
with supporting schedules, prepared in accordance with generally accepted
accounting principles, as at the end of such fiscal year and for the 12 months
then ended, which may be on a consolidated basis;
(ii) as soon as practicable after they have been sent to
shareholders of the Company or filed with, or furnished to, the Commission or
the NASD, one copy of each annual and interim financial and other report or
communication sent by the Company to its shareholders or filed with, or
furnished to, the Commission or the NASD;
(iii) as soon as practicable, one copy of every press
release and every material news item and article in respect of the Company, any
Subsidiary, or their respective affairs which was released by the Company or any
such Subsidiary; and
(iv) such additional documents and information with respect
to the Company, any Subsidiary, and their respective affairs, as the
Representative may from time to time reasonably request; provided, however, that
such additional documents and information shall be received by you on a
confidential basis, unless otherwise disclosed to the public, and shall not be
used in violation of the federal securities laws and the rules and regulations
promulgated thereunder.
(8) Apply the net proceeds received by the Company from the
offering contemplated by this Agreement in the manner set forth under the
heading "Use of Proceeds" in the Prospectus.
-29-
<PAGE>
(9) Furnish to the Representative as early as practicable prior
to the Closing Date and each Additional Closing Date, if any, as the case may
be, but not less than two full business days prior thereto, a copy of the latest
available unaudited interim financial statements of the Company which have been
read by the Company's independent certified public accountants, as stated in
their letters to be furnished pursuant to Section 7(f) hereof.
(10) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the date on which
the Registration Statement was declared effective under the Securities Act,
unless such filing shall comply with the Securities Act and the Regulations and
unless the Representative shall previously have been advised of such filing and
furnished with a copy thereof, and the Representative shall have approved such
filing in writing. Until the later of (i) the completion by the Underwriters of
the distribution of the Stock (but in no event more than nine months after the
date on which the Registration Statement shall have been declared effective
under the Securities Act) and (ii) 25 days after the date on which the
Registration Statement shall have been declared effective under the Securities
Act, the Company will prepare and file with the Commission, promptly upon the
Representative's request, any amendments or supplements to the Registration
Statement or the Prospectus which, in the sole opinion of the Representative,
may be necessary or advisable in connection with the distribution of the Stock.
(11) File timely with the Commission an appropriate form to
register the Common Stock, includind the Stock, pursuant to Section 12(g) of the
Exchange Act and comply with all registration, filing, and reporting
requirements of the Exchange Act, which may from time to time be applicable to
the Company.
-30-
<PAGE>
(12) Comply with all provisions of all undertakings contained in
the Registration Statement.
(13) Prior to the later of (A) the date referred to in the second
sentence of clause (10) of this paragraph (a) of this Section 5, and (B) any
Additional Closing Date, issue no press release or other communication, directly
or indirectly, and hold no press conference with respect to the Company, the
financial condition, results of operations, business, properties, assets,
liabilities of any the Company or any Subsidiary, or this offering, without the
prior written consent of the Representative.
(14) Make all filings required to maintain the inclusion of the
Common Stock on the Nasdaq [National][SmallCap] Market [and the Pacific Stock
Exchange] for a least four years from the date of this Agreement.
(15) On the Closing Date, sell to the Hampshire, individually and
not as Representative of the several Underwriters, at the price of $.001 per
warrant, warrants to purchase the Warrant Stock, which Representative's Warrants
shall be substantially in the form set forth as an exhibit to the Registration
Statement.
(16) Until expiration of the Representative's Warrants, keep
reserved sufficient shares of Common Stock for issuance upon exercise of the
Representative's Warrants.
(17) Deliver to the Representative, without charge, within a
reasonable period after the last Additional Closing Date or the expiration of
the period during which the Representative may exercise the Over-allotment
Options, five sets of bound volumes of the Registration Statement and all
related materials to the individuals designated by the Representative or counsel
to the Underwriters.
-31-
<PAGE>
(18) For a period of three years after the effective date on
which the Registration Statement is declared effective under the Securities Act,
provide, at its sole expense, to the Representative copies of the Company's
daily transfer sheets, if so requested by the Representative.
(19) Maintain key-person life insurance payable to the Company on
the life of Mr. Roger F. Lorenzini, President, Chief Executive Officer, and a
Director of the Company, in the amount of at least $1,000,000, for the period of
time equal to the longer of three years from the date on which the Registration
Statement becomes effective under the Securities Act and the term of the
employment agreement between the Company and such officer.
(20) For a period of three years from the date on which the
Registration Statement becomes effective under the Securities Act, the
Representative shall have the right to appoint a designee as an observer of the
Company's Board of Directors. Such observer will have the right to attend all
meetings of the Board of Directors. Such observer shall be entitled to receive
reimbursement for all out-of-pocket expenses incurred in attending such
meetings, including, but not limited to, food, lodging, transportation, and any
fees paid to directors for attending meetings. The Representative shall be
given notice of such meetings at the same time and in the same manner as
directors of the Company are informed. The Representative and such observer
shall be indemnified to the same extent as the other directors. The Company
will purchase directors and officers insurance in an amount of not less than
$2,000,000, provided, however, that the Company shall not be required to pay
more than $50,000 per year in order to maintain such insurance, and if insurance
in such amount is not available at such cost, the Company shall purchase that
amount of such insurance which is available at a cost of $50,000 per year.
-32-
<PAGE>
(b) Each Selling Shareholder covenants that he, she, or it will not:
(1) For a period of 18 months from the date on which the
Registration Statement shall become effective under the Securities Act, without
the prior written consent of Hampshire, offer, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock (other than the Shareholder Additional Stock upon
exercise of the Shareholder Over-allotment Option) or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock issuable pursuant to
the terms of any employee stock options.
(2) Take, directly or indirectly, prior to the termination of
the offering contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which might in the
future reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Stock.
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with (a) the preparation, printing, filing, distribution,
and mailing of the Registration Statement and the Prospectus and the printing,
filing, distribution, and mailing of this Agreement and the Master Agreement
Among Underwriters, any Master Selected Dealer Agreement and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses and
of the Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as hereinabove stated, (b) the issuance, sale,
transfer, and delivery (as applicable) of the Securities,
-33-
<PAGE>
including any transfer or other taxes payable thereon, (c) the qualification of
the Securities under state or foreign "blue sky" or securities laws, including
the costs of printing and mailing the preliminary and final "Blue Sky Survey"
and the fees of counsel for the Underwriters ($35,000) and the disbursements in
connection therewith, (d) the filing fees payable to the Commission, the NASD,
and the jurisdictions in which such qualification is sought, (e) any fees
relating to the listing of the Common Stock on the Nasdaq National Market and
any other stock market or exchange, (f) the cost of printing certificates
representing the shares of Common Stock, (g) the fees of the transfer agent for
the Common Stock, (h) the cost of publication of "tombstone" advertisements with
respect to offerings, not to exceed $30,000, and (i) a non-accountable expense
allowance equal to three percent of the gross proceeds of the sale of the Firm
Stock and the Company Additional Stock (less amounts, if any, previously paid to
the Representative by the Company in respect of such non-accountable expense
allowance) to the Representative on the Closing Date. Notwithstanding the
foregoing, if the offering contemplated hereby should be terminated, the Company
agrees to pay the Representative only the out-of-pocket expenses incurred by the
Underwriters in connection with this Agreement or the proposed offer, sale, and
delivery of the Securities.
The Selling Shareholders hereby agree to pay a non-accountable expense
allowance equal to three percent of the gross proceeds of the sale of any
Shareholder Additional Stock (less amounts, if any, previously paid to the
Representative by the Selling Shareholders in respect of such non-accountable
expense allowance) to the Representative on the Closing Date or any Additional
Closing Date, as applicable.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein,
-34-
<PAGE>
and the obligation of Hampshire to purchase and pay for the Representative's
Warrants, each as provided herein, shall be subject, in the discretion of the
Representative, to the continuing accuracy of the representations and warranties
of the Company contained herein and in each certificate and document
contemplated under this Agreement to be delivered to the Underwriters, as of the
date hereof and as of the Closing Date (or any Additional Closing Date, as the
case may be), to the performance by the Company and the Selling Shareholders, as
applicable, of their respective obligations hereunder, and to the following
conditions:
(a) The Registration Statement shall have become effective under the
Securities Act not later than 6:00 P.M., New York City local time, on the date
of this Agreement or such later date and time as shall be consented to in
writing by the Representative; on or prior to the Closing Date, or any
Additional Closing Date, as the case may be, no Stop Order shall have been
issued and no proceeding shall have been initiated or threatened with respect to
a Stop Order; and any request by the Commission for additional information shall
have been complied with by the Company to the reasonable satisfaction of counsel
for the Underwriters. If required, the Prospectus shall have been filed with
the Commission in the manner and within the time period required by Rule 424(b)
under the Securities Act.
(b) (1) At the Closing Date and any Additional Closing Date, as the
case may be, you shall have received the opinion of Messrs. Greenberg & Kahr,
counsel for the Company, dated the date of delivery, addressed to the
Underwriters, and in form and scope satisfactory to counsel for the
Underwriters, with reproduced copies or signed counterparts thereof for each of
the Underwriters, to the effect that:
-35-
<PAGE>
(i) the only subsidiaries (as defined in the Regulations)
of the Company are the Subsidiaries. Each of the Company and each of the
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of its respective jurisdiction of incorporation, with
full power and authority, and all necessary consents, authorizations, approvals,
orders, licenses, certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other governmental authorities and
all courts and other tribunals, to own, lease, license, and use its respective
properties and assets and to conduct its respective business in the manner
described in the Prospectus. Each of the Company and each of the Subsidiaries
is duly qualified to do business as a foreign corporation and is in good
standing as such in every jurisdiction in which its respective ownership,
leasing, licensing, or use of property and assets or the conduct of its business
makes such qualification necessary;
(ii) the authorized capital stock of the Company consists of
10,000,000 shares of Common Stock, of which 2,210,000 shares are outstanding,
500,000 shares of Class A Common Stock, par value $.01 per share, of which none
is outstanding, and 1,000,000 shares of preferred stock, par value $.01 per
share, of which none is outstanding. Except as otherwise disclosed in the
Prospectus, each outstanding share of capital stock of each Subsidiary is owned
of record and beneficially by the Company, free and clear of all liens, security
interests, pledges, charges, encumbrances, shareholders' agreements, and voting
trusts. Except as disclosed in the Prospectus, each outstanding share of Common
Stock and each share of capital stock of each Subsidiary is validly authorized
and issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, has not been issued and is not owned or held
in violation of any preemptive or similar rights of shareholders. To the
knowledge of such counsel,
-36-
<PAGE>
there is no commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any share of
capital stock of the Company or any Subsidiary or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company or any Subsidiary, except as may
be properly described in the Prospectus. There is outstanding no security or
other instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company or any Subsidiary. The
certificates evidencing the Common Stock are in due and proper form;
(iii) to the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect (or any basis
therefor) with respect to the Company or any Subsidiary or any of their
respective operations, businesses, properties, or assets, except as may be
properly described in the Prospectus or such as individually or in the aggregate
do not now have, and will not in the future have, a material adverse effect upon
the operations, business, properties, or assets of the Company. To the
knowledge of such counsel, neither the Company nor any Subsidiary is in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree, except as may be properly described in the Prospectus or
such as in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, or assets of
the Company; nor is the Company or any Subsidiary required to take any action in
order to avoid any such violation or default;
(iv) to the knowledge of such counsel, neither the Company
or any Subsidiary, nor any other party is now, or is expected by the Company to
be, in violation or breach of, or in default with respect to, any provision of
any contract, agreement, instrument, lease,
-37
<PAGE>
license, arrangement, or understanding which is material to the Company, and, to
the knowledge of such counsel, each such contract, agreement, instrument, lease,
license, arrangement, or understanding is in full force and effect and is the
valid, legal, and binding obligation of the parties thereto and is enforceable
in accordance with its terms;
(v) neither the Company nor any Subsidiary is in violation
or breach of, or in default with respect to, any term of its respective
certificate of incorporation (or other charter document) or by-laws;
(vi) the Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Representative's Warrants.
All necessary corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance by the Company of this Agreement and
the Representative's Warrants. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and, subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of creditors' rights generally, is
enforceable as to the Company in accordance with its terms. The
Representative's Warrants have been duly authorized by the Company and, when
executed and delivered by the Company, will be legal, valid, and binding
obligations of the Company, each enforceable as to the Company in accordance
with its terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or performance by the
Company of this Agreement or the Representative's Warrants, except filings under
the Securities Act which have been made prior to the Closing Date or Additional
Closing Date, as the case may be, and consents consisting
-38-
<PAGE>
only of consents under "blue sky" or securities laws, which have been obtained.
No consent of any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding known to such counsel to which the Company or any
Subsidiary is a party, or to which any of their respective properties or assets
are subject, is required for the execution, delivery, or performance of this
Agreement and the Representative's Warrants; and the execution, delivery, and
performance of this Agreement and the Representative's Warrants will not
violate, result in a breach of, conflict with, result in the creation or
imposition of any lien, charge, or encumbrance upon any properties or assets of
the Company pursuant to the terms of, or, with or without the giving of notice
or the passage of time or both, entitle any party to terminate or call a default
under, any such contract, agreement, instrument, lease, license, arrangement, or
understanding known to such counsel, violate or result in a breach of, or
conflict with any term of the certificate of incorporation (or other charter
document) or by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or decree binding on
the Company or any Subsidiary to which any of their respective operations,
businesses, properties, or assets are subject;
(vii) each share of Firm Stock to be delivered on the
Closing Date is validly authorized and, when issued and delivered in accordance
with the terms hereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and will not
issued in violation of any preemptive or similar rights of shareholders. Each
share of Company Additional Stock to be delivered on the Closing Date or any
Additional Closing Date, as applicable, is validly authorized and, when issued
and delivered in accordance with the terms hereof, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not issued in violation of any
-39-
<PAGE>
preemptive or similar rights of shareholders. The Underwriters will receive
good title to the shares of Firm Stock and Company Additional Stock purchased by
them, respectively, free and clear of all liens, security interests, pledges,
charges, encumbrances, shareholders' agreements, and voting trusts. The Company
Additional Stock has been duly and validly reserved for issuance. The Stock
conforms to all statements relating thereto contained in the Registration
Statement or the Prospectus;
(viii) the Warrant Stock is validly authorized and has
been duly and validly reserved for issuance pursuant to the terms of the
Representative's Warrants. The Representative's Warrants have been duly and
validly issued and delivered. The Warrant Stock, when issued and delivered in
accordance with the Representative's Warrants, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not have been issued in violation of any preemptive
rights of shareholders. The Representative, and any other holders of the
Representative's Warrants, will receive good title to the securities purchased
by them upon exercise of the Representative's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances, shareholders'
agreements, and voting trusts. The Representative's Securities conform to all
statements relating thereto contained in the Registration Statement or the
Prospectus;
(ix) to the knowledge of such counsel, each contract,
agreement, instrument, lease, or license required to be described in the
Registration Statement or the Prospectus has been properly described therein,
and each contract, agreement, instrument, lease, or license required to be filed
as an exhibit to the Registration Statement has been filed with the Commission
as an exhibit to the Registration Statement;
-40-
<PAGE>
(x) insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements, instruments,
leases, or licenses, such statements have been prepared or reviewed by such
counsel and accurately reflect the status of such litigation and provisions
purported to be summarized and are correct in all respects;
(xi) the Company is not an "investment company" as
defined in the Investment Company Act and the rules and regulations thereunder
and, if the Company conducts its business as set forth in the Prospectus, will
not become an "investment company", and will not be required to be registered
under the Investment Company Act;
(xii) to the knowledge of such counsel, no person or
entity has the right to require registration of shares of Common Stock or other
securities of the Company because of the filing or effectiveness of the
Registration Statement, except by entities which have waived such rights as
described in the Registration Statement and the Prospectus;
(xiii) there is no stamp duty, value-added tax or any
similar tax or duty, payable by or on behalf of the Underwriters, the Company or
any Subsidiary in Hong Kong in connection with the authorization, issuance, sale
and delivery of the Securities to the Underwriters in the manner contemplated by
this Agreement; and
(xiv) the Registration Statement has become effective
under the Securities Act, the Prospectus has been filed in accordance with Rule
424(b) of the Regulations, including the applicable time periods set forth
therein, or such filing is not required. To the knowledge of such counsel, no
Stop Order has been issued and no proceeding for that purpose has been
instituted or threatened. On the basis of the participation of such counsel in
conferences at
-41-
<PAGE>
which the contents of the Registration Statement and the Prospectus and related
matters were discussed, but without independent verification by such counsel of
the accuracy, completeness, or fairness of the statements contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
such counsel have no knowledge that (other than financial statements and other
financial data and schedules which are or should be contained therein, as to
which such counsel need express no opinion): (A) the Registration Statement, any
Rule 430A Prospectus, and the Prospectus, and any amendment or supplement
thereto, does not appear on its face to comply as to form in all material
respects with the requirements of the Securities Act and the Regulations;
(B) any of the Registration Statement, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto, contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(C) since the date of effectiveness under the Securities Act of the Registration
Statement, any event has occurred which should have been set forth in an
amendment or supplement to the Registration Statement or the Prospectus which
has not been set forth in such an amendment or supplement.
In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the laws of the State of New Jersey, to the extent counsel for the
Company deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance satisfactory to counsel for the
Underwriters) of other counsel, acceptable to counsel for the Underwriters,
familiar with the applicable laws, in which case the opinion of counsel for the
Company shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the
-42-
<PAGE>
Company and that reliance thereon by counsel for the Company and the
Underwriters is reasonable; (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company; and (C) to the
extent they deem proper, upon written statements or certificates of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company; provided that copies of any
such opinions, certificates, or statements shall be annexed as exhibits to the
opinion of counsel for the Company.
(2) At any Additional Closing Date, you shall have received the
favorable opinion of Messrs. Greenberg & Kahr, counsel for the Selling
Shareholders, dated the date of delivery, addressed to the Underwriters, and in
form and scope satisfactory to counsel for the Underwriters, with reproduced
copies or signed counterparts thereof for each of the Underwriters, to the
effect that:
(i) Each Selling Shareholder has all requisite power and
authority to execute, deliver, and perform this Agreement and his, her or its
respective Custodial Agreement. This Agreement and the Custodial Agreement have
each been duly executed and delivered by each Selling Shareholder, are the
legal, valid, and binding obligation of each Selling Shareholder, and are each
enforceable as to each Selling Shareholder in accordance with its respective
terms.
(ii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect (or any basis
therefor) with respect to any Selling Shareholder or any of such Selling
Shareholder's business, properties, or assets, which, if determined adversely to
such Selling Shareholder, would have a material adverse effect on such Selling
Shareholder's business, properties or assets of such Selling Shareholder. Such
Selling Shareholder is not in violation of,
-43-
<PAGE>
or in default with respect to, any law, rule, regulation, order, judgment, or
decree; nor is such Selling Shareholder required to take any action in order
to avoid such violation or default.
(iii) Each share of Shareholder Additional Stock is
validly authorized and issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, and has not been issued
and is not owned or held in violation of any preemptive or similar rights of
shareholders. Such Selling Shareholder has good title to the shares of
Shareholder Additional Stock to be sold thereby pursuant to this Agreement, free
and clear of all liens, security interests, pledges, charges, encumbrances,
shareholders' agreements, and voting trusts. When delivered in accordance with
the terms of this Agreement, the Underwriters shall receive good title to the
Shareholder Additional Stock purchased by them from the Selling Shareholders,
free and clear of all liens, security interests, pledges, charges, encumbrances,
shareholders' agreements, and voting trusts.
In rendering such opinion, counsel for the Selling Shareholders may rely
(A) as to matters involving the application of laws other than the laws of the
United States and the laws of the State of Delaware, to the extent counsel for
the Selling Shareholders deems proper and to the extent specified in such
opinion, upon an opinion or opinions (in form and substance satisfactory to
counsel for the Underwriters) of other counsel, acceptable to counsel for the
Underwriters, familiar with the applicable laws, in which case the opinion of
counsel for the Selling Shareholders shall state that the opinion or opinions of
such other counsel are satisfactory in scope, form, and substance to counsel for
the Selling Shareholders and that reliance thereon by counsel for the Selling
Shareholders and counsel for the Underwriters is reasonable; and (B) as to
matters of fact, to the extent proper, on certificates of responsible officers
of the Company; provided, that copies
-44-
<PAGE>
of any such opinions, certificates, or statements shall be annexed as exhibits
to the opinion of counsel for the Selling Shareholders.
(c) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Underwriters shall have been furnished such information,
documents, certificates, and opinions as they may reasonably require for the
purpose of enabling them to review the matters referred to in Section 7(b), and
in order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions herein
contained, or as the Representative may reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the case
may be, (i) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be stated
therein in accordance with the Securities Act and the Regulations, and in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company or any Subsidiary from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the date on
which the Registration Statement becomes effective under the Securities Act, and
neither the Company nor
-45-
<PAGE>
any Subsidiary shall have incurred any material liabilities or entered into any
agreements not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus, (iii) except as set forth in the
Prospectus, no litigation, arbitration, claim, governmental or other proceeding
(formal or informal), or investigation shall be pending, threatened, or in
prospect (or any basis therefor) with respect to the Company or any Subsidiary
or any of their respective operations, businesses, properties, or assets which
would be required to be set forth in the Registration Statement, wherein an
unfavorable decision, ruling, or finding would materially adversely affect the
business, property, condition (financial or otherwise), results of operations,
or general affairs of the Company or such Subsidiary, and (iv) the Stock be
quoted upon the Nasdaq [National][SmallCap] Market [and the Pacific Stock
Exchange].
(e) At the Closing Date and any Additional Closing Date, as the case
may be, you shall have received a certificate of the chief executive officer,
the chief financial officer, and the chief accounting officer of the Company,
dated the Closing Date or such Additional Closing Date, as the case may be, to
the effect, among other things, that (i) the conditions set forth in Sections
7(a) and 7(d) have been satisfied, (ii) as of the date of this Agreement and as
of the Closing Date or such Additional Closing Date, as the case may be, the
representations and warranties of the Company contained herein were and are
accurate and correct in all materials respects, and (iii) as of the Closing Date
or such Additional Closing Date, as the case may be, the obligations to be
performed by the Company hereunder on or prior to such time have been fully
performed. At each Additional Closing Date, you shall have received a
certificate of a duly appointed attorney-in-fact for the Selling Shareholders,
dated such Additional Closing Date, that, as of the date of this Agreement and
such Additional Closing Date, the representations and
-46-
<PAGE>
warranties of the Selling Shareholders contained herein were and are accurate
and correct in all material respects, and that as of such Additional Closing
Date, the obligations to be performed by the Selling Shareholders hereunder on
or prior thereto have been fully performed.
(f) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, you shall have received a
letter, addressed to the Underwriters, and in form and substance satisfactory to
the Representative, with reproduced copies or signed counterparts thereof for
each of the Underwriters, from Richard A. Eisner & Company, LLP, independent
certified public accountants for the Company, dated the date of delivery:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus were,
independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the published Regulations and stating that the
answer to Item 10 of the Registration Statement is correct insofar as it relates
to them;
(ii) stating that, in their opinion, the financial statements and
schedules of the Company included in the Registration Statement examined by them
comply in form in all material respects with the applicable accounting
requirements of the Securities Act and the related published rules and
regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the shareholders and Boards of Directors of the Company and
committees of such Board of
-47-
<PAGE>
Directors, inquiries to certain officers and other employees of the Company
responsible for financial and accounting matters, and other specified procedures
and inquiries, nothing has come to their attention that caused them to believe
that: (A) the unaudited financial statements and schedules of the Company
included in the Registration Statement and Prospectus do not comply in form in
all material respects with the applicable accounting requirements of the
Securities Act and the Exchange Act and the related published rules and
regulations under the Securities Act or the Exchange Act or are not fairly
presented in conformity with generally accepted accounting principles (except to
the extent that certain footnote disclosures regarding any stub period may have
been omitted in accordance with the applicable rules of the Commission under the
Exchange Act) applied on a basis consistent with that of the audited financial
statements appearing therein; (B) there was any change in the capital stock or
long-term debt of the Company or any decrease in the net current assets or
shareholders' equity of the Company as of the date of the latest available
monthly financial statements of the Company as of a specified date not more than
five business days prior to the date of such letter, each as compared with the
amounts shown in the June 30, 1996 and December 31, 1996 balance sheets included
in the Registration Statement and Prospectus, other than as properly described
in the Registration Statement and Prospectus or any change or decrease (which
shall be set forth therein) which, in the sole discretion of the Representative,
the Representative shall accept, or (C) there was any decrease in net sales, net
earnings, or net earnings per share of Common Stock during the period from June
30, 1996 and December 31, 1996 and to the date of the latest available monthly
financial statements of the Company or to a specified date not more than five
business days prior to the date of such letter, each as compared with the
corresponding period in 1996, other than as properly described in the
Registration Statement and
-48-
<PAGE>
Prospectus or any decrease (which shall be set forth therein) which, the sole
discretion of the Representative, the Representative shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, which have been specified by the Representative prior to the date of
this Agreement, to the extent that such data and information may be derived from
the general accounting records of the Company, and excluding any questions
requiring an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(g) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Securities shall be satisfactory in form and
substance to the Representative and to counsel for the Underwriters, and the
Underwriters shall have received from such counsel for the Underwriters the
opinion, dated as of the Closing Date and the Additional Closing Date, as the
case may be, with respect to such of the matters set forth under Section 7(b),
and with respect to such other related matters, as the Representative may
reasonably request.
(h) The NASD, upon review of the terms of the public offering of the
Stock shall not have objected to the Underwriters' participation in such
offering.
(i) Prior to or on the Closing Date, the Company shall have entered
into the Representative's Warrants with the Representative.
(j) Prior to or on the Closing Date, the Company shall have provided
to you copies of the agreements referred to in Section 2(a)(18).
-49-
<PAGE>
Any certificate or other document signed by any officer of the Company and
delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. Any certificate or other
document signed by, or on behalf of, the Selling Shareholders and delivered to
the Underwriters or to counsel for the Representative shall be deemed a
representation and warranty by the Selling Shareholders hereunder to the
Underwriters as to the statement made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
the Representative may, on behalf of the several Underwriters, terminate this
Agreement or, if the Representative so elects, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Underwriter, its officers, directors, partners,
employees, agents, and counsel, each of the Selling Shareholders, and each
person, if any, who controls any Underwriter or any Selling Shareholder within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, against any and all loss, liability, claim, damage, and expense whatsoever
(which shall include, for all purposes of this Section 8, but not be limited to,
attorneys' fees and any and all expense whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in connection
with, (i) any untrue statement or alleged untrue statement of a material fact
contained in (A) the Registration
-50-
<PAGE>
Statement, any Preliminary Prospectus, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto or (B) any
application or other document or communication (for purposes of this Section 8,
collectively referred to as an "application") executed by, or on behalf of, the
Company or based upon written information furnished by, or on behalf of, the
Company filed in any jurisdiction in order to qualify the Securities under the
"blue sky" or securities laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon, and
in conformity with, written information furnished to the Company as stated in
Section 8(b) with respect to any Underwriter by, or on behalf of, such
Underwriter through the Representative or as stated in Section 8(c) with respect
to any Selling Shareholder by, or on behalf of, such Selling Shareholder
expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement.
The foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.
If any action is brought against an Underwriter or any of its respective
officers, directors, partners, employees, agents, or counsel, any Selling
Shareholder, or any controlling persons of an Underwriter or a Selling
Shareholder (an "indemnified party") in respect of which indemnity may be sought
against the Company pursuant to the foregoing paragraph, such indemnified party
or parties shall promptly notify the Company in writing of the institution of
such action (but the
-51-
<PAGE>
failure so to notify shall not relieve the Company from any liability it may
have other than pursuant to this Section 8(a)) and the Company shall promptly
assume the defense of such action, including, without limitation, the employment
of counsel satisfactory to such indemnified party or parties and payment of
expenses. Such indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
promptly employed counsel satisfactory to such indemnified party or parties to
have charge of the defense of such action or such indemnified party or parties
shall have concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from, or in
addition to, those available to the Company, in any of which events such fees
and expenses shall be borne by the Company, and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this paragraph to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company shall not, without the prior written consent of each
indemnified party that is not released as described in this sentence, settle or
compromise any action, or permit a default or consent to the entry of judgment
or otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party is
a party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the
Underwriters and the Selling Shareholders of the
-52-
<PAGE>
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of the Securities, the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each Selling Shareholder, each director of the Company, each
officer of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company or a Selling Shareholder
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the several Underwriters and the Selling Shareholders in Section 8(a), but only
with respect to statements or omissions, if any, made in the Registration
Statement, any Preliminary Prospectus, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, or in any
application, in reliance upon, and in conformity with, written information
furnished to the Company as stated in this Section 8(b) with respect to any
Underwriter by, or on behalf of, such Underwriter through the Representative
expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any
application, as the case may be; provided, however, that the obligation of each
Underwriter to provide indemnity under the provisions of this Section 8(b) shall
be limited to the amount which represents the product of (i) the number of
shares of Stock underwritten by such Underwriter hereunder and the (ii) the
underwriting discount per share of Common Stock set forth on the cover page of
the Prospectus. For all purposes of this Agreement, the amounts of the selling
concession and reallowance and the name of each of the Underwriters, and the
number of shares of Firm Stock purchased by each of the Underwriters set forth
in the
-53-
<PAGE>
Prospectus constitute the only information furnished in writing by, or on behalf
of, such Underwriter expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, or the Prospectus (as from time to time amended or
supplemented), or any amendment or supplement thereto, or in any application, as
the case may be. If any action shall be brought against the Company, the
Selling Shareholders, or any other person so indemnified based on the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against any Underwriter pursuant to this Section 8(b),
such Underwriter shall have the rights and duties given to the Company, and the
Company, the Selling Shareholders, and each other person so indemnified shall
have the rights and duties given to the indemnified parties, by the provisions
of Section 8(a).
(c) The Selling Shareholders severally agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the Company
who shall have signed the Registration Statement, each Underwriter, each
officer, director, partner, employee, agent, and counsel of each Underwriter,
and each other person, if any, who controls the Company or any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the several Underwriters in Section 8(a), but only with respect to (i)
statements or omissions, if any, made in the Registration Statement, any
Preliminary Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application in
reliance upon, and in conformity with, written information furnished to the
Company by, or on behalf of, any Selling Shareholder expressly for inclusion in
the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto, or in any
-54-
<PAGE>
application, as the case may be, or (ii) any breach of any representation,
warranty, covenant, or agreement of any Selling Shareholder contained in this
Agreement. For all purposes of this Agreement, information with respect to the
Selling Shareholders set forth under "Principal and Selling Shareholders" shall
constitute the only information furnished in writing with respect to the Selling
Shareholders by, or on behalf of, the Selling Shareholders expressly for
inclusion in any the Registration Statement, any Preliminary Prospectus, or the
Prospectus (as from time to time amended or supplemented), or any amendment or
supplement thereto, or in any application, as the case may be. In case any
action shall be brought against the Company, any Underwriter, or any other
person so indemnified based on the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any
application, or with respect to any such breach, and in respect of which
indemnity may be sought against the Selling Shareholder, the Selling
Shareholders shall have the rights and duties given to the Company, and the
Company, the Underwriters, and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
8(a).
(d) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a),
8(b), 8(c) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Agreement expressly provides
for indemnification in such case or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act, or otherwise,
then the Company (including for this purpose any contribution made by, or on
behalf of, any director of the Company, any officer of the Company who signed
the Registration Statement, and any controlling person of the Company), as
-55-
<PAGE>
one entity, the Selling Shareholders, as a second entity, and the Underwriters
(including for this purpose any contribution by, or on behalf of, an indemnified
party) as a third entity, shall contribute to the losses, liabilities, claims,
damages, and expenses whatsoever to which any of them may be subject, so that
the Underwriters, in the aggregate, are responsible for the proportion thereof
equal to the percentage which the underwriting discount per share of Common
Stock set forth on the cover page of the Prospectus represents of the initial
public offering price per share of Common Stock set forth on the cover page of
the Prospectus and the Company and the Selling Shareholders are responsible for
the remaining portion; provided, however, that if applicable law does not permit
such allocation, then other relevant equitable considerations such as the
relative fault of the Company, the Selling Shareholders, and the Underwriters in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative fault, in the case
of an untrue statement, alleged untrue statement, omission, or alleged omission,
shall be determined by, among other things, whether such statement, alleged
statement, omission, or alleged omission relates to information supplied by the
Company, by the Selling Shareholders, or by the Underwriters, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission, or alleged omission. The
Company, the Selling Shareholders, and the Underwriters agree that it would be
unjust and inequitable if the respective obligations of the Company, the Selling
Shareholders, and the Underwriters for contribution were determined by pro rata
or per capita allocation of the aggregate losses, liabilities, claims, damages,
and expenses (even if the Underwriters and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations referred to in this
-56-
<PAGE>
Section 8(d). No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8(d), each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act and each officer, director, partner,
employee, agent, and counsel of any Underwriter shall have the same rights to
contribution as such Underwriter, each person, if any, who controls any Selling
Shareholder within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act, shall have the same rights to contribution as such
Selling Shareholder, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8(d). Anything in this Section 8(d) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 8(d) is
intended to supersede any right to contribution under the Securities Act, the
Exchange Act, or otherwise.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Stock or Additional Stock hereunder, and if the
number of shares of Firm Stock or Additional Stock to which the defaults of all
Underwriters in the aggregate relate does not exceed 10% of the number of shares
of Firm Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, then such shares of Firm Stock or Additional
-57-
<PAGE>
Stock to which such defaults relate shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Firm Stock or Additional Stock, as the case may be, which all
Underwriters have agreed to purchase hereunder, the Representative may, in its
discretion, arrange to purchase itself or for another party or parties to
purchase such shares of Firm Stock or Additional Stock, as the case may be, to
which such default relates on the terms contained herein. If the Representative
does not arrange for the purchase of such shares of Firm Stock or Additional
Stock, as the case may be, within one business day after the occurrence of
defaults relating to in excess of 10% of the Firm Stock or the Additional Stock,
as the case may be, then the Company (with respect to the Firm Stock and the
Company Additional Stock) and the Selling Shareholders (with respect to the
Shareholder Additional Stock) shall be entitled to a further period of one
business day within which to procure another party or parties satisfactory to
the Representative to purchase such shares of Firm Stock or Additional Stock, as
the case may be, on such terms. If the Representative or the Company (with
respect to the Firm Stock and the Company Additional Stock) or the
Representative or the Selling Shareholders (with respect to the Shareholder
Additional Stock) do not arrange for the purchase of the shares of Firm Stock or
Additional Stock, as the case may be, to which such defaults relate as provided
in this Section 9(b), this Agreement may be terminated by the Representative or
by the Company (with respect to the Firm Stock and the Company Additional Stock)
or the Representative or the Selling Shareholders (with respect to the
Shareholder Additional Stock), in each case without liability on the part of the
Company or the Selling Shareholders (except that the provisions of Sections
5(a)(1), 6, 8, 10, and 13 shall survive such termination) or the several
Underwriters, but
-58-
<PAGE>
nothing in this Agreement shall relieve a defaulting Underwriter of its
liability, if any, to the other several Underwriters and to the Company and the
Selling Shareholders for any damages occasioned by its default hereunder.
(c) If the shares of Stock or Additional Stock to which such defaults
relate are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties as aforesaid, the Representative or the
Company (with respect to the Firm Stock and the Company Additional Stock) or the
Representative or the Selling Shareholders (with respect to the Shareholder
Additional Stock) shall have the right to postpone the Closing Date or the
Additional Closing Date, as the case may be, for a reasonable period but not in
any event more than seven business days in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements with respect to the Firm Stock or the
Additional Stock, and the Company agrees to prepare and file promptly any
amendment or supplement to the Registration Statement or the Prospectus which in
the opinion of counsel for the Underwriters may thereby be made necessary. The
term "Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 as if such party had originally been a party to this
Agreement and had been allocated the number of shares of Firm Stock and
Additional Stock actually purchased by it as a result of its original commitment
to purchase Firm Stock and Additional Stock and its purchase of shares of Firm
Stock or Additional Stock pursuant to this Section 9.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional
-59-
<PAGE>
Closing Date, and such representations, warranties, covenants, and agreements of
the Underwriters, the Company, and the Selling Shareholders, including the
indemnity and contribution agreements contained in Section 8, shall remain
operative and in full force and effect regardless of any investigation made by,
or on behalf of, any Underwriter or any indemnified person, or by, or on behalf
of, the Company, any Selling Shareholder, or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Stock and the Additional Stock, if
any, to the several Underwriters. In addition, the provisions of Sections
5(a)(1), 6, 8, 10, 11, and 13 shall survive termination of this Agreement,
whether such termination occurs before or after the Closing Date or any
Additional Closing Date. Notwithstanding anything in the second sentence of
Section 6 hereof to the contrary, and in addition to the obligations assumed by
the Company pursuant to the first sentence of Section 6 hereof, if the offering
should be terminated, the Company shall be liable to the Underwriters only for
out-of-pocket expenses incurred by the Underwriters in connection with this
Agreement or the proposed, offer, sale, and delivery of the Securities.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 9:30 A.M., New York City
local time, on the first full business day following the day on which the
Registration Statement becomes effective under the Securities Act or at the time
of the initial public offering by the Underwriters of the Firm Stock, whichever
is earlier. The time of the initial public offering shall mean the time, after
the Registration Statement becomes effective under the Securities Act, of the
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Firm Stock or the
time, after the Registration Statement becomes effective
-60-
<PAGE>
under the Securities Act, when the Firm Stock is first released by the
Representative for offering by the Underwriters or dealers by letter or
telegram, whichever shall first occur. The Representative or the Company may
prevent this Agreement from becoming effective without liability of any party to
any other party, except as noted below in this Section 11, by giving the notice
indicated in Section 11(d) before the time this Agreement becomes effective
under the Securities Act.
(b) If the purchase price of the Firm Stock has not been determined
as provided for in Section 3 prior to 4:30 p.m., New York City local time, on
the fifth full business day after the date on which the Registration Statement
becomes was declared effective under the Securities Act, this Agreement may be
terminated at any time thereafter either by the Representative or by the Company
by giving notice to the other unless before such termination the purchase price
for the Firm Stock has been so determined. If the purchase price of the Firm
Stock has not been so determined prior to 4:30 p.m., New York City local time,
on the tenth full business day after the date on which the Registration
Statement was declared effective under the Securities Act, this Agreement shall
automatically terminate forthwith.
(c) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, the Representative shall have the right to terminate
this Agreement at any time prior to the Closing Date or any Additional Closing
Date, as the case may be, by giving notice to the Company, and, if exercised,
the Over-allotment Options, at any time prior to any Additional Closing Date, by
giving notice to the Company and the Selling Shareholders, (i) if any domestic
or international event, act, or occurrence has materially and adversely
disrupted, or, in the opinion of the Representative, will in the immediate
future materially and adversely disrupt, the securities
-61-
<PAGE>
markets; or (ii) if there shall have been a general suspension of, or a general
limitation on prices for, trading in securities on the New York Stock Exchange
or the American Stock Exchange or in the over-the-counter market; or (iii) if
there shall have been an outbreak or increase in the level of major hostilities
or other national or international calamity; or (iv) if a banking moratorium has
been declared by a state or federal authority; or (v) if a moratorium in foreign
exchange trading by major international banks or persons has been declared; or
(vi) if there shall have been a material interruption in the mail service or
other means of communication within the United States; or (vii) if the Company
shall have sustained a material or substantial loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage, or other calamity or malicious act,
whether or not such loss shall have been insured, or from any labor dispute or
court or government action, order, or decree, which will, in the opinion of the
Representative, make it inadvisable to proceed with the offering, sale, or
delivery of the Firm Stock or the Additional Stock, as the case may be; or
(viii) if any material governmental restrictions shall have been imposed on
trading in securities in general, which restrictions are not in effect on the
date hereof; or (ix) if there shall be passed by the Congress of the United
States or by any state legislature any act or measure, or adopted by any
governmental body or authoritative accounting institute or board, or any
governmental executive, any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Common Stock; or (x) if there shall have been such material and
adverse change in the market for the Company's securities or securities in
general or in political, financial, or economic conditions as in the judgment of
the Representative makes it inadvisable to proceed with the offering, sale, and
-62-
<PAGE>
delivery of the Firm Stock or the Additional Stock, as the case may be, on the
terms contemplated by the Prospectus.
(d) If the Representative elects to prevent this Agreement from
becoming effective, as provided in this Section 11, or to terminate this
Agreement pursuant to Section 7 of this Agreement or this Section 10, the
Representative shall notify the Company and the Selling Shareholders promptly by
telephone, telex, or telegram, confirmed by letter. If, as so provided, the
Company elects to prevent this Agreement from becoming effective or to terminate
this Agreement, the Company shall notify the Representative and the Selling
Shareholders promptly by telephone, telex, or telegram, confirmed by letter.
(e) Anything in this Agreement to the contrary notwithstanding other
than Section 11(f), if this Agreement shall not become effective by reason of an
election pursuant to this Section 11 or if this Agreement shall terminate or
shall otherwise not be carried out within the time specified herein by reason of
any failure on the part of the Company or the Selling Shareholders to perform
any covenant or agreement or satisfy any condition of this Agreement by it to be
performed or satisfied, the sole liability of the Company or the Selling
Shareholders to the several Underwriters, in addition to the obligations the
Company and the Selling Shareholders assumed pursuant to the first sentence of
Section 6, will be to reimburse the several Underwriters for such out-of-pocket
expenses (including the fees and disbursements of their counsel) as shall have
been incurred by them in connection with this Agreement or the proposed offer,
sale, and delivery of the Securities, and, upon demand, the Company and the
Selling Shareholders, severally, agrees to pay promptly the full amount thereof
to the Representative for the respective accounts of the Underwriters. Anything
in this Agreement to the contrary notwithstanding other than Section 11(f),
-63-
<PAGE>
if this Agreement shall not be carried out within the time specified herein for
any reason other than the failure on the part of the Company or the Selling
Shareholders to perform any covenant or agreement or satisfy any condition of
this Agreement by it to be performed or satisfied, the Company and the Selling
Shareholders shall have no liability to the several Underwriters other than for
obligations assumed by the Company and the Selling Shareholders pursuant to
Section 6.
(f) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof. Notwithstanding anything in the second
sentence of Section 6 hereof to the contrary, and in addition to the obligations
assumed by the Company pursuant to the first sentence of Section 6 hereof, if
the offering should be terminated, the Company shall be liable to the several
Underwriters only for out-of-pocket expenses incurred by the several
Underwriters in connection with this Agreement or the proposed, offer, sale, and
delivery of the Securities.
12. NOTICES. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Hampshire Securities Corporation, 640 Fifth
Avenue, New York, New York 10019, Attention: Mr. Richard K. Abbe, Executive Vice
President, with a copy to Brock Fensterstock Silverstein McAuliffe & Wade, LLC,
One Citicorp Center, 56th Floor, York, New York 10022, Attention: Robert Steven
Brown, Esq.; or if sent to the Company or the Selling Shareholders, shall be
mailed, delivered, or telexed or telegraphed and confirmed by letter, to the
Company, Jazz Photo Corp., 600 Blair Road, Carteret,
-64-
<PAGE>
New Jersey 07088, with a copy to Greenberg & Kahr, _____ Park Avenue, New York,
New York 10022, Attention: Stephen C. Kahr, Esq. All notices hereunder shall be
effective upon receipt by the party to which it is addressed.
13. PARTIES. Hampshire represents that it is authorized to act as
Representative on behalf of the several Underwriters named in Schedule I hereto,
and the Company and the Selling Shareholders shall be entitled to act and rely
on any request, notice, consent, waiver, or agreement purportedly given on
behalf of the Underwriters when the same shall have been given by Hampshire on
such behalf. The Selling Shareholders represent that each of the
attorneys-in-fact named in the power of attorney referred to in Section 2(b)(1)
hereof is authorized to act on his behalf, and the Underwriters and the Company
shall be entitled to act and rely upon any request, notice, consent, waiver, or
agreement purportedly given on behalf of the Selling Shareholders when the same
shall have been given by either of such attorneys-in-fact. This Agreement shall
inure solely to the benefit of, and shall be binding upon, the several
Underwriters, the Company, and the Selling Shareholders and the persons and
entities referred to in Section 8 who are entitled to indemnification or
contribution, and their respective successors, legal representatives, and
assigns (which shall not include any buyer, as such, of the Firm Stock or the
Additional Stock), and no other person shall have, or be construed to have, any
legal or equitable right, remedy, or claim under, in respect of, or by virtue of
this Agreement or any provision herein contained. Notwithstanding anything
contained in this Agreement to the contrary, all of the obligations of the
Underwriters hereunder are several and not joint.
-65-
<PAGE>
14. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
conflict of laws. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
15. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgment may be entered against the Company for the amount as
demanded in any summons, complaint, or other process so served.
-66-
<PAGE>
If the foregoing correctly sets forth the understandings among the
Representative, the Company, and the Selling Shareholder, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
JAZZ PHOTO CORP.
BY:
-------------------------------
NAME:
TITLE:
_____________________________________
____________, AS ATTORNEY-IN-
FACT FOR THE SELLING SHAREHOLDERS
ACCEPTED AS OF THE DATE FIRST ABOVE
WRITTEN IN NEW YORK, NEW YORK
HAMPSHIRE SECURITIES CORPORATION*
BY:
------------------------------------------
RICHARD K. ABBE, EXECUTIVE VICE PRESIDENT
*ON BEHALF OF ITSELF AND THE OTHER SEVERAL
UNDERWRITERS NAMED IN SCHEDULE I HERETO.
-67-
<PAGE>
SCHEDULE I
Total
Number
of Shares
to be
UNDERWRITER PURCHASED
----------- ----------
Hampshire Securities Corporation...................................
----------
Total.......................................................... 1,000,000
----------
----------
-68-
<PAGE>
SCHEDULE II
NAME OF SELLING SHAREHOLDER Number of Shares
--------------------------- ----------------
-69-
<PAGE>
(Exhibit 3.1)
FILED
JUN 21 1995
LONNA R. HOOKS
Secretary of State
CERTIFICATE OF INCORPORATION
OF
JAZZ PHOTO CORP.
- --------------------------------------------------------------------------------
(Section 14A:2-7 of the New Jersey Business Corporation Act
for use by Domestic Profit Corporation)
THIS IS TO CERTIFY THAT there is hereby organized a corporation under and
by virtue of the provisions of the New Jersey Business Corporation Act Title
14A, New Jersey Statutes (NJS).
1. The name of the corporation is JAZZ PHOTO CORP.
2. The purpose for which this corporation is organized is to engage in any
activity within the lawful business purposes for which corporations may be
organized under the New Jersey Business Corporation Act.
3. The name of the corporation's registered agent is Mona Benun.
4. The address of the corporation's registered office is 1459 Pinewood Street,
Rahway, New Jersey 07065.
5. The aggregate number of shares which the corporation shall have authority
to issue is 1,000 shares, having a par value of $.01 per share, all of
which shall be common stock.
6. The number of directors constituting the initial board of directors of this
corporation is one. The name and address of each person who is to serve as
such director is: Mona Benun residing at 80 Wickapecko Drive, Allenhurst,
New Jersey 07711.
7. The name and address of the incorporator is Diane L. Rose, Esq., c/o
Greenberg & Kahr, 3 New York Plaza, 12th Floor, New York, New York 10004.
8. The duration of the corporation is perpetual.
<PAGE>
9. The corporation shall, to the fullest extent permitted by Section 14A:3-5
of the New Jersey Business Corporation Act, as the same may be amended and
supplemented, indemnify any and all corporate agents whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of shareholders, or otherwise, and shall
continue as to a person who has ceased to be a corporate agent and shall
inure to the benefit of the heirs, executors, administrators, and personal
representatives of such a corporate agent. The term "corporate agent" as
used herein shall have the meaning attributed to it by Section 14A:3-5 of
the New Jersey Business Corporation Act and by any other applicable
provision of law.
10. The personal liability of the directors and officers of the corporation is
hereby limited to the fullest extent permitted by subsection 14A:2-7(3) of
the New Jersey Business Corporation Act, as the same may be amended and
supplemented.
IN WITNESS WHEREOF, I, the individual incorporator of the above-named
corporation, being over eighteen years of age, have signed this certificate this
16th day of June, 1995.
/s/ Diane L. Rose
-------------------------------
Diane L. Rose, Incorporator
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT F I L E D
OF THE CERTIFICATE OF INCORPORATION MAR 19 1997
JAZZ PHOTO CORP. LONNA R. HOOKS
Secretary of State
-----------------
Under Section 14A:9-2 of the
New Jersey Business Corporation Act
of the State of New Jersey
-----------------
The undersigned, the duly elected and acting President of JAZZ PHOTO
CORP. (the "Corporation"), a corporation organized and existing under the New
Jersey Business Corporation Act of the State of New Jersey (the "Act"), does
hereby certify that:
FIRST: The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of New Jersey on June 21,1995 (The
Certificate of Incorporation is referred to herein as the "Certificate".)
SECOND: The authorized capital stock of the Corporation shall be
changed by amending numbered paragraph 5 of the Certificate to read in full as
follows:
"5. The total number of shares of stock which the Corporation
shall have the authority to issue is eleven million five hundred
thousand (11,500,000) shares, of which ten million (10,000,000)
shares shall be Common Stock, par value $.01 per share, five hundred
thousand (500,000) shares shall be Class A
<PAGE>
Common Stock, par value $.01 per share, and one million (1,000,000)
shares shall be Preferred Stock, par value $1.00 per share.
The Common Stock and Class A Common Stock shall be identical
except that, unless otherwise required by law, the holders of Class
A Common Stock shall not have any voting rights.
The Preferred Stock shall be issued in series upon authority
of the Board of Directors of the Corporation in its discretion to
the fullest extent permitted by, and the Board of Directors shall
exercise all the authority conferred under, Section 14A:7-2 of the
Act."
THIRD: The aforesaid amendment to the Certificate was duly adopted
by unanimous written consent of the Corporation's Board of Directors pursuant to
Sections 14:6-7.1(5) of the Act and of the shareholders in accordance with the
Sections 14A:56(1) of the Act. Such action was taken by Shareholders without a
meeting pursuant to the unanimous written consents of the shareholders holding
500 shares of Common Stock, par value $.01 per share, representing all of the
outstanding capital stock of the Corporation.
2
<PAGE>
IN WITNESS WHEREOF, I have made and signed this Amendment to the
Certificate this 6th day of January, 1997, and I affirm the statements made
therein as true under the penalties of perjury.
/s/ Jack C. Benun
----------------------------
Jack C. Benun, President
3
<PAGE>
(Exhibit 3.3)
BY-LAWS
OF
JAZZ PHOTO CORP.
ARTICLE I - OFFICES
The registered office of the Corporation is fixed and located at
1459 Pinewood Street, Rahway, New Jersey 07065. The Board has full power and
authority to change the registered office at any time to another location within
or without the State of New Jersey. The principal office of the Corporation
shall be in the State of New Jersey and/or such other places within or without
the State of New Jersey as the board may from time to time determine or the
business of the Corporation may require.
ARTICLE II- SHAREHOLDERS
1. Place of Meetings.
Meetings of shareholders will be held at the principal office of the
Corporation or at such place within or without the State of New Jersey as the
board shall authorize.
2. Annual Meeting.
The annual meeting of the shareholders will be held at noon on the
third Monday in March in each year, if not a legal holiday or, if a legal
holiday, then on the next business day following, at the same hour, when the
shareholders shall elect a board and transact other business as may properly
come before the meeting.
3. Special Meetings.
Special meetings of the shareholders may be called by the board or
by the president and shall be called by the president or the secretary at the
request in writing of a majority of the board or at the request, in writing, by
shareholders owning a majority in amount of the shares issued and outstanding.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice.
4. Fixing Record Date.
For the purpose of determining the shareholders entitled to notice
of, or to vote at, any meeting of shareholders or any adjournment thereof or to
express consent to, or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
<PAGE>
board shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than 60 days nor less
than 10 days before the date of such meeting. If no record date is fixed it
shall be determined in accordance with the provisions of law. The record date to
determine shareholders entitled to give a written consent may not be more than
60 days before the date fixed for tabulation of the consents or, if no date has
been fixed for tabulation, no more than 60 days before the last day on which
consents received may be counted.
5. Notice of Meeting of Shareholders.
Written notice of each meeting of shareholders shall state the
purpose or purposes for which the meeting is called, the place, date and hour of
the meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mall to each shareholder entitled
to vote at such meeting, not less than 10 or more than 60 days before the date
of the meeting. If action is proposed to be taken that might entitle
shareholders to payment for their shares, the notice shall include a statement
of that purpose and to that effect. If mailed, the notice is given when
deposited in the United States mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of shareholders, or,
if he shall have filed with the secretary a written request that notices to him
be mailed to some other address, then directed to him at such other address.
6. Waivers.
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
7. Quorum of Shareholders.
Unless the Certificate of Incorporation provides otherwise, the
holders of a majority of the shares entitled to vote thereat shall constitute a
quorum at a meeting of shareholders for the transaction of any business,
provided that when a specified item of business is required to be voted on by a
class or classes, the holders of a majority of the shares of such class or
classes shall constitute a quorum for the transaction of such specified item of
business.
When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence
of a quorum.
8. Proxies.
Every shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy.
2
<PAGE>
Every proxy must he signed by the shareholder or his
attorney-in-fact. No proxy shall be valid after expiration of eleven months from
the date thereof unless otherwise provided in the proxy, but in no event shall a
proxy be valid after three years from the date of execution. Every proxy shall
be revocable at the pleasure of the shareholder executing it, except as
otherwise provided by law.
9. Qualification of Voters.
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share standing in his name on the record of
shareholders, unless otherwise provided in the Certificate of Incorporation.
10. Vote of Shareholders.
Except as otherwise required by statute or by the Certificate of
Incorporation;
(a) directors shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election.
(b) all other corporate action shall be authorized by a majority of
the votes cast.
11. Written Consent of Shareholders.
Except as otherwise required by statute, any action that may be
taken by vote may be taken without a meeting on unanimous written consent,
setting forth the action so taken, signed by the holders of all the outstanding
shares entitled to vote thereon.
ARTICLE III- DIRECTORS
1. Board of Directors.
Subject to any provision in the Certificate of Incorporation the
business of the Corporation shall be managed by its board of directors, each of
whom shall be at least 18 years of age and need not be a shareholder.
2. Number of Directors.
The number of directors shall be three, except that where all of the
shares of the Corporation are held by less than three shareholders, the number
of directors may be less than three, but not less than the number of
shareholders. The number of directors constituting the initial board of
directors of this corporation is one.
3. Election and Term of Directors.
3
<PAGE>
At each annual meeting of shareholders, the shareholders shall elect
directors to hold office until the next annual meeting. Each director shall hold
office until the expiration of the term for which he is elected and until his
successor has been elected and qualified, or until his prior resignation or
removal.
4. Newly Created Directorships and Vacancies.
Newly created directorships resulting from an increase in the number
of directors and vacancies occurring in the board for any reason, except the
removal of directors without cause, may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists, unless otherwise
provided in the Certificate of Incorporation. Vacancies occurring by reason of
removal of directors without cause shall he filled by vote of the shareholders
unless otherwise provided in the Certificate of Incorporation. A director
elected to fill a vacancy caused by resignation, death or removal shall be
elected to hold office for the unexpired term of his predecessor.
5. Removal of Directors.
Any or all of the directors may be removed for cause by vote of the
shareholders or by action of the board. Directors may be removed without cause
only by vote of the shareholders.
6. Resignation.
A director may resign at any time by giving written notice to the
board, the president or the secretary of the Corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
7. Quorum of Directors.
Unless otherwise provided in the Certificate of Incorporation, a
majority of the entire board shall constitute a quorum for the transaction of
business or of any specified item of business.
8. Action by the Board.
Unless otherwise required by law, the vote of a majority of the
directors present at the time of the vote, if a quorum is present at such time,
shall be the act of the board. Each director present shall have one vote
regardless of the number of shares, if any, which he may hold.
9. Place and Time of Meetings.
The board may hold its meetings at the office of the Corporation or
at such other places, either within or without the State of New Jersey, as it
may from time to time determine
10. Action by Written Consent.
4
<PAGE>
Use of Telephone Communications Equipment.
Any election required or permitted to be taken at any meeting of the
board or of any committee of the board may be taken without a meeting, if a
written consent to such action is signed by all members of the board or of such
committee as the case may be, and such written consent is filed with the minutes
of proceedings of the board or of such committee. Members of the board or any
committee appointed by the board may participate in a meeting of the board or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting.
11. Regular Annual Meeting.
A regular annual meeting of the board shall be held, without call or
notice, immediately following the annual meeting of shareholders at the place of
such annual meeting of the shareholders.
12. Notice of Meetings of the Board, Adjournment.
(a) Regular meetings of the board may be held upon notice at such
time and place as it shall from time to time determine. Special meetings of the
board shall be held upon notice to each director either personally or by mail or
wire; special meetings shall be called by the president or by the secretary in a
like manner on written request of two directors. Notice shall be given at least
two days before the meeting if given by cable, telegram, telecopier, or
overnight messenger, and at least five days before the meeting if given by mail
or in any other manner. Any notice given by mall shall be deposited with the
United States Postal Service, postage prepaid and addressed to the director's
last known residence or business address. The notice need not specify the
business to be transacted at the meeting or its purpose. Notice of a meeting
need not be given to any director who submits a waiver of notice whether before
or after the meeting or who attends the meeting without protesting prior thereto
or at its commencement, the lack of notice to him.
(b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place, but not more than 10
days in any one adjournment. Notice of the adjournment shall be given all
directors who were absent at the time of the adjournment and, unless such time
and place are announced at the meeting, to the other directors.
13. Chairman.
At all meetings of the board the president, or in his absence, a
chairman chosen by the board shall preside.
14. Executive or Other Committees.
5
<PAGE>
The board, by resolution adopted by a majority of the entire board,
may designate from among its members an executive committee and other
committees, each consisting of three or more directors. Each such committee
shall serve at the pleasure of the board.
15. Compensation.
No compensation shall be paid to directors, as such, for their
actual services, but by resolution of the board a fixed sum and expenses for
actual attendance, at each regular or special meeting of the board may be
authorized. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV - OFFICERS
1. Officers, Election, Term.
(a) Unless otherwise provided for in the Certificate of
Incorporation, the board may elect or appoint a president, one or more
vice-presidents, a secretary and a treasurer, and such other officers as it may
determine, who shall have such duties, powers and functions as hereinafter
provided.
(b) All officers shall he elected or appointed to hold office until
the meeting of the board following the annual meeting of shareholders.
(c) Each officer shall hold office for the term for which he is
elected or appointed and qualified.
2. Removal, Resignation, Salary, Etc.
(a) Any officer elected or appointed by the board may be removed by
the board with or without cause.
(b) In the event of the death, resignation or removal of an officer,
the board in its discretion may elect or appoint a successor to fill the
unexpired term.
(c) Any two or more offices may he held by the same person, but no
person shall execute, acknowledge or verify any instrument in more than one
capacity, if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
(d) The salaries of all officers may be fixed by the board.
(e) The directors may require any officer to give security for the
faithful performance of his duties.
3. President.
6
<PAGE>
The President shall be the chief executive officer of the
Corporation; he shall be responsible for overall planning and policy of the
Corporation. At all meetings of the board and all meetings of the shareholders
the president, shall preside. In addition, the president shall be the chief
operating officer of the Corporation, he shall conduct the day-to-day business
of the Corporation and shall see that all orders and resolutions of the board
are carried into effect.
4. Vice-Presidents.
During the absence or disability of the president, the
vice-president or if there are more than one, the executive vice-president,
shall have all the powers and functions of the president. Each vice-president
shall perform such other duties as the board shall prescribe.
5. Secretary.
The secretary shall:
(a) attend all meetings of the board and the shareholders;
(b) record all votes and minutes of all proceedings in a book to be
kept for that purpose;
(c) give or cause to be given notice of all meetings of shareholders
and of special meetings of the board;
(d) keep in safe custody the seal of the Corporation and affix it to
any instrument when authorized by the board;
(e) when required, prepare or cause to be prepared and available at
each meeting of shareholders a certified list in alphabetical order of the names
of shareholders entitled to vote thereat, indicating the number of shares of
each respective class held by each;
(f) keep all the documents and records of the Corporation as
required by law or otherwise in a proper and safe manner;
(g) perform such other duties as may be prescribed by the board.
6. Assistant-Secretaries.
During the absence or disability of the secretary, the
assistant-secretary, or if there are more than one, the one so designated by the
secretary or by the board, shall have all the powers and functions of the
secretary.
7. Treasurer.
7
<PAGE>
The treasurer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and disbursements
in the corporate books;
(c) deposit all money and other valuables in the name and to the
credit of the Corporation in such depositories as may be designated by the
board;
(d) disburse the funds of the Corporation as may be ordered or
authorized by the board and preserve proper vouchers for such disbursements;
(e) render to the president and board at the regular meetings of the
board, or whenever they require it, an account of all his transactions as
treasurer and of the financial condition of the Corporation;
(f) render a full financial report at the annual meeting of the
shareholders if so requested;
(g) be furnished by all corporate officers and agents, at his
request, with such reports and statements as he may require as to all financial
transactions of the Corporation;
(h) perform such other duties as are given to him by these By-Laws
or as from time to time are assigned to him by the board or the president.
8. Assistant-Treasurer.
During the absence or disability of the treasurer, the
assistant-treasurer, or if there are more than one, the one so designated by the
president or the board, shall have the powers and functions of the treasurer.
9. Sureties and Bonds.
In case the board shall require, any officer or agent of the
Corporation shall execute to the Corporation a bond in such sum and with such
surety or sureties as the board may direct, conditioned upon the faithful
performance of his duties to the Corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
Corporation which may come into his hands.
ARTICLE V - CERTIFICATES FOR SHARES
1. Certificates.
8
<PAGE>
The shares of the Corporation shall he represented by certificates
which shall state that the Corporation is organized under the laws of the State
of New Jersey. They shall be numbered and entered in the books of the
Corporation as they are issued. They shall exhibit the holder's name and the
number of shares and shall be signed by the president or a vice-president and
the treasurer or the secretary and shall bear the corporate seal.
2. Replacement Certificates.
The board may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost or destroyed, or wrongfully taken upon
the making of an affidavit of the fact by the person claiming the certificate
has been lost, destroyed or wrongfully taken. When authorizing such issue of a
new certificate or certificates, the board may in its discretion and as a
condition precedent to the issuance thereof require the owner of such lost,
destroyed or wrongfully taken certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum and with such surety
or sureties as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost or destroyed.
9
<PAGE>
3. Transfers of Shares.
(a) Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
(b) The Corporation shall be entitled to treat the holder of record
of any share as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share in the
part of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of New Jersey.
4. Closing Transfer Books.
The board shall have the power to close the share transfer books of
the Corporation for a period of not more than ten days during the thirty day
period immediately preceding (1) any shareholders' meeting, or (2) any date upon
which shareholders shall be called upon to or have a right to take action
without a meeting, or (3) any date fixed for the payment of a dividend or any
other form of distribution, and only those shareholders of record at the time
the transfer books are closed, shall be recognized as such for the purpose of
(1) receiving notice of or voting at such meeting, or (2) allowing them to take
appropriate action, or (3) entitling them to receive any dividend or other form
of distribution.
ARTICLE VI - DIVIDENDS
Subject to the provision of the Certificate of Incorporation and to
applicable law, dividends on the outstanding shares of the Corporation may be
declared in such amounts and at such time or times as the board may determine.
Before payment of any dividend, there may be set aside out of the net profits of
the Corporation available for dividends such sum or sums as the board from time
to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the board shall think
conducive to the interests of the Corporation, and the board may modify or
abolish any such reserve.
10
<PAGE>
ARTICLE VII- CORPORATE SEAL
The seal of the Corporation shall be circular in form and bear the
name of the Corporation, the year of its organization and the words "Corporate
Seal, New Jersey." The seal may be used in causing it to be impressed directly
on the instrument or writing to be sealed, or upon adhesive substance affixed
thereto. The seal on the certificates for shares or on any corporate obligation
for the payment of money may be a facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by such officer or officers or
other person or persons as the board may from time to time designate.
ARTICLE IX - FISCAL YEAR
The fiscal year shall begin the first day of January in each year.
ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the Certificate of Incorporation in these By-Laws shall
include all amendments thereto or changes thereof unless specifically excepted.
ARTICLE XI - BY-LAW CHANGES
(a) Except as otherwise provided in the Certificate of Incorporation
the By-Laws may be amended, repealed or adopted by vote of the holders of the
shares at the time entitled to vote in the election of any directors. By-laws
may also be amended, repealed or adopted by the board but any By-Law adopted by
the board may be amended by the shareholders entitled to vote thereon as
hereinabove provided.
(b) If any By-Law regulating an impending election of directors is
adopted, amended or repealed by the board, there shall be set forth in the
notice of the next meeting of the shareholders for the election of directors the
By-Law so adopted, amended or repealed, together with a concise statement of the
changes made.
11
<PAGE>
Exhibit 4.1
DRAFT 033197A
THE SECURITIES REPRESENTED HEREBY AND ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED OR SOLD
EXCEPT PURSUANT TO (I) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (II) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (III) AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
THIS WARRANT IS NOT EXERCISABLE PRIOR TO ___________, 1998.
VOID AFTER 5:00 P.M. NEW YORK CITY LOCAL TIME, ___________, 2002.
JAZZ PHOTO CORP.
WARRANTS FOR THE PURCHASE
OF
100,000 SHARES OF COMMON STOCK, NO PAR VALUE
NO. IPO-1
THIS CERTIFIES that, for receipt in hand of $100.00 and other value
received, HAMPSHIRE SECURITIES CORPORATION (the "Holder") is entitled to
subscribe for, and purchase from, JAZZ PHOTO CORP., a New Jersey corporation
(the "Company"), upon the terms and conditions set forth herein, at any time or
from time to time after 12:00 A.M., New York City local time ___________, 1998
until 5:00 P.M. New York City local time on ___________, 2002 (the "Exercise
Period"), up to an aggregate of 100,000 shares of common stock, par value $.01
oer share (the "Common Stock"), of the Company. This Warrant is initially
exercisable at $________ per share; provided, however, that upon the occurrence
of any of the events specified in Section 5 hereof, the rights granted by this
Warrant, including the exercise price and the number of shares of Common Stock
to be received upon such exercise, shall be adjusted as therein specified. The
term "Exercise Price" shall mean, depending on the context, the initial exercise
price (as set forth above) or the adjusted exercise price per share.
This Warrant is the Representative's Warrant or one of the Representative's
Warrants (collectively, including any Representative's Warrant issued upon the
exercise or transfer of any such Representative's Warrants in whole or in part,
the "Warrants") issued pursuant to the Underwriting Agreement, dated __________,
1997 (the "Underwriting Agreement"), among the Company, the selling shareholders
identified in Schedule II thereto, and Hampshire Securities
<PAGE>
Corporation, as the representative (the "Representative") of the several
underwriters (the "Underwriters") identified in Schedule I thereto. As used
herein, the term "this Warrant" shall mean and include this Warrant and any
Warrant or Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part. This Warrant may not be sold,
transferred, assigned, or hypothecated until ______________, 1998, except that
it may be transferred, in whole or in part, to (i) one or more officers or
partners of the Holder (or the officers or partners of any such partner); (ii)
any other underwriting firm or member of the selling group which participated in
the public offering of shares of Common Stock which commenced on __________,
1997 (or the officers or partners of any such firm); (iii) a successor to the
Holder, or the officers or partners of such successor; (iv) a purchaser of
substantially all of the assets of the Holder; or (v) by operation of law. The
term the "Holder" as used herein shall include any transferee to whom this
Warrant has been transferred in accordance with the above.
Each share of Common Stock issuable upon the exercise hereof shall be
hereinafter referred to as a "Warrant Share".
1. This Warrant may be exercised during the Exercise Period, either in
whole or in part, by the surrender of this Warrant (with the election at the end
hereof duly executed) to the Company at its office at 600 Blair Road, Carteret,
New Jersey 07088, Attention: President, or at such other place as is designated
in writing by the Company, together with a certified or bank cashier's check
payable to the order of the Company in an amount equal to the product of the
Exercise Price and the number of Warrant Shares for which this Warrant is being
exercised.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing the Warrant Shares with respect to which this Warrant
was exercised shall not then have been actually delivered to the Holder. As
soon as practicable after each such exercise of this Warrant, the Company shall
issue and deliver to the Holder a certificate or certificates representing the
Warrant Shares issuable upon such exercise, registered in the name of the Holder
or its designee. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
Warrant evidencing the right of the Holder to purchase the balance of the
aggregate number of Warrant Shares purchasable hereunder as to which this
Warrant has not been exercised or assigned.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes, and shall not be bound to recognize any equitable
or other claim to, or interest in, such Warrant on the part of any other person,
and shall not be liable for any registration of transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the
-2-
<PAGE>
knowledge of such facts that its participation therein amounts to bad faith.
This Warrant shall be transferable on the books of the Company only upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his, her, or its authority shall be produced. Upon any registration
of transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), and
the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Warrants, such number of shares of Common Stock as shall,
from time to time, be sufficient therefor. The Company represents that all
shares of Common Stock issuable upon exercise of this Warrant are duly
authorized and, upon receipt by the Company of the full payment for such Warrant
Shares, will be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof and will not be issued in
violation of any preemptive or similar rights of stockholders.
5. (a) The Exercise Price for the Warrants in effect from time to time,
and the number of shares of Common Stock issuable upon exercise of the Warrants,
shall be subject to adjustment, as follows:
(i) In the event that the Company shall at any time after the date hereof
(A) declare a dividend on the outstanding Common Stock payable in shares of its
capital stock, (B) subdivide the outstanding Common Stock, (C) combine the
outstanding Common Stock into a smaller number of shares, or (D) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price per Warrant Share in effect at the time of the record date for the
determination of stockholders entitled to receive such dividend or distribution
or of the effective date of such subdivision, combination, or reclassification
shall be adjusted so that it shall equal the price determined by multiplying
such Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such action, and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action. Such adjustment shall be made successively
whenever any event listed above shall occur and shall become effective at the
close of business on such record date or at the close of business on the date
immediately preceding such effective date, as applicable.
-3-
<PAGE>
(ii) In the event that the Company shall fix a record date for the
determination of stockholders entitled to receive issuance of rights or warrants
to be issued to all holders of Common Stock entitling such stockholders to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the then Current Market Price (as hereinafter
defined) per share of Common Stock on such record date, the Exercise Price in
effect at the time of such record date shall be adjusted so that the same shall
equal the price determined by multiplying such Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding on such
record date and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such Current Market Price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants.
(iii) In the event the Company shall fix a record date for the
determination of stockholders entitled to receive (including any such
distribution made to the stockholders of the Company in connection with a
consolidation or merger in which the Company is the continuing corporation in a
distribution to all holders of Common Stock) evidences of its indebtedness,
cash, or assets (other than distributions and dividends payable in shares of
Common Stock), or rights, options, or warrants to subscribe for or purchase
shares of Common Stock, or securities convertible into, or exchangeable for,
shares of Common Stock (excluding those referred to in paragraph (ii) above) in
a distribution to all holders of Common Stock, then, in each case, the Exercise
Price in effect at the time of such record date shall be adjusted by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price per share of
Common Stock on such record date, less the fair market value (as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants, or convertible or exchangeable securities, or the amount of such cash,
applicable to one share of Common Stock, and the denominator of which shall be
such Current Market Price per share of Common Stock on such record date. Such
adjustment shall be made successively whenever any event listed above shall
occur and become effective at the close of business on such record date.
(iv) In case the Company shall issue shares of Common Stock for a
consideration per share (the "Offering Price") less than the Current Market
Price per share of Common Stock on the date the Company fixes the offering price
of such additional shares, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying such
Exercise Price by a fraction, the numerator of which shall be the sum of the
number of shares of
-4-
<PAGE>
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Subsection (i) below) for the
issuance of such additional shares would purchase at such Current Market Price
per share of Common Stock, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made. Notwithstanding anything herein to the contrary, no
adjustment pursuant to this paragraph (a)(iv) of Section 5 shall take place as a
result of this issuance of shares of Common Stock pursuant to an employee,
officer, or director securities ownership or compensation plan duly adopted by
the Board of Directors of the Company, including, but not limited to, any
employee stock option plan duly adopted by the Board of Directors of the
Company.
(v) In case the Company shall issue any securities convertible into, or
exchangeable for, Common Stock (excluding securities issued in transactions
described in Subsections (ii) and (iii) above) for a consideration per share of
Common Stock (the "Conversion Price") initially deliverable upon conversion or
exchange of such securities (determined as provided in Subsection (i) below)
less than the Current Market Price per share of Common Stock in effect
immediately prior to the issuance of such securities, the Exercise Price in
effect immediately prior to the date of such issuance shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in Subsection (i)
below) for such securities would purchase at such Current Market Price per share
of Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock deliverable upon conversion of, or in
exchange for, such securities at the initial conversion or exchange price or
rate. Such adjustment shall be made successively whenever such an issuance is
made. Notwithstanding anything herein to the contrary, no adjustment pursuant
to this paragraph (a)(v) of Section 5 shall take place as a result of the
issuance of securities convertible into, or exchangeable for, shares of Common
Stock pursuant to an employee, officer, or director securities ownership or
compensation plan duly adopted by the Board of Directors of the Company,
including, but not limited to, any employee stock option plan duly adopted by
the Board of Directors of the Company.
(b) The Current Market Price per share of Common Stock on any date shall
be deemed to be the average of the daily closing prices for the 30 consecutive
trading days immediately preceding the date in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, the Nasdaq National Market) on which the Common Stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the highest reported bid price for
the Common Stock as furnished by the National Association of Securities Dealers,
Inc. through the Nasdaq SmallCap Market or a similar organization if the Nasdaq
-5-
<PAGE>
SmallCap Market is no longer reporting such information. If, on any such date,
the Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted on the Nasdaq SmallCap Market or any similar
organization, the Current Market Price shall be deemed to be the fair value of a
share of Common Stock on such date, as determined in good faith by the Board of
Directors of the Company, absent manifest error.
(c) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(d) In any case in which this Section 5 shall require that an adjustment
in the number of Warrant Shares be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the Warrant Shares, if any, issuable upon such exercise over and
above the number of Warrant Shares issuable upon such exercise on the basis of
the number of shares of Common Stock outstanding or in effect prior to such
adjustment; provided, however, that the Company shall deliver to the Holder a
due bill or other appropriate instrument evidencing the Holder's right to
receive such additional shares of Common Stock upon the occurrence of the event
requiring such adjustment.
(e) Whenever there shall be an adjustment as provided in this Section 5,
the Company shall within 15 days thereafter cause written notice thereof to be
sent by registered or certified mail, postage prepaid, to the Holder, at its
address as it shall appear in the Warrant Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Warrant
Shares issuable and the Exercise Price thereof after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
computation thereof, which officer's certificate shall be conclusive evidence of
the correctness of any such adjustment absent manifest error.
(f) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share of capital stock would be issuable on the
exercise of this Warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
Current Market Price of such share of Common Stock on the date of exercise of
this Warrant.
(g) No adjustment in the Exercise Price per Warrant Share shall be
required if such adjustment is less than $.05; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
(h) Whenever the Exercise Price payable upon exercise of this Warrant is
adjusted pursuant to Subsections (a)(i), (a)(ii), (a)(iii), (a)(iv), or (a)(v)
above, the number of Warrant Shares issuable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Warrant Shares
theretofore issuable upon exercise of this Warrant by the Exercise Price
theretofore in effect and dividing the product so obtained by the Exercise
Price, as adjusted.
-6-
<PAGE>
(i) For purposes of any computation respecting consideration received
pursuant to Subsections (a)(iv) and (a)(v) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts, or
other expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), the determination
of which shall be a conclusive absent manifest error; and
(iii) in the case of the issuance of securities convertible into, or
exchangeable for, shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to
be received by the Company upon the conversion or exchange
thereof (the consideration in each case to be determined in the
same manner as provided in clauses (i) and (ii) of this
Subsection (i)).
(j) Notwithstanding anything herein to the contrary, if any adjustment
under this Section 5 of the Exercise Price or the number of shares of Common
Stock or other securities issuable upon exercise of this Warrant shall be
determined by the National Association of Securities Dealers, Inc. (the "NASD")
to violate either or both of Section 44(c)(6)(B)(vi)(7) or Section
44(c)(6)(B)(vi)(8) of Article III of the Rules of Fair Practice of the NASD, and
such determination shall not be subject to further appeal or review, the
violative provisions or provisions shall be deemed to be amended to the minimum
extent necessary to cause each such provision to comply with the applicable
violated paragraph of Section 44 of the NASD Rules of Fair Practice.
6. (a) In case of any capital reorganization, other than in the cases
referred to in Section 5(a) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in the case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of this Warrant (in lieu of the number of Warrant
Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the respective number of Warrant
Shares which would otherwise have been deliverable upon the exercise of this
Warrant would have been entitled upon such Reorganization if this Warrant had
-7-
<PAGE>
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the Holder so that
the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of this Warrant. Any such adjustment shall be made by, and set
forth in, a supplemental agreement between the Company, or any successor
thereto, and the Holder, with respect to this Warrant, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless, upon or prior to the
consummation thereof, the successor corporation, or, if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of the Common Stock outstanding at the effective time thereof, then such
issuer, shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, cash, or other property as such holder
shall be entitled to purchase in accordance with the foregoing provisions. In
the event of sale, lease, or conveyance or other transfer of all or
substantially all of the assets of the Company as part of a plan for liquidation
of the Company, all rights to exercise this Warrant shall terminate 30 days
after the Company gives written notice to the Holder and each registered holder
of a Warrant that such sale or conveyance or other transfer has been
consummated.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from a specified par value to no par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder or holders of this
Warrant shall have the right thereafter to receive upon exercise of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of Warrant Shares for which
this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose:
-8-
<PAGE>
(a) to pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than regularly
scheduled cash dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock or any consolidation, merger, sale, lease, or conveyance of
property, as described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the Company;
or
(e) to take any other action which would cause an adjustment to the
Exercise Price per Warrant Share;
then, and in any one or more of such cases, the Company shall give written
notice thereof by registered or certified mail, postage prepaid, to the Holder
at the Holder's address as it shall appear in the Warrant Register, mailed at
least 20 days prior to (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (ii) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price per Warrant Share.
8. The issuance of any shares or other securities upon the exercise of
this Warrant and the delivery of certificates or other instruments representing
such shares or other securities shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. (a) If, at any time during the seven-year period commencing on
___________, 1997, the Company shall file a registration statement (other than
on Form S-4, Form S-8 or any successor form) with the Securities and Exchange
Commission (the "Commission") while any Registrable Securities (as hereinafter
defined) are outstanding, the Company shall give all the then
-9-
<PAGE>
holders of any Registrable Securities (the "Eligible Holders") at least 45 days
prior written notice of the filing of such registration statement. If requested
by any Eligible Holder in writing within 30 days after receipt of any such
notice, the Company shall, at the Company's sole expense (other than the fees
and disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Registrable Securities sold by any
Eligible Holder), register or qualify all or, at each Eligible Holder's option,
any portion of the Registrable Securities of any Eligible Holders who shall have
made such request, concurrently with the registration of such other securities,
all to the extent requisite to permit the public offering and sale of the
Registrable Securities, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any
Eligible Holder who shall have requested registration of his, her, or its
Registrable Securities shall delay the offering and sale of such Registrable
Securities (or the portions thereof so designated by such managing underwriter)
for such period, not to exceed 90 days (the "Delay Period"), as the managing
underwriter shall request, provided that no such delay shall be required as to
any Registrable Securities if any securities of the Company are included in such
registration statement and eligible for sale during the Delay Period for the
account of any person other than the Company and any Eligible Holder unless the
securities included in such registration statement and eligible for sale during
the Delay Period for such other person shall have been reduced pro rata to the
reduction of the Registrable Securities which were requested to be included and
eligible for sale during the Delay Period in such registration. As used herein,
"Registrable Securities" shall mean the Warrants and the Warrant Shares which,
in each case, have not been previously sold pursuant to a registration statement
or Rule 144 promulgated under the Securities Act.
(b) If, on any two occasions during the four-year period commencing on
________, 1998, the Company shall receive a written request from Eligible
Holders who in the aggregate own (or upon exercise of all Warrants or Warrants
then outstanding would own) a majority of the total number of shares of Common
Stock then included (or upon such exercises would be included) in the
Registrable Securities (the "Majority Holders"), to register the sale of all or
part of such Registrable Securities, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Registrable Securities
and will use its best efforts through its officers, directors, auditors, and
counsel to cause such registration statement to become effective as promptly as
practicable; provided, that the Company shall only be obligated to file one such
registration statement pursuant to this Section 9(b) for which all expenses
incurred in connection with such registration (other than the fees and
disbursements of counsel for the Eligible Holders and underwriting discounts, if
any, payable in respect of the Registrable Securities sold by the Eligible
Holders) shall be borne by the Company. Within five business days after
receiving any request contemplated by this Section 9(b), the Company shall give
written notice to all the other Eligible Holders, advising each of them that the
Company is proceeding with such registration and offering to include therein all
or any portion
-10-
<PAGE>
of any such other Eligible Holder's Registrable Securities, provided that the
Company receives a written request to do so from such Eligible Holder within 30
days after receipt by him, her, or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall use its best efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; provided, however, that the Company shall not be
required by reason of this Section 9(c) to register or qualify the Registrable
Securities in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign corporation
doing business in such jurisdiction to which the Company is not then subject.
(d) The Company shall keep effective any registration or qualification
contemplated by this Section 9 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the Eligible Holders to complete the offer and sale
of the Registrable Securities covered thereby. The Company shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of nine months from the date on which the Eligible Holders are first
free to sell such Registrable Securities; provided, however, that, if the
Company is required to keep any such registration or qualification in effect
with respect to securities other than the Registrable Securities beyond such
period, the Company shall keep such registration or qualification in effect as
it relates to the Registrable Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities.
(e) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Securities Act and the rules and regulations
thereunder, and such other documents as any Eligible Holder may reasonably
request to facilitate the disposition of the Registrable Securities included in
such registration.
(f) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish each Eligible Holder of any Registrable
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Securities Act and no order suspending the
effectiveness of the registration statement, or preventing or suspending the use
of the registration statement, any preliminary prospectus, any final prospectus
or any amendment or supplement thereto, has been issued, nor, to the knowledge
of such counsel, has the Commission or any securities or blue sky authority of
any jurisdiction instituted or threatened to institute any proceedings with
respect to such an order, (ii) the registration statement and each prospectus
-11-
<PAGE>
forming a part thereof (including each preliminary prospectus), and any
amendment or supplement thereto, complies as to form with theSecurities Act and
the rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Registrable Securities have been registered or
qualified for sale pursuant to the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision of this
Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, without limitation, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Registrable
Securities.
(h) The Company agrees that until all the Registrable Securities have been
sold under a registration statement or pursuant to Rule 144 under the Securities
Act, it shall keep current in filing all reports, statements, and other
materials required to be filed with the Commission to permit holders of the
Registrable Securities to sell such securities under Rule 144 under the
Securities Act.
10. (a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of theSecurities Act or Section
20(a) of the Securities ExchangeSecurities Act of 1934, as amended (the
"Exchange Act"), from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 10, without limitation, attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), as and when incurred,
arising out of, based upon, or in connection with, (i) any untrue statement or
alleged untrue statement of a material fact contained in (A) any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the offer and sale of any of the Registrable Securities, or (B) any application
or other document or communication (in this Section 10, referred to collectively
as an "application") executed by, or on behalf of, the Company or based upon
written information furnished by, or on behalf of, the Company filed in any
jurisdiction in order to register or qualify any of the Registrable Securities
under the securities or "blue sky" laws thereof or filed with the Commission or
any securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon, and
in conformity with, written information furnished to the Company with respect to
such Eligible Holder by, or on behalf of, such person expressly for inclusion in
any registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Warrant. The foregoing agreement to
-12-
<PAGE>
indemnify shall be in addition to any liability the Company may otherwise have,
including liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10(a)) and the
Company shall promptly assume the defense of such action, including, without
limitation, the employment of counsel reasonably satisfactory to such
indemnified party or parties) and payment of expenses. Such indemnified party
or parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or the named parties to such action include both the indemnified
and the indemnifying parties and such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from, or in
addition to, those available to the Company, which, for reasons of conflict of
interest or otherwise, counsel to the Company is not in a position to assert, in
any of which events such reasonable fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this Section
10 to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. The Company shall not,
without the prior written consent of each indemnified party that is not released
as described in this sentence, settle or compromise any action, or permit a
default or consent to the entry of judgment in, or otherwise seek to terminate,
any pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Eligible Holders of the commencement
of any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of any Registrable Securities or any
preliminary prospectus, prospectus, registration statement, or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Securities.
(b) Each Eligible Holder severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Registrable Securities held by
such Eligible Holder, each other person, if any, who controls the Company within
the meaning of Section 15 of theSecurities Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Company to the Eligible Holders in Section 10(a), but only
with respect to
-13-
<PAGE>
statements or omissions, if any, made in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or in any application, in reliance upon,
and in conformity with, written information furnished to the Company with
respect to any Eligible Holder by, or on behalf of, such Eligible Holder
expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be. If any action shall be brought against the
Company or any other person so indemnified based on any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or any application, and in respect of which indemnity may be
sought against any Eligible Holder pursuant to this Section 10(b), such Eligible
Holder shall have the rights and duties given to the Company, and the Company
and each other person so indemnified shall have the rights and duties given to
the indemnified parties, by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 10(a) or 10(b)
hereof (subject to the limitations thereof), but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Warrant expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act, or otherwise,
then the Company (including for this purpose any contribution made by, or on
behalf of, any director of the Company, any officer of the Company who signed
any such registration statement, any controlling person of the Company, and its
or their respective counsel), as one entity, and the Eligible Holders of the
Registrable Securities included in such registration in the aggregate (including
for this purpose any contribution by, or on behalf of, an indemnified party), as
a second entity, shall contribute to the losses, liabilities, claims, damages,
and expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and
the Eligible Holders agree that it would be unjust and inequitable if the
respective obligations of the Company and the Eligible Holders for contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Eligible Holders and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 10(c). In no case shall any Eligible Holder be
responsible for a portion of the contribution obligation imposed on all Eligible
Holders in excess of its pro rata share based on the number of shares of Common
Stock owned (or which would be owned upon exercise of all Registrable
Securities) by it and included in such registration as compared to the number of
shares of Common Stock owned (or which would be owned upon exercise of all
Registrable Securities) by all Eligible Holders and included in such
registration. No person guilty
-14-
<PAGE>
of a fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section
10(c), each person, if any, who controls any Eligible Holder within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and
each officer, director, partner, employee, agent, and counsel of each such
Eligible Holders or control person shall have the same rights to contribution as
such Eligible Holder or control person and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 10(c). Anything in this
Section 10(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 10(c) is intended to supersede any
right to contribution under the Securities Act, the Exchange Act, or otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof, the
Warrant Shares issued upon exercise of the Warrants shall be subject to a stop
transfer order and the certificate or certificates representing the Warrant
Shares shall bear the following legend:
THE SECURITIES REPRESENTED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER
HEREOF, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS.
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon receipt by the Company of reasonably
satisfactory indemnification, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
-15-
<PAGE>
14. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
15. The Holder and the Company irrevocably consent to the jurisdiction of
the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of, or relating
to, this Warrant, any document or instrument delivered pursuant to, in
connection with, or simultaneously with, this Warrant, or a breach of this
Warrant or any such document or instrument. In any such action or proceeding,
the Holder or the Company, as applicable, waives personal service of any
summons, complaint, or other process and agrees that service thereof may be made
in accordance with Section 12 of the Underwriting Agreement. Within 30 days
after such service, or such other time as may be mutually agreed upon in writing
by the attorneys for the parties to such action or proceeding, the Company shall
appear
-16-
<PAGE>
to answer such summons, complaint, or other process. Should the Company so
served fail to appear or answer within such 30-day period or such extended
period, as the case may be, the Company shall be deemed in default and judgment
may be entered against the Company for the amount as demanded in any summons,
complaint, or other process so served.
Dated: ________, 1997
JAZZ PHOTO CORP.
BY:
--------------------------------
NAME:
TITLE:
[Seal]
- ---------------------------------
Secretary
-17-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ a Warrant to purchase __________ shares of
Common Stock, par value $.01 per share, of Jazz Photo Corp., a New Jersey
corporation (the "Company"), and does hereby irrevocably constitute and appoint
___________ attorney to transfer such Warrant on the books of the Company, with
full power of substitution.
Dated:
----------------
Signature
-----------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
-18-
<PAGE>
ELECTION TO EXERCISE
To: Jazz Photo Corp.
600 Blair Road
Carteret, New Jersey 07088
The undersigned hereby exercises his, her, or its rights to purchase shares
of Common Stock, par value $.01 per share ("the Common Stock"), of Jazz Photo
Corp., a New Jersey corporation (the "Company"), covered by the within Warrant
and tenders payment herewith in the amount of $____________ in accordance with
the terms thereof, and requests that certificates for the securities
constituting such shares of Common Stock be issued in the name of, and delivered
to:
(Print Name, Address, and Social Security
or Tax Identification Number)
and, if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for the
balance of the shares of Common Stock covered by the within Warrant shall be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Dated: Name
------------------ ------------------------
(Print)
Address:
------------------------------
(Signature)
-19-
<PAGE>
Exhibit 9.1
VOTING AGREEMENT
----------------
VOTING AGREEMENT, dated as of April 2, 1997, among Mona Benun,
individually, and as custodian for Vanessa J. Benun under the New Jersey Uniform
Gift to Minors Act (the "NJUGMA") and, as custodian for Jasmine J. Benun under
the NJUGMA; Sabrina J. Benun and Rebecca J. Benun (each referred to herein,
individually, as a "Stockholder" and, collectively, as the "Stockholders") and
Jazz Photo Corp., a New Jersey corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Stockholders are the owners of , in the aggregate, 2,200,000
shares (the "Shares") of the common stock, par value $.01 per share ("Common
Stock"), of the Company in the amounts set forth opposite each such
Stockholder's name on Schedule I annexed hereto and made a part hereof; and
WHEREAS, the Stockholders and the Company desire to minimize any potential
disruption in the management of the Company and, accordingly, wish to enter into
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements hereinafter set forth, the parties hereto
agree as follows:
1. CREATION AND PURPOSE OF VOTING AGREEMENT.
Subject to the terms and conditions hereof, a voting agreement with
respect to the Shares is hereby created and established in accordance with New
Jersey Business Act ("NJBCA") Section 14A:5-21.
2. VOTING OF THE SHARES.
(a) Each Stockholder shall not vote her Shares against or withhold
approval of:
(i) election of a nominee in an election of directors of the
Company if such person is nominated by the Board of Directors of the Company, or
a Committee thereof, a majority of whose members consist of persons who are
themselves directors of the Company serving as of the date hereof as directors
of the Company ("Original Directors") or persons nominated directly or
indirectly for election
<PAGE>
as directors or appointed to their posts as directors by the Original Directors
(the "Successor Directors").
(ii) a proposal to remove a director unanimously approved by the
Original and Successor Directors other than the director sought to be removed.
(b) The foregoing provisions of this Section 2 shall be equally
applicable to any vote effected by written consent as provided by applicable
law.
(c) The Stockholders shall not commence any action the result of
which is, or is designed to cause, a change in the majority of the Board of
Directors.
3. TERM OF VOTING AGREEMENT.
The Voting Agreement created hereby shall commence on and as of the
date hereof. This Voting Agreement shall terminate on the first to occur of the
following:
(a) The Stockholders shall in the aggregate own less than 20% of the
shares of Common Stock of the Company outstanding at any time;
(b) The fifth anniversary of the date hereof;
(c) The Order of Final Judgment of Permanent Injunction and Other
Relief as to Jack C. Benun entered in the United States District Court for the
District of Columbia (Civ. No. 94 1913) shall have been vacated or otherwise
modified so as to permit Jack C. Benun to serve as an officer or director of the
Company.
4. TRANSFER OF SHARES.
The voting restrictions contained in this Voting Agreement shall not apply
to, and shall not bind, any transferee of the Shares who is not a member of the
"immediate family" of any of the Stockholders. For the purposes hereof,
"immediate family" shall mean the parent, sibling, child or spouse of any such
Stockholder or any organization a majority of whose voting securities are owned
directly or indirectly by, or which is under the control (as defined in Rule 405
under the Securities Act of 1933, as amended) of any such Stockholder.
Accordingly, any transferee of the Shares who is not a member of the immediate
family of any Stockholder shall be entitled to vote the Shares without any
restrictions under this Agreement.
2
<PAGE>
5. When Jack C. Benun ceases to be enjoined by the U.S. Federal
District Court from serving as an officer or director of the Company, the
Stockholders shall immediately grant to him an irrevocable proxy enforceable
under New Jersey law to vote the Shares of the Stockholders.
6. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements, commitments, or understandings with respect to
the matters provided for herein. This Agreement shall not be amended, altered,
or modified except by an instrument in writing duly executed by each of the
parties hereto and consented to by Hampshire Securities Corporation.
(b) This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto. This Agreement shall not be assignable by any
party. This Agreement shall not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement.
(c) All notices and other communications given under this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
in person or on the third business day after being mailed by registered or
certified mail return receipt requested, postage prepaid, or on the date
delivered by courier providing confirmation of delivery, or on the dated
transmitted by facsimile transmission or telex and addressed to the parties as
follows:
(i) If to the Stockholders:
To such Stockholder as reflected on Schedule I hereto
80 Wickapecko Drive
Allenhurst, New Jersey 07711
(ii) If to the Company:
Jazz Photo Corp.
600 Blair Road
Carteret, New Jersey 07088
Attention: President
or to such other address as any of them by written notice to the other party may
from time to time designate.
(d) If any part of any provision of this Agreement or any other
agreement, document, or writing given pursuant to, or in connection with, this
Agreement shall be invalid or unenforceable under applicable law, said part
shall be
3
<PAGE>
ineffective to the extent of such invalidity only without in any way affecting
the remaining part of said provision or the remaining provisions of this
Agreement.
(e) The headings of the Sections of this Agreement are inserted for
convenience of reference only and do not form a part or affect the meaning
hereof.
(f) This Agreement, the rights and obligations of the parties hereto,
and any claims and disputes relating thereto shall be governed by, and construed
in accordance with, the laws of the State of New Jersey (not including the
conflicts of law rules thereof).
(g) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
-----------------------------------
Mona Benun
-----------------------------------
Mona Benun, as custodian for
Jasmine J. Benun under the
NJUGMA
-----------------------------------
Mona Benun, as custodian for
Vanessa J. Benun under the NJUGMA
JAZZ PHOTO CORP.
BY:
Roger F. Lorenzini, President
-----------------------------------
Sabrina J. Benun
-----------------------------------
Rebecca J. Benun
4
<PAGE>
(Exhibit 10.1)
INDEMNITY AGREEMENT
AGREEMENT made this __ day of _____, 1997, between JAZZ PHOTO CORP., a New
Jersey Corporation, with an address of 1459 Pinewood Street, Rahway, New Jersey
07065, its affiliates, subsidiaries, successors or assigns, herein collectively
referred to as ("Indemnitor" or the "Company"), and MONA BENUN, a controlling
shareholder of the Company, with an address of P.O. Box 288, Allenhurst, NJ
07711, herein referred to as Indemnitee.
In consideration of the sum of Ten Dollars ($10.00) and other good and
valuable consideration, receipt of which is acknowledged, the parties agree as
follows:
1. LIABILITY LOSS OR DAMAGE. Indemnitor undertakes to indemnify Indemnitee
from any and all liability, loss, or damage, including but not limited to
securities law violations which Indemnitee may suffer as a result of claims,
demands, costs or judgments against Indemnitee arising from any actions of
Indemnitor, including but not limited to, activities related to a proposed
private financing and to a contemplated public offering of its securities as
more fully set forth in a Letter of Intent between the Indemnitor and Hampshire
Securities Corp. dated March ____, 1997. Indemnitor further agrees to indemnify
Indemnitee from any and all expenses which may be incurred by Indemnitee for
which payment is sought from Indemnitee arising from such Letter
-1-
<PAGE>
of Intent, including any and all legal expenses which in all instances shall be
paid by the Company to Indemnitee upon notice by her to the Company that she is
requested to pay such expenses.
Indemnitor shall indemnify the Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof as such law may, from time to
time, be amended (but, in the case of any such amendment, only to the extent
such amendment permits Indemnitor to provide broader indemnification rights and
protection as the law permitted Indemnitor to provide before such amendment).
Without in any way diminishing the scope of the indemnification provided herein,
the Indemnitor will indemnify the Indemnitee if, and whenever Indemnitee is, or
was involved in any manner (including, without limitation, as a party or as a
witness) in any threatened, pending, or completed proceeding, including, without
limitation, any such proceeding brought by or in the right of the Indemnitor, by
reason of the fact that the Indemnitee is or was deemed to be an agent or by
reason of anything done or not done by the Indemnitee in such capacity, against
expenses and liabilities incurred by Indemnitee in connection with the
investigation, defense, settlement or appeal of any such proceeding, including
any and all actions arising from alleged violation of securities laws. No
initial finding by the Board of Directors of Jazz Photo Corp., its counsel,
independent counsel, arbitrators or stockholders of the Company
-2-
<PAGE>
shall be effective to deprive the Indemnitee of the protection of this
indemnification nor shall a court to which the Indemnitee may apply for
enforcement of this indemnity, give any weight to any such adverse finding in
deciding any issue before it, as it is intended that the Indemnitee shall be
paid promptly upon request by the Indemnitor, all amounts necessary to
effectuate the foregoing indemnity in full.
2. DURATION. This Agreement shall continue so long as Indemnitee shall be
subject to any possible proceeding by reason of the fact that the Indemnitee is
or was a controlling person or affiliate of the Company or may be deemed to be
an agent of the Company and shall be applicable to proceedings commenced or
continued after execution of this Agreement, whether arising from acts or
omissions occurring before or after such execution.
3. REQUIREMENT OF NOTICE TO INDEMNITOR. Indemnitee agrees to notify
Indemnitor in writing, within twenty (20) days, by registered or certified mail,
at Indemnitor's address as stated in this Agreement of any claim made against
Indemnitee on the obligations indemnified against or for any pending or
contemplated expense she may deem necessary for her to incur. Such payment may
be made in advance of the actual expenditure.
4. ADVANCEMENT OF EXPENSES. All reasonable expenses incurred by or on
behalf of the Indemnitee shall be advanced by the Indemnitor to the Indemnitee
within ten (10) days after the
-3-
<PAGE>
receipt by the Indemnitor of a written request for advances of expenses from
time to time, whether prior to or after final disposition of a proceeding,
including without limitation, any proceeding brought by or in the right of the
Company.
5. OTHER RIGHTS TO INDEMNIFICATION. The Indemnitee's rights of
indemnification and advancement of expenses provided by this Agreement, shall
not be deemed exclusive of any other rights to which the Indemnitee may now or
in the future be entitled under applicable law, the Certificate of Incorporation
or By-Laws of the Company or any agreement, vote of the stockholders of the
Company, or resolution of its directors or otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement at
____________________________________ , the day and year first above written.
ATTEST: JAZZ PHOTO CORP., Indemnitor
_____________________ By /s/ Roger F. Lorenzini
----------------------
ROGER F. LORENZINI, Chief
Executive Officer
WITNESS:
_____________________________
_____________________ MONA BENUN, ,Indemnitee
-4-
<PAGE>
EXHIBIT 10.2(i)
TRADEMARK LICENSE AGREEMENT I
This TRADEMARK LICENSE AGREEMENT, dated the 13 day of November, 1995,
by and between BELL & HOWELL COMPANY, a Delaware corporation ("Licensor") and
JAZZ PHOTO CORP., a New Jersey corporation ("Licensee").
RECITALS
A. Licensor owns certain trademarks (the "Trademarks") and
the goodwill associated therewith, and certain registrations thereof (the
"Registrations," the Trademarks and Registrations are sometimes together
referred to as the "Marks") used in connection with Licensor's business;
B. Licensee is in the business of marketing, selling and
distributing 35 mm cameras and ancillary and related products, including film
and camera carrying cases, all as more specifically described herein (the
"Products") and
C. Licensee desires to use the Marks in conjunction with the
sale of the Products and Licensor is willing to permit such use, subject to
the terms and conditions hereinafter set forth.
In consideration of the foregoing, the parties agree as follows:
1. GRANT OF LICENSE
1.1 Licensor grants to Licensee an exclusive, non-transferable license
to use the Marks, set forth on Schedule 1.lA, attached hereto and made a part
hereof, in the Territory described below, on and in connection with the
Products, as more specifically set forth on Schedule 1.lB, attached hereto and
made a part hereof, subject to the following terms and conditions:
1.1.1 This license does not include the right to grant any
sublicenses, other than to those production facilities identified pursuant to
Section 3 of this Agreement.
1.1.2 Licensee shall have the right to distribute the
Products bearing the Marks only to entities or through distribution channels
approved in writing by Licensor prior to Licensee entering into any agreement or
understanding, oral or written, for sale or distribution of the Products
consistent with the term of this Agreement. Licensor may withhold its consent
for any reason whatsoever.
1.2 Licensor represents and warrants that it has exclusive
rights to use the Marks on the Products in the Territory.
1.3 Licensee accepts the License granted by Licensor on the terms and
conditions set forth in subsection 1.1 hereof and such other terms and
conditions set forth elsewhere in this Agreement which may otherwise limit
Licensee's free use of the Marks in conjunction with the Products, including
without limitation, those terms and conditions set forth in Sections 4, 5, 6, 7
and S hereof.
2. TERRITORY. This Agreement covers the entire territory described on
Schedule 2 attached hereto and made a part hereof (the "Territory").
3. TERM OF AGREEMENT. This Agreement shall continue in force and
effect until January 15, 1997, unless sooner terminated as provided for
herein.
4. LICENSEE'S OBLIGATIONS
4.1 Licensee acknowledges Licensor's ownership of the Marks throughout
the world and the validity of the Registrations. Licensee agrees not to do
anything inconsistent with such ownership.
4.2 Licensee agrees that any use of the Marks by Licensee shall inure
to the benefit of, and be on behalf of Licensor. Licensee agrees that nothing in
this Agreement shall give Licensee any right, tide or interest in any of the
Marks other than the right to use each of the Marks in accordance with this
Agreement.
4.3 Licensee agrees not to attack the tide of Licensor to any of the
Marks, and not to attack the validity of the Marks, the Registration and this
Agreement.
4.4 Licensee agrees not to use or register in any jurisdiction, a
trademark, service mark or trade name that is confusingly similar to the Marks.
4.5 Licensee agrees to cooperate with Licensor for the purposes of
securing or preserving Licensor' s rights in and to the Marks. This subsection
of this Agreement shall survive any termination of this Agreement until all of
the Marks are abandoned in all jurisdictions.
4.6 Licensee agrees to use its best efforts to sell
Products with the Marks. In
2
<PAGE>
that connection, Licensee agrees during the term of this Agreement not to
market, sell or distribute any other 35 mm cameras with the same or similar
operating features as any of the Products at a price above $25.00.
5. STANDARD OF QUALITY
5.1. Licensee agrees that the nature and quality of all goods sold by
Licensee in connection with the Marks shall conform to standards set by and be
under the control of Licensor. Licensee shall provide Licensor, for Licensor's
approval, a detailed written description of Licensee's product development and
quality control programs or those of the Manufacturer applicable to each of the
Products prior to the manufacture or assembly of the Products, and to any use or
depiction of the Marks in any advertising, promotional or display material or in
any writing.
5.2 Licensee shall have each new Product tested by an independent
testing laboratory approved in writing by Licensor prior to its introduction
into the market. The independent laboratory shall be required to prepare a
report in form and content satisfactory to Licensor which evidences full
compliance with the specifications for the Product previously approved by
Licensor in writing. No modifications may be made to any Product without
Licensor's prior written approval.
5.3 Licensee shall comply with all applicable laws and regulations and
obtain and maintain all appropriate government approvals pertaining to the sale,
distribution and advertising of the Products covered by this Agreement,
including, but not limited to those of the U.S. Consumer Product Safety
Commission.
5.4 Licensee shall provide a written certification on or the last day
of each calendar quarter that the Products manufactured at each Facility meet or
exceed the industry standard and the standards published by Licensee for the
benefit of each Manufacturer. In addition, Licensee shall advise Licensor of any
product recalls or of any unusual or recurring problem with any of the Products
or of any Facility.
6. PRODUCTION FACILITIES. Schedule 6 attached hereto and made a part hereof
contains a list of all approved manufacturers of the Products (the
"Manufacturers") and all production facilities initially to be used to
manufacture the Products (the "Facilities"). Licensee shall advise Licensor in
writing of any changes in the list of Manufacturers and Facilities sixty (60)
days prior to any proposed change and provide a quarterly update to Licensor
within twenty (20) days after the end of each calendar quarter during the term
of this Agreement. Any addition or deletion from the schedule of Manufacturers
must be with the concurrence of Licensor.
3
<PAGE>
7. MAINTENANCE OF QUALITY
7.1. Licensee agrees to cooperate with Licensor to facilitate
Licensor's control of the nature and quality of the Products, to permit
reasonable inspection of Licensee's operation and the Facilities, and to supply
Licensor with specimens of use of the Marks prior to the Marks being affixed to
any of the Products or used in writing or depiction, including without
limitation, any advertising, promotional or display materials, consumer
operational manuals or service literature.
7.2 All Products shall be sold with not less than a one (1) year
warranty of parts and labor; notwithstanding the foregoing, Licensee agrees to
replace, at no cost or expense to the end user, exclusive of shipping and
handling, any defective cameras returned within two (2) years of actual purchase
by an end user.
7.3 Licensee shall provide to Licensor on a quarterly basis, or more
frequently upon Licensor's request, the warranty and service information for
each of the Products sold, including without limitation, the number of service
calls, average time to make repairs or to provide a replacement product, the
number of repeat callbacks and the number of returns.
7.4 Licensees or another entity or entities designated by Licensee
shall provide parts and service for each of the Products purchased by consumers
during the term of this Agreement and during any renewals hereof and continuing
for a period of three (3) years after the end of the Product model run. Licensee
shall take all reasonable steps to ensure that servicing is performed
courteously, efficiently, in a timely manner and comparable to the services
generally provided on high quality 35 mm cameras. For a period of not less than
three (3) years after termination and as long as inventory parts are available,
Licensee shall (i) continue to service or enter into and maintain agreements
with national, regional or local servicers for the continuous servicing of the
Products and (ii) make provision for the availability of extended warranties to
customers at the point of purchase. In addition, Licensee shall provide an 800
number (or replacement) for service information.
8. MARKETING
8.1 Licensee shall distribute the Products through quality direct mail
catalog companies, such as Service Merchandise, Sears and Hammacher Schlemmer,
to quality credit card companies, such American Express, MasterCard and Visa and
to major national gasoline companies, such as Amoco and Shell. Distribution of
the Products through any direct mail catalog, credit card or selected retailers
shall be subject to the prior written approval of Licensor, which may be granted
in Licensor's sole discretion.
8.2 From the date hereof through December 1996, Licensee shall expend
not less than $50,000 on advertising, marketing and promotional activities,
exclusive of sales
4
<PAGE>
allowances. The advertising and marketing of the Products with the Marks shall
be consistent with Licensee's marketing and advertising of other equivalent or
related consumer products. Licensee shall, upon request of Licensor, provide
supporting documentation of such marketing and advertising expenditures.
8.3 Licensee shall recommend pricing or a price range for each of the
Products and for each of the distribution venues, if appropriate, for Licensor's
approval. Licensee agrees not to decrease pricing for any of the Products
without Licensor's prior written approval.
9. ROYALTIES
9.1 Licensee agrees to pay a royalty to Licensor of three percent (3%)
per annum on Gross Revenues, as hereinafter defined, from the sale or
distribution of the Products, net of returns, allowances and discounts (the
"Royalty Payment").
9.2 For purposes of calculating the Royalty Payment, "Gross Revenues"
sales shall mean for all sales permitted under subsection 1.1 of this Agreement,
the price received without regard to discounts, adjustments and allowances,
whether or not usual or customary in the trade.
9.3 Licensee shall provide Licensor with a monthly report of all sales
activity within ten (10) days from the last business day in each month.
9.4 Licensee shall make each Royalty Payment within twenty (20) days
after the end of each calendar quarter, based upon Sales made by Licensee in
such calendar quarter, with a final adjustment within thirty (30) days after the
expiration or earlier termination of this Agreement.
9.5 At the time of each Royalty Payment, Licensee shall provide
Licensor with an audited statement by an independent certified public accounting
firm certifying the number of sales of each of the Products, the Gross Revenues
for each of the Products, the marketing expenditures and the calculation of
Royalty Payments.
9.6 If a Royalty Payment is not made within fifteen (15) days of the
due date described above, the Licensor shall be entitled to interest calculated
from the due date until the date on which payment is received by Licensor, at
one and one half percent (l 1/2%) over the prime rate of interest charged at the
relevant time by a bank that is designated by Licensor.
9.7 Licensee's records shall be retained for three years
after the end of the term to which they pertain. At the request of Licensor
and at a reasonable time and place,
5
<PAGE>
Licensee shall make these records available to Licensor, including any
independent auditor retained by Licensor.
9.8 Regardless of the reason for termination, Licensee shall be
obligated to pay Licensor a Royalty Payment on the sale of any of the Products
which occurs or has occurred during the term of this Agreement.
10. FORM OF USE. Licensee agrees to use the Marks only in the form and manner
and with appropriate legends as prescribed from time to time by Licensor, and
not to use any other trade names, trademarks or service marks in combination
with the Marks without prior written approval by Licensor. Licensee agrees to
use the registration symbol, (R),with the Marks of the Registrations, and the
legend TM where the Marks are used on any of the Products not covered by issued
Registrations. Licensor agrees to renew existing registrations during the term
of this Agreement.
11. INSURANCE. Licensee agrees to use reasonable efforts to have each of the
manufacturers of the Products bearing the Marks keep in force adequate
commercial general liability insurance, including product liability insurance,
with respect to all the Products bearing the Marks sold by Licensee. Licensee
shall maintain occurrence-based coverage in a combined amount not less than
$2,000,000, with not more than a $50,000 deductible. Licensor shall be named as
an additional insured on all such policies. Licensee shall provide or cause to
be provided to Licensor certificates of insurance evidencing such coverage which
shall not be cancelable without thirty (30) days prior notice to Licensor.
Nothing herein shall limit Licensee's indemnification under Section 13 of this
Agreement.
12. LITIGATION
12.1 Licensee agrees to notify Licensor promptly in writing of any
unauthorized use of the Marks, and any litigation involving the Marks promptly
as such comes to Licensee's attention.
12.2 Licensor shall have the sole right and discretion to bring or
maintain litigation involving the Marks against third parties, and Licensee
agrees to cooperate with Licensor in any such litigation.
12.3 if any litigation involving the Marks results in a monetary
judgment against Licensor or Licensee or Licensor agrees to a settlement prior
to an adjudication of a claim that the Licensor or Licensee infringed another's
rights involving the Marks, then Licensor shall pay all costs, judgments or
settlements of such litigation, unless Licensee's actions in
6
<PAGE>
violation of subsection 12.1 hereof were the proximate cause of the damages
claimed, in which event Licensee shall bear all costs, judgments or settlements
in connection therewith.
12.4 Licensor shall be entitled to the entire monetary award
in any litigation involving the Marks.
13. INDEMNIFICATION
13.1 Licensor assumes no liability to Licensee or to any third parties
with respect to any of the Products and related services provided or sold by
Licensee pursuant to this Agreement, except Licensor shall indemnify Licensee
for all claims and losses (including the cost of defending such claims and
losses as well as any alleged claims and losses) that may arise from a claim
that any Mark infringes another's rights.
13.2 Licensee agrees to indemnify Licensor for any and all claims,
damages, costs, expenses and losses (including the cost of defending such claims
and losses as well as any alleged claims and losses) that may arise from the
manufacture of any of the Products or from any of the Products and services
provided or sold by Licensee or any Distributor, other than arising out of a
claim that any Mark infringes another's rights. In addition, Licensee shall, in
the event of Licensee's termination under Section 14.3 hereof, assign its
indemnity rights from each Manufacturer of the Products. This Section 13 of this
Agreement shall survive the termination.
14. TERMINATION
14.1 Licensor may terminate this Agreement, for any reason whatsoever,
at any time, by giving the Licensee not less than thirty (30) days prior written
notice of such election.
14.2 In the event a party to this Agreement breaches any term of this
Agreement and fails to cure the breach within thirty (30) days after receiving
written notice of the breach from the nonbreaching party, the nonbreaching party
may immediately terminate this Agreement by written notice to the breaching
party.
14.3 If Licensee files for bankruptcy, or bankruptcy is filed against
Licensee and not stayed within sixty (60) days, a receiver is appointed or
Licensee transfers all or substantially all of its assets, Licensor shall have
the right to terminate this Agreement immediately.
7
<PAGE>
EFFECT OF TERMINATION
15.1 Upon termination of this Agreement, other than as provided below,
Licensee agrees to immediately discontinue all use of the Marks and any terms
remotely or confusingly similar thereto, and at the request of the Licensor, to
immediately deliver to Licensor all indicia of the goodwill associated with the
Marks, including without limitation, a list of the names and addresses of all of
the distributors, to cooperate with Licensor in the recording of the termination
of this Agreement with appropriate government offices, and to destroy all
materials bearing the marks, including without limitation, packaging, labels,
containers and signage.
15.2 Upon termination of this Agreement, for any reason whatsoever,
Licensee agrees that all rights in the Marks and the goodwill connected
therewith shall cease and terminate; provided however, if Licensor has
terminated this Agreement pursuant to Section 14.1 hereof, any Products which
are in Licensee's inventory or are covered by an international letter of credit
on the date of termination of this Agreement, may be sold by Licensor for a
period of six (6) months from such date through the distribution channels set
forth in Section 8.1 hereof.
15.3 Licensee shall provide in its contractual relationships with its
distributors that those relationships with respect to the Marks will terminate;
provided however, if Licensor has terminated this Agreement pursuant to Section
14.1 hereof, Licensee may fulfill the terms of any agreement it may have with
direct mail catalog companies, national credit companies or selected retailers,
entered into with Licensor's prior written approval pursuant to Section 1.1.2
hereof.
16. TRANSFERABILITY. This Agreement is not assignable or in any way
transferable by Licensee, without the express prior written approval of
Licensor, which approval may be withheld in Licensor' s sole discretion.
17. BREACHES AND WAIVERS. A waiver of a breach of this Agreement
shall not constitute a waiver of any other breach of this Agreement.
18. RECORDING OF AGREEMENT. Licensee agrees to take all reasonable
steps necessary to record this Agreement with appropriate government offices
and to otherwise implement this Agreement, if Licensor so requests. This
includes executing any documents or supplementary agreements as appropriate
in the relevant jurisdiction.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the date written above. BELL & HOWELL
COMPANY JAZZ PHOTO CORP.
Signature:______________________ Signature:
Name:___________________ Name:
Title: Title:
10
<PAGE>
SCHEDULE 1.1A
Marks
BELL+ HOWELL
<PAGE>
SCHEDULE 1.1B
The Products
Model BF-700 35 MM Fully Automatic(Big View Finder) Model MC-900 35 MM Fully
Automatic(Mini Compact) Model MZ-1OOO 35 MM Mini Power Zoom (Tele-Wide) MODEL
ML-959 35 MM Auto Focus (Computerized) MODEL PZ-850 35-55 MM Power Zoom
(External Selector Panoramic/Normal)
<PAGE>
SCHEDULE 2
Territory
United States only
<PAGE>
SCHEDULE 6
Production Facilities
Premier Camera - Taiwan
Phototec - Hong Kong
<PAGE>
19. INTERPRETATION OF AGREEMENT. This Agreement shall be interpreted according
to the laws of the State of Illinois. If Licensor sues Licensee over this
Agreement, Licensor shall be entitled to attorneys fees, expenses and costs, in
connection with any lawsuit or other legal action. Licensee shall be entitled to
attorney's fees, expenses and costs, in connection with any lawsuit or other
legal action. Licensee hereby waives its right to a jury trial. If any provision
of this Agreement is found by a court of competent jurisdiction to be illegal or
unenforceable, then the court may amend the Agreement in order to carry out the
intentions of parties as expressed in this Agreement. Upon termination, of this
Agreement, this section of the Agreement shall remain binding upon the parties.
20. INTEGRATION. This Agreement constitutes the entire agreement between the
parties regarding this matter and incorporated all prior or contemporaneous oral
or written understandings or agreements between the parties. This Agreement may
be modified only by a document signed by a duly authorized officer of each
party, except that each party may change the address at which it receives
notices under this Agreement (as set forth below) merely by notifying the other
party in writing. Upon termination of this Agreement, this section of this
Agreement shall remain binding upon the parties.
21. NOTICES
Any written notice to Licensor pursuant to this Agreement shall be
addressed as follows:
Bell & Howell Company
5215 Old Orchard Road
Skokie, Illinois 60077-1076
Attention: Corporate Counsel
Any written notice to Licensee pursuant to this Agreement shall be
addressed as follows:
Jazz Photo Corp.
1459 Pinewood Street
Rahway, NJ 07065
9
<PAGE>
Exhibit 10.2(ii)
AMENDMENT TO
TRADEMARK LICENSE AGREEMENT
THIS AMENDMENT TO TRADEMARK LICENSE AGREEMENT, dated the 9th day of
August, 1996, by and between BELL & HOWELL COMPANY, a Delaware corporation
("Licensor") and JAZZ PHOTO CORP., a New Jersey corporation ("Licensee").
WHEREAS, Licensor and Licensee entered into a Trademark License Agreement
dated November 13, 1995 (the "Agreement"), pursuant to which Licensor granted to
Licensee certain rights with respect to Licensor trademarks as therein described
(the "Trademarks") and certain registrations thereof (the "Registrations," the
Trademarks and Registrations are sometimes together referred to as the "Marks")
used in connection with Licensor's business, to be used by Licensee in
connection with its business of marketing, selling and distributing 35 mm
cameras and ancillary and related products, including film and camera carrying
cases, all as more specifically described therein (the "Products") and
WHEREAS, the parties desire to amend the Agreement in the manner and on
the terms and conditions herein described.
In consideration of the foregoing, the parties agree as follows:
1. The term of the Agreement shall be extended from January 16, 1997 to December
31, 2001, unless sooner terminated as provided for herein. The initial year of
the term shall be from November 13, 1995 to December 31, 1996; thereafter, each
year of the term and any renewal period, as herein provided, shall be from
January 1 (commencing January 1, 1997) through the next succeeding December 31.
2. Subject to Paragraph 4 hereof, during the period from January 1, 2000 to
December 31, payments shall be made to Licensor, as follows:
(a) Licensee shall guarantee a minimum payment to Licensor of $300,000 for
the fourth year of the initial term (January 1, 2000 to December 31, 2000).
(b) Licensee shall guarantee a minimum payment to Licensor of $350,000 for
the fifth year of the initial term (January 1,2001 to December 31.2001).
<PAGE>
3. The Agreement may be renewed by Licensee for an additional five (5) year
period, upon not less than one year's written notice (prior to January 1, 2001),
so long as Licensee is not in default of any of the provisions contained in the
Agreement, as amended, either at the time of notice or upon the commencement of
the renewal term. Subject to Paragraph 4 hereof, during the renewal period,
Licensee shall guarantee a minimum payment to Licensor of $400,000 for each year
of the renewal term.
4. Notwithstanding Paragraphs 2(a) and (b) and Paragraph 3 above, the actual
payment to be made to Licensor for each year of the term commencing January 1,
2000 (and for each year of the renewal term if Licensee exercises its rights in
accordance herewith) shall be the greater of the minimum payment for that year
and the Royalty Payment to which Licensor would otherwise be entitled under the
Agreement.
5. Paragraph 9.4 of the Agreement is deleted in its entirety and the following
is substituted in its place:
"9.4 Licensee shall make each Royalty Payment within twenty (20) days
after the end of each calendar quarter based upon sales made by Licensee
within such calendar quarter, with a final adjustment within thirty (30)
days after the end of each calendar year or earlier termination of the
Agreement."
6. To the extent there is any general industry increase in the term of warranty,
replacement at no cost, maintenance of parts and service after the end of a
Product model run, continuance of service or a maintenance agreement after
termination of the Agreement, the periods provided in the Agreement shall be
adjusted accordingly.
7. For each year of the term commencing January 1, 1997, Licensee shall expend
such amounts for advertising, marketing and promotional activities as shall be
reasonably determined by Licensee to be appropriate in order to maximize sales
and profitability.
8. Commencing January 1, 1998, Licensee shall maintain occurrence-based coverage
in a combined amount not less than $3,000,000 (increasing to $5,000,000 on
January 1,2001), with not more than a $50,000 deductible.
9. Except as herein provided to the contrary, the terms and conditions contained
in the Agreement shall be incorporated herein by reference and shall continue
unabated and in full force and effect under this Amendment during the initial
term and the renewal term, if any.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the date written above.
BELL & HOWELL COMPANY JAZZ PHOTO CORP.
Signature: /s/ H.A. D'Ambrosio Signature: ___________________
------------------- Name: ________________________
Name: H.A. D'Ambrosio Title: _______________________
Title: V.P. - Administration
3
<PAGE>
Exhibit 10.2(iii)
SECOND
AMENDMENT TO
TRADEMARK LICENSE AGREEMENT
THIS SECOND AMENDMENT TO TRADEMARK LICENSE AGREEMENT, dated as of the 31st
day of March, 1997 by and between BELL & HOWELL COMPANY, a Delaware corporation
("Licensor") and JAZZ PHOTO CORP., a New Jersey corporation ("Licensee").
WHEREAS, Licensor and Licensee entered into a Trademark License Agreement
dated November 13, 1995 as amended by an Amendment (the "Amendment") to
Trademark License Agreement dated August 9, 1996 (referred to herein
collectively as the "Agreement"), pursuant to which Licensor granted Licensee
certain rights with respect to Licensor trademarks as therein described (the
"Trademarks") and certain registrations thereof (the "Registrations, the
Trademarks and Registrations are sometimes together referred to as the "Marks")
to be used by Licensee in connection with its business of marketing, selling and
distributing 35mm cameras and ancillary and related products, including film and
camera carrying cases, all as more specifically described therein (the
"Products") and
WHEREAS, the parties desire to further amend the Agreement in the manner
and on the terms and conditions herein described.
In consideration of the foregoing, the parties agree as follows:
1. The term of the Agreement shall be extended from December 31, 2001 to
December 31, 2002 unless sooner terminated as provided for herein.
2. Paragraph 2 of the Amendment is further amended by adding the following
subparagraph (c):
(c) Licensee shall guarantee a minimum payment to Licensor of
$400,000 for the sixth year of the initial term (January 1, 2002 to
December 31, 2002).
3. The date in parenthesis in Paragraph 3 of the Amendment is hereby
deleted.
4. Paragraph 2(c) is added to the Notwithstanding clause in Paragraph 3 of
the Amendment.
<PAGE>
5. Schedule 2 to the Agreement is amended to change the Territory to
"Worldwide".
6. Schedule 1.1B to the Agreement is hereby amended as attached hereto
and is hereby incorporated herein by reference.
7. The entities and distribution channels approved for the distribution
and sale of the Products are set forth on Schedule 1.1.2 attached hereto and are
hereby incorporated herein by reference.
8. Schedule 6 to the Agreement is hereby amended as attached hereto and is
hereby incorporated herein by reference.
9. Notwithstanding anything to the contrary contained in the Agreement:
(a) In any year of the initial term or the renewal period under the
Agreement to the extent that Royalty Payments are defined in the Agreement
in the aggregate are less than the minimum guaranteed payment for such
year, Licensee may make a cash payment to Licensor to maintain the license
granted by the Agreement.
(b) In each year of the initial term or the renewal period under the
Agreement in which a minimum guaranteed payment is required to maintain
the license granted hereunder, Licensee shall pay $200,000 to Licensor on
or prior to January 10 of such year as an advance against Royalty Payments
for such year.
(c) Licensor shall be entitled to exercise the right to terminate
the Agreement under Section 14.1 thereof only upon the happening of any of
the following events:
(i) Licensee shall have failed to make payments as Royalty Payments
in any year of the Agreement:
(A) in the minimum guaranteed amounts required hereunder in
respect of Products sold for Gross Revenues earned under the
Agreement, or
(B) which fail to equal or exceed 115% of the Royalty Payments
payable to Licensor with respect to the immediately preceding year
of the Agreement or
(ii) Sales revenues in any year of the Agreement fail to equal or
exceed 115% of gross revenues in the immediately preceding year of the
Agreement, or
2
<PAGE>
(iii) Licensee fails to maintain a relationship with Jack C. Benun,
currently Chief Executive Officer of Licensee and who shall become a
principal consultant to Licensee on April 1,1997, in which Mr. Benun
continues to provide significant services to Licensee in the areas of
product development, marketing and sales.
10. In consideration of the extension and modification of the Agreement
contained in this Second Amendment to the Agreement, Licensee hereby agrees to
sell to Licensor 10,000 shares of Common Stock, par value $0.01 per share, of
Licensee for a purchase price of $0.01 per share or an aggregate purchase price
of $100. Licensee shall promptly deliver a certificate evidencing such shares to
Licensor upon receipt of payment therefor. Transfer of such shares is restricted
under federal and state securities laws and the certificates evidencing such
shares shall bear a restrictive legend to that effect.
11. Except as herein provided to the contrary, the terms and conditions in
the Agreement shall be incorporated herein by reference and shall continue
unabated and in full force and effect under this Second Amendment during the
initial and the renewal term, if any.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of date written above.
BELL & HOWELL COMPANY JAZZ PHOTO CORP.
Signature _____________________ Signature: /s/ Jack C. Benun
------------------
Name:__________________________ Name: Jack C. Benun
Title:_________________________ Title: President
3
<PAGE>
(iii) Licensee fails to maintain a relationship with Jack C.
Benun, currently Chief Executive Officer of Licensee and who shall
become a principal consultant to licensee on April 1, 1997, in which
Mr. Benun continues to provide significant services to Licensee in
the areas of product development, marketing and sales.
10. In consideration of the extension and modification of the Agreement
contained in this Second Amendment to the Agreement, Licensee hereby agrees to
sell to Licensor 10,000 shares of Common Stock, par value $0.01 per share, of
Licensee for a purchase price of $0.01 Per share or an aggregate purchase price
of $100. Licensee shall promptly deliver a certificate evidencing such shares to
Licensor upon receipt of payment therefor. Transfer of such shares is restricted
under federal and state securities laws and the certificates evidencing such
shares shall bear a restrictive legend to that effect.
11. Except as herein provided to the contrary, the terms and conditions in
the Agreement shall be incorporated herein by reference and shall continue
unabated and in full force and effect under this Second Amendment during the
initial and the renewal term, if any.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as or date written above.
BELL & HOWELL COMPANY JAZZ PHOTO CORP
Signature /s/ H.A. D'Ambrosio Signature:_______________
-------------------
Name: H.A. D'Ambrosio Title:___________________
---------------------
Title: V.P. Administration Name: ____________________
--------------------
3
<PAGE>
SCHEDULE 1.1B
The Products
MODEL DESCRIPTION
-----------
SINGLE USE CAMERAS
BH 135 35MM Single Use Daylight Camera For Outdoor
Use, Loaded with 27 Exposure, 400 Speed Film.
BH 150 35MM Single Use Camera With Built-In Flash For Indoor
/Outdoor Use Loaded with 27 Exposure, 400 Speed Film.
BH 160 35MM Single Use Camera With Big View Finder, and Built-In
Flash for Indoor/Outdoor Use, Loaded with 27 Exposure,
400 Speed Film.
BH 170 APS Single Use Camera with Flash for Indoor/ Outdoor
Use, Loaded with 25 Exposure, APS Film.
35MM CAMERAS
BF 608 Kit Big View Finder, Manual 35MM Camera With Built-In
Flash, Color Film and Batteries.
BF 710 35MM, Big View Finder Camera, Auto Load, Auto Flash,
Auto Wind, and Rewind, Red Eye Reduction, DX System.
BF 905 Kit 35MM, Fully Automatic Camera, Big View Finder, Auto
Focus, DX System, Red Eye Reduction, Fill Flash, With
Color Film and Batteries.
NP 960 35MM, Panorama Automatic Camera With LCD Panel, Auto
Flash, Auto Wind and Rewind, Red Eye Reduction, and
Self Timer.
NP 960 D 35MM, Panorama Automatic Camera With LCD Panel, Auto
Flash, Auto Wind, and Rewind, Red Eye Reduction, Self
Timer, and Data Back Feature.
PZ 1000 35MM, Power Zoom/Telewide 35-52MM, Motorized, Self
Timer, Red Eye Reduction, Auto Flash, and DX System.
<PAGE>
The Products
Page 2
PZ 2000 Fully Motorized 35MM Camera With 2 to 1 Power
Zoom, Auto Focus, Red Eye Reduction, DX System
Self Timer, Automatic Shut-Off, and LCD
Display.
PZ 3000 Fully Motorized 35MM Camera With 3 to 1 Power Zoom, Auto
Focus, Red Eye Reduction, DX System, Self Timer,
Automatic Shut-Off, and LCD Display.
APS CAMERAS
MD 200 Fixed Focus APS Camera, Auto Flash, and Red Eye
Reduction.
AF 1 Fully Automatic Auto Focus APS Camera, Auto Flash, LCD
Display, Self Timer, Red Eye Reduction.
AF 2 Fully Automatic Auto Focus APS Camera, Auto Flash, LCD
Display, Self Timer, Red Eye Reduction.
AF 7 Fully Automatic Auto Focus APS Camera, Auto Flash, IX
System, LCD Display, Self Timer, and Red Eye Reduction.
ZM 201 2 to 1 APS Zoom Camera, Fully Automatic.
<PAGE>
SCHEDULE 1.1.2
Entities and Distribution Channels
Bell & Howell Confirmed Accounts Pending Bell & Howell Accounts
-------------------------------- ------------------------------
Wal*Mart K-Mart
Bradlees Target
Hills Best Buy
Caldors Service Merchandise
Sun TV American Drugs
Fays Drugs B. J.
Damark Price Costco
Meijers Fingerhut
Fred Meyer Wolfe's
H.S.N Ritz
QVC Fedco
H.H. Gregg Fry's
Amway Rite Aid Drugs
Nobody Beats the Wiz Ames
Witmark
Compu Card
ABC Warehouse
Shopko
Snyder Drugs
Arbor Drugs
Ann & Hope
Soars Direct Mail
Montgomery Wards Direct
Bennys
<PAGE>
(Exhibit 10.3)
AGREEMENT
This Agreement dated the 31st day of March, 1997, is by and between Jazz
Photo Corp., a New Jersey corporation, with offices at 1459 Pinewood Street,
Rahway, New Jersey 07065 and its principal shareholder, Mona Benum, collectively
referred to as "Jazz" and Imation Corp. ("Imation"), a Delaware corporation,
with offices at 1 Imation Place, Oakdale, Minnesota 55128.
Whereas, Jazz desires to hire Roger Lorenzini, a retired employee of
Imation, who is bound by an Employee Agreement which restricts his employment
with a Conflicting Organization as defined by the Employee Agreement ("Employee
Agreement") for two (2) years from his date of retirement. The Employee
Agreement is attached as Exhibit A.
Whereas, Jazz is a Conflicting Organization under the definition of the
Employee Agreement.
Whereas, Imation agrees to release Roger Lorenzini from his obligation of
Paragraph 5(F) of the Employee Agreement and agrees to waive any potential
claims against Jazz for their employment of Roger Lorenzini (including
specifically tortuous interference with contractual obligations) provided Jazz
agrees to certain obligations as set forth herein.
Therefore, the parties agree as follows:
1. Jazz agrees to restrict Roger Lorenzini's activities for two (2) years
from his date of retirement from Imation so that he will not call on or
otherwise contact for the purpose of soliciting sales of Single Use
Cameras certain Imation accounts as set forth in attached Exhibit B.
2. In consideration for Roger Lorenzini's release from his obligations of
Paragraph 5(F) of the Employee Agreement and Imation's waiver of any
potential claims against Jazz for the hiring of Roger Lorenzini:
A. Jazz agrees to purchase a minimum of five million (5,000,000) rolls
of color print film between April 1, 1997 and March 31, 1998 and an
additional five million (5,000,000) rolls of color print film
between April 1, 1998 and March 31, 1999 at mutually agreed upon
pricing, terms and conditions.
B. Jazz agrees to refrain from purchasing competitive rolls of private
label color print film or film for Single Use Cameras, without first
giving Imation the right to bid on such business, for the two-year
period from April 1, 1997 through March 31, 1999, except in the case
when the customer specifies a competitive film.
C. Jazz will use its best efforts to sell only Imation made film in
Jazz's single use cameras to the accounts listed in Exhibit B for
the period from April 1, 1997 through March 31, 1999.
<PAGE>
D. Jazz will refrain from making any negative statements regarding
Imation, its products or employees.
E. Jazz will maintain this agreement as confidential and will not
disclose it or its contents to anyone except Roger Lorenzini,
necessary employees and agents of Jazz and as required by applicable
law including the SEC rules and regulations.
3. Jazz agrees for a two (2) year period, through March 31, 1999, to refrain
from soliciting or recruiting or offering employment to any Imation
employee.
4. In the event of a breach of this Agreement, the parties agree that Imation
may obtain injunctive relief as well as remedies at law to enforce the
provisions of this Agreement.
5. This Agreement is binding upon Jazz notwithstanding the event that Roger
Lorenzini at any time terminates his employment with Jazz.
6. This Agreement contains the entire understanding between the parties and
supersedes all prior agreements and understandings between Jazz and
Imation relating to this subject matter.
In witness whereof the parties in their individual and corporate
capacities hereto set their hand on the date first written above.
JAZZ PHOTO CORP. IMATION CORP.
By: /s/ Jack Benum By:
---------------------------- ---------------------------------
Jack Benum Clifford T. Pinder
President Vice President, Operations
Medical Imaging and Photo Products
By: /s/ Mona Benum
----------------------------
Mona Benum
Principal Shareholder of
Jazz Photo Corp.
-2-
<PAGE>
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the __ day of
February, 1997 between Jazz Photo Corp., a New Jersey corporation (the
"Company"), and Roger F. Lorenzini, residing at 79 Many Levels Road, White Bear
Lake, Minnesota 55110 (the "Executive").
WHEREAS, the Company believes it is in the best interests of the Company
to retain the Executive as an executive of the Company on the terms herein
provided; and
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Effectiveness. This Agreement shall be effective (the "Effective Date")
immediately upon the last to occur of (a) the approval by the Board of Directors
of the Company of this Agreement including the express grant of the Stock Option
as defined herein; (b) the execution of this Agreement by the Company and the
Executive; or (c) April 1, 1997.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions set forth
herein for the period commencing on the Effective Date and expiring on the third
anniversary thereof, unless such employment is sooner terminated as hereinafter
set
<PAGE>
forth (such period is hereinafter sometimes referred to as the "Term of
Executive's Employment").
3. Position and Duties. During the Term of Executive's Employment
hereunder, the Executive shall serve as Chief Executive Officer and a Director
of the Company, reporting to the Board of Directors of the Company, and shall
have supervision and control over, and responsibility for all aspects of the
Company's operations, and shall have such other powers and duties as may from
time to time be prescribed by the Board of Directors of the Company. The
Executive shall devote his entire working time and efforts to the business and
affairs of the Company.
4. Compensation.
(a) Executive Base Compensation. During the Term of Executive's
Employment hereunder, the Executive shall receive a base salary at the annual
rate of $315,000.00 (the "Executive Base Compensation"), or such amount in
excess of Executive Base Compensation as the Company shall from time to time
determine in its discretion, payable at such intervals or times as shall accord
with the Company's normal procedure.
(b) Expenses. During the Term of his employment hereunder the
Executive shall be entitled to receive reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures currently in
effect for the senior executive officers of the Company) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company policy.
2
<PAGE>
(c) Fringe Benefits. The Executive shall be entitled to participate
in or receive benefits under any profit-sharing or pension plan, savings plan,
stock option plan, stock purchase plan, life insurance and/or death benefits
plan, medical and health-and-accident plans, or arrangement currently made
available by the Company or to be made available in the future to its executives
and key management employees, including the Company's 1997 Long-Term Incentive
Plan, as currently in effect or any comparable successor plan thereto, subject
to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to the Executive
under any plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of Base Compensation to the Executive
hereunder.
(d) Perquisites. The Executive shall be entitled to receive
perquisites appertaining to, and consistent with, his office in accordance with
such practices as may be adopted by the Company from time to time, including,
but not limited to (i) an automobile, the style and year to be chosen at the
Company's discretion, for the exclusive use of Executive; and (ii) an automobile
allowance in the amount of $1,000.00 per month.
(e) Vacation. The Executive shall be entitled to five (5) weeks of
vacation for each calendar year during the Executive's employment commencing in
1997. Executive shall be permitted to carryover a maximum of two and one-half (2
1/2) weeks of an accrued and unused vacation to the next calendar year. Any
other unused vacation will be forfeited. Subject to the limitations of the
preceding sentence,
3
<PAGE>
Executive will be entitled to a payment for any accrued and unused vacation upon
termination of his employment for any other reason other than cause or if
Executive terminates his employment.
(f) Housing Allowance. The Executive shall be entitled to receive a
housing allowance from the Company for the rental of a dwelling within commuting
distance of the Company's New Jersey headquarters adequate to accommodate the
Executive and his family at a cost not exceeding $5,000 per month, in living
arrangements comparable to those currently maintained by Executive.
(g) Stock Option Grant. The Board of Directors of the Company
concurrently with the execution hereof shall grant to Executive an option to
purchase a total of 70,000 shares of the Class A Common Stock of the Company
(the "Stock Option") in accordance with the terms and conditions of the
Company's 1997 Long-Term Incentive Plan at an exercise price of $1.50 per share.
(h) Moving Allowance. In consideration of the substantial expenses
the Executive will incur in connection with Executive's relocation, the Company
shall provide Executive with a relocation allowance of $75,000.00, such amount
to be payable in full to Executive within three (3) months of the date Executive
assumes his duties hereunder. Executive agrees that should he resign his
employment with the Company at any time prior to thirty-six (36) months
following the Effective Date, he shall reimburse the Company on the last day
worked for a portion of the relocation allowance. The relocation allowance shall
be prorated over thirty-six (36) months, and
4
<PAGE>
the portion for which Executive must reimburse the Company will be payable in
full upon the last day of his Employment.
(i) Life Insurance Policies.
(i) The Company shall provide Executive, at no expense to
Executive, with a life insurance policy in the amount of $250,000, the
beneficiary of which shall be at Executive's sole and exclusive discretion.
(ii) At any time during the term of this Agreement, the
Company shall have the right to insure the life of Executive for the Company's
sole benefit, and to determine the amount of insurance and the type of policy.
The Company shall be the solely liable for the payment of the premiums due on
such policy, shall be the sole owner of the policy, shall be entitled at all
times to its physical possession, and shall be its beneficiary and the person
entitled to all its rights and privileges. Executive agrees to cooperate with
the Company in making application for such policy by submitting to a physical
examination, by supplying all information required by the insurance company, and
by executing all necessary documents, provided that those documents do not
impose upon Executive any financial obligation to the Company or the insurance
company in connection with such life insurance.
(j) Disability Benefits. The Company shall purchase for the benefit
of Executive a disability policy in a form reasonably acceptable to the
Executive with disability benefits equal to fifty percent (50%) of the
Executive's Base Compensation for a term beginning with the Executive's
employment and ending on April 2, 2000.
5
<PAGE>
5. Offices; Directorships. The Executive agrees to serve on the Board of
Directors of the Company without additional compensation, when elected or
appointed thereto, in one or more offices in, and/or as a director of, the
Company or any subsidiary or affiliate of the Company.
6. Termination.
(a) Disability. If, based on independent medical advice, from a
physician reasonably acceptable to the Company and Executive, the Board of
Directors determines that, due to physical or mental illness, the Executive has
been unable to perform his duties hereunder for six consecutive months or six
non-consecutive months in any twelve month period, the Company may terminate the
employment of the Executive by delivering a Notice of Termination specifying a
termination date. The return of the Executive to the performance of his duties
in accordance with Section 3 hereof prior to the specified termination date
shall not render such notice ineffective for the purpose of terminating
Executive's employment hereunder.
(b) Termination by the Executive. The Executive may terminate his
employment hereunder voluntarily, provided that the Executive delivers to the
Company a Notice of Termination specifying a termination date not less than
ninety (90) days subsequent to the date of such Notice of Termination.
(c) Termination by the Company. The Company may terminate the
employment of the Executive, with or without cause, by delivering a Notice of
Termination specifying a termination date not less than ninety (90) days
subsequent to such Notice of Termination, except that, in the case of a
Termination for Cause (as
6
<PAGE>
herein defined), a Notice of Termination shall be effective immediately. A
"Termination Without Cause" shall mean a termination of the Executive's
employment hereunder, other than a "Termination for Cause" as defined herein and
other than pursuant to subsections (a), (b) or (d) hereof. A "Termination for
Cause" shall mean, in the context of termination of the employment or the
directorship of the Executive, any of the following events or conditions: (i)
the Executive's material failure to perform (other than by reason of disability)
his duties and responsibilities as an employee or director which are not
remedied within 30 days after receipt of written notice thereof from the
Company, (ii) fraud, embezzlement or other material dishonesty with respect to
the Company, (iii) conviction of, or plea of nolo contendere to, any felony or
any other crime involving fraud, dishonesty or moral turpitude, (iv) the
Executive shall have materially breached any confidentiality or non-competition
agreement to which the Executive is a party with the Company directly, or (v)
the Executive shall have materially breached this Agreement, provided, however,
with respect to clauses (i) and (v) hereof Executive shall have received written
notice from the Company and such material failure or material breach shall not
have been remedied within 30 days of receipt of such notice and provided,
further, that the termination of the employment of the Executive shall not be
deemed to be a Termination for Cause unless (1) the written notice of
termination indicates the specific termination provision relied upon and sets
forth the facts and circumstances claimed to provide a basis for termination;
(2) an opportunity is provided for the Executive, together with his counsel, to
be heard before the Board of Directors on the matter of termination; and (3) the
Executive receives a
7
<PAGE>
letter of termination from the Board of Directors stating that in the good faith
opinion of the Board, the Executive was guilty of the conduct set forth in
clauses (c), (i), (ii), (iii), (iv), or (v).
(d) The Executive's employment hereunder shall terminate upon his
death.
(e) Any termination (1) by the Company pursuant to subsections 6(a)
or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be
communicated by written Notice of Termination ("Notice of Termination") to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision
relied upon, and shall set forth the facts and circumstances claimed to provide
a basis for termination of the Executive's employment hereunder.
(f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated under Section 6(a), on the date the
Executive's employment is terminated by the Company in accordance with a Notice
of Termination under Section 6(a), (iii) if the Executive's employment is
terminated pursuant to a Notice of Termination under Section 6(c), the date upon
which such termination becomes effective pursuant to this Agreement and such
Notice of Termination, and (iv) the third anniversary of the Effective Date if
the Executive is employed by the Company at such date.
(g) Except in the case of a Termination Without Cause pursuant to
Section 6(c), the Executive shall be paid all amounts earned to the Date of
Termination.
8
<PAGE>
In the case of Termination Without Cause during the Executive's employment under
this Agreement pursuant to Section 6(c), the Executive shall be paid by the
Company his Base Compensation for a period commencing on the day following the
Date of Termination and ending on the third anniversary of the Effective Date
(as defined in Section 1 of this Agreement). Executive's rights under this
Subsection (g) shall survive the termination of his employment under this
Agreement.
7. Confidential Information; Intellectual Property; Restricted Activities.
(a) Confidential Information. Executive acknowledges that Company
and its affiliates continually develop Confidential Information, that the
Executive may develop Confidential Information for the Company or its affiliates
and that the Executive may learn of Confidential Information during the course
of employment. The Executive will comply with the policies and procedures of the
Company and its affiliates for protecting Confidential Information and shall
never disclose to any person or to any governmental agency or political
subdivision of any government (except as required by applicable law or for the
proper performance of his duties and responsibilities hereunder), or use for his
own benefit or gain, any Confidential Information obtained by the Executive
incident to his employment or other association with the Company or any of its
affiliates. The Executive understands that this restriction shall continue to
apply after his employment terminates, regardless of the reason for such
termination.
"Confidential Information" means any and all information of the
Company and its affiliates that is not generally known by others with whom they
compete or do business, or with whom they actively plan to compete or do
business. Confidential
9
<PAGE>
Information includes without limitation such information relating to (i) the
development, research, testing, manufacturing, marketing and financial
activities of the Company and its affiliates, (ii) the Products, (iii)
Intellectual Property; (iv) the costs, sources of supply, financial performance
and strategic plans of the Company and its affiliates, (v) the identity and
special needs of the customers of the Company and its affiliates; and (vi) the
people and organizations with whom the Company and its affiliates have business
relationships and those relationships. Confidential Information also includes
comparable information that the Company or any of its affiliates have received
belonging to others or which was received by the Company or any of its
Affiliates with any understanding, express or implied, that it would not be
disclosed.
(b) Intellectual Property. The Executive hereby assigns and agrees
to assign to the Company (or as otherwise directed by the Company) the
Executive's full right, title and interest in and to all Intellectual Property.
The Executive agrees to promptly and fully disclose all Intellectual Property to
the Company and to execute any and all applications for domestic and foreign
patents, copyrights or other proprietary rights and to do such other acts
(including without limitation the execution and delivery of instruments of
further assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce any
patents, copyrights or other proprietary rights to the Intellectual Property.
The Executive will not charge the Company for time spent in complying with these
obligations. All copyrightable works that the Executive creates shall be
considered "work made for hire".
10
<PAGE>
"Intellectual Property" means inventions, discoveries, developments,
methods, processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made,
created, developed or reduced to writing by the Executive (whether alone or with
others, whether or not during normal business hours or on or off Company
premises) during the Executive's employment that relate to either the Products
or any activity of the Company or any of its Affiliates which is under active
development.
"Products" mean all products under active development, researched,
developed, tested, manufactured, sold, licensed, leased or otherwise distributed
or put into use by the Company or any of its affiliates, together with all
services provided or under active development by the Company or any of its
affiliates, during the Term of Executive's Employment.
(c) All documents, records, files, tapes and other media of every
kind and description relating to the business, present or otherwise, of the
Company or any of its affiliates and to their customers, prospective customers,
vendors, and any other persons with whom the Company has business dealings,
including, but not limited to, originals and all copies of all correspondence,
soliciting materials, contracts, proposals, analyses, performance data and other
written or computer software, data bases, programs and disks, in whole or in
part, thereof, whether or not prepared by the Executive, are the sole and
exclusive property of the Company and its affiliates ("Documents"). Upon
termination of Executive's employment for any reason, whether during the period
set forth in Section 2 hereof or thereafter, or at such earlier time or
11
<PAGE>
times as the Board may specify, the Executive shall immediately turn over to the
Company all Documents maintained by, or under the control or possession of, the
Executive.
(d) Restricted Activities.
(i) While the Executive is employed hereunder and for a period
of two (2) years after his employment terminates (the "Non-Competition Period"),
the Executive shall not, directly or indirectly, whether as owner, partner,
investor, consultant, agent, employee, coventurer or otherwise, compete with the
Company or any of its affiliates within the United States or within any country
in which the Company makes sales of products representing 50% or more of its
revenue undertake with any third party any planning for any business competitive
with the Company or any of its affiliates. Specifically, but without limiting
the foregoing, the Executive agrees not to engage in any manner in any activity
that is directly or indirectly competitive with the business of the Company or
any of its affiliates as conducted or under active development at any time
during the Term of Executive's Employment. For the purposes of this Section 7,
the business of the Company and its affiliates shall include all Products and
the Executive's undertaking shall encompass all items, products and services
that may be competitive with Products.
(ii) The Executive agrees that, during his employment
hereunder, he will not undertake any outside activity, whether or not
competitive with the business of the Company or any of its affiliates, that
could reasonably give rise to a
12
<PAGE>
conflict of interest or otherwise interfere with his duties and obligations to
the Company or any of its affiliates.
(iii) The Executive further agrees that while he is employed
by the Company hereunder and during the Non-Competition Period, the Executive
will not hire or attempt to hire any employee of the Company or any of its
affiliates, to perform services for any Person, assist in such hiring by any
Person, encourage any such employee to terminate his or her relationship with,
the Company or any of its affiliates, or solicit or encourage any customer or
vendor of the Company or any of its affiliates to terminate or diminish its
relationship with them or, in the case of a customer, to conduct with any Person
any business or activity which such customer conducts or could conduct with the
Company or any of its affiliates.
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization, other than
the Company or any of its affiliates.
8. Enforcement. The Executive recognizes that his agreement to the
terms and conditions of this Section 8 represents a material inducement to the
Company to employ the Executive. The Executive acknowledges that irreparable
injury may result to the Company and that the Company will have no adequate
remedy at law in the event that the Executive breaches any of the provisions of
Section 7 hereof. Accordingly, the Executive agrees that in the event of a
breach by the Executive of any of the provisions of Section 7, the Company
shall, in addition to all other rights and remedies, be entitled to injunctive
relief with respect to such breach and/or to a decree
13
<PAGE>
for specific performance of the terms of such Section, in each instance without
the necessity of showing any irreparable injury or special damages.
9. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the Agreement provided for in this Section 9 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) In the event Executive's employment under this Agreement
shall terminate for any reason while any amounts have been earned but not paid
as of the applicable Date of Termination as defined herein or are otherwise due
the Executive under the terms of Section 6 hereof or by reference thereto, then
the right to receive such amount shall survive and be enforceable after the
termination of Executive's employment hereunder by the Executive, his
successors, assigns, executors, administrators, heirs, legatees, devisees or
legal representatives.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed
14
<PAGE>
to have been duly given when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, transmitted by facsimile
transmission or delivered by messenger addressed as follows:
If to the Executive:
Roger F. Lorenzini
79 Many Levels Road
White Bear Lake, Minnesota 55110
with a copy to: John L. Devney, Esq.
Briggs and Morgan
2200 First National Bank Building
Saint Paul, MN 55101
If to the Company:
Jazz Photo Corp.
1459 Pinewood Street
Rahway, NJ 07065
with a copy to: Stephen C. Kahr, Esq.
Greenberg & Kahr
3 New York Plaza
New York, New York 10004
or to such other address as any such person may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Amendment and Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be
15
<PAGE>
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
12. Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
Jersey without reference to conflicts of laws.
13. Severability; Survivability. It is the intent of the parties hereto
that in case any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect the
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. The provisions of Sections 6(g), 7, 8 and 9(b) of this Agreement shall
survive the expiration or termination of Executive's employment hereunder,
whether during the period set forth in Section 2 of this Agreement or
thereafter, and the termination of this Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Only Employment Agreement. From and after the Effective Date, this
Agreement shall supersede any and all prior employment agreements between the
parties.
16
<PAGE>
16. Future Negotiations. If the Executive is employed by the Company six
(6) months prior to the third anniversary of the Effective Date then the Company
and the Executive shall commence good faith negotiations for the purpose of
determining whether, and on what basis, if any, they can agree that Executive
may be employed by the Company after the third anniversary of the Effective
Date. The Executive shall have no obligation under this Section 16 to remain in
the employ of the Company and the Company shall have no obligation hereunder to
employ the Executive after the second anniversary of the Effective Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
JAZZ PHOTO CORP.
BY: /s/ Jack Benun
--------------------
Jack Benun, President
/s/ Roger F Lorenzini
--------------------
Roger F. Lorenzini 3-18-97
17
<PAGE>
Exhibit 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the ___
day of February, 1997 between Jazz Photo Corp., a New Jersey corporation (the
"Company"), and Jerrold Cohen, residing at 599 Correll Avenue, Staten Island,
New York 10309 (the "Executive").
WHEREAS, the Company believes it is in the best interests of the
Company to retain the Executive as an executive of the Company on the terms
herein provided; and
WHEREAS, the Executive is desirous of committing himself to serve
the Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
1. Effectiveness. This Agreement shall be effective as of January 1,
1997 (the "Effective Date")
2. Employment. The Company hereby agrees to employ the Executive,
and the Executive hereby accepts such employment, on the terms and conditions
set forth herein for the period commencing on the Effective Date and expiring on
the third anniversary thereof, unless such employment is sooner terminated as
hereinafter set forth (such period is hereinafter sometimes referred to as the
"Term of Executive's Employment").
<PAGE>
3. Position and Duties. During the Term of Executive's Employment
hereunder, the Executive shall serve as Vice-president, sales and marketing of
the Company, reporting to Roger F. Lorenzini, the Chief Executive Officer, and
to the Board of Directors of the Company, and shall have responsibility for
marketing and sales activities of the Company, and shall have such other powers
and duties as may from time to time be prescribed by the Company. The Executive
shall devote his entire working time and efforts to the business and affairs of
the Company.
4. Compensation.
(a) Executive Base Compensation. During the Term of
Executive's Employment hereunder, the Executive shall receive a base salary at
the annual rate of $175,000.00 (the "Executive Base Compensation"), or such
amount in excess of Executive Base Compensation as the Company shall from time
to time determine in its discretion or as shall otherwise be required as
provided herein, payable at such intervals or times as shall accord with the
Company's normal procedure.
(b) Expenses. During the Term of his employment hereunder the
Executive shall be entitled to receive reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures currently in
effect for the senior executive officers of the Company) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company policy.
2
<PAGE>
(c) Fringe Benefits. The Executive shall be eligible to
participate in or receive benefits under any profit-sharing or pension plan,
savings plan, stock option plan, stock purchase plan, medical and
health-and-accident plans, or arrangement currently made available by the
Company or to be made available in the future to its executives and key
management employees, including the Company's 1997 Long-Term Incentive Plan, as
currently in effect or any comparable successor plan thereto, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Nothing paid to the Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of Base Compensation to the Executive hereunder.
(d) Perquisites. The Executive shall be entitled to receive
perquisites appertaining to, and consistent with, his office in accordance with
such practices as may be adopted by the Company from time to time, including,
but not limited to (i) an automobile, the style and year to be chosen at the
Company's discretion, for the exclusive use of Executive; and (ii) an automobile
allowance in the amount of $600.00 per month.
3
<PAGE>
(e) Life Insurance Policy. The Company shall provide
Executive, at no expense to Executive, with a life insurance policy in the
amount of $250,000, the beneficiary of which shall be at Executive's sole and
exclusive discretion.
(f) Stock Option Grant. The Board of Directors of the Company
shall grant to Executive an option to purchase a total of 15,000 shares of the
Class A Common Stock of the Company (the "Stock Option") in accordance with the
terms and conditions of the Company's 1997 Long-Term Incentive Plan at an
exercise price of $1.50 per share.
5. Termination.
(a) Disability. If, based on independent medical advice, from
a physician reasonably acceptable to the Company and Executive, the Board of
Directors determines that, due to physical or mental illness, the Executive has
been unable to perform his duties hereunder for six consecutive months or six
non-consecutive months in any twelve month period, the Company may terminate the
employment of the Executive by delivering a Notice of Termination specifying a
termination date. The return of the Executive to the performance of his duties
in accordance with Section 3 hereof prior to the specified termination date
shall not render such notice ineffective for the purpose of terminating
Executive's employment hereunder.
(b) Termination by the Executive. The Executive may terminate
his employment hereunder voluntarily, provided that the Executive delivers to
the Company a Notice of Termination specifying a termination date not less than
ninety (90) days subsequent to the date of such Notice of Termination.
4
<PAGE>
(c) Termination by the Company. The Company may terminate the
employment of the Executive, with or without cause, by delivering a Notice of
Termination specifying a termination date not less than ninety (90) days
subsequent to such Notice of Termination, except that, in the case of a
Termination for Cause (as herein defined), a Notice of Termination shall be
effective immediately. A "Termination Without Cause" shall mean a termination of
the Executive's employment hereunder, other than a "Termination for Cause" as
defined herein and other than pursuant to subsections (a), (b) or (d) hereof and
a termination by the Executive of his employment hereunder pursuant to the
provisions of Section 3(b) hereof. A "Termination for Cause" shall mean, in the
context of termination of the employment or the directorship of the Executive,
any of the following events or conditions: (i) the Executive's material failure
to perform (other than by reason of disability) his or her duties and
responsibilities as an employee or director which are not remedied within 30
days after receipt of written notice thereof from the Company, (ii) fraud,
embezzlement or other material dishonesty with respect to the Company, (iii)
conviction of, or plea of nolo contendere to, any felony or any other crime
involving fraud, dishonesty or moral turpitude, (iv) the Executive shall have
materially breached any confidentiality or non-competition agreement to which
the Executive is a party with the Company directly, or (v) the Executive shall
have materially breached this Agreement.
(d) The Executive's employment hereunder shall terminate upon
his death.
5
<PAGE>
(e) Any termination (1) by the Company pursuant to subsections
5(a) or (c) above or (2) by the Executive pursuant to subsection 5(b) above
shall be communicated by written Notice of Termination ("Notice of Termination")
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision relied upon, and shall set forth the facts and circumstances claimed
to provide a basis for termination of the Executive's employment hereunder.
(f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated under Section 5(a), on the date the
Executive's employment is terminated by the Company in accordance with a Notice
of Termination under Section 5(a), (iii) if the Executive's employment is
terminated pursuant to a Notice of Termination under Section 5(c), the date upon
which such termination becomes effective pursuant to this Agreement and such
Notice of Termination, and (iv) the second anniversary of the Effective Date if
the Executive is employed by the Company at such date.
(g) Except in the case of a Termination Without Cause pursuant
to Section 5(c), the Executive shall be paid all amounts earned to the Date of
Termination. In the case of Termination Without Cause during the Executive's
employment under this Agreement pursuant to Section 5(c), the Executive shall be
paid by the Company his Base Compensation for a period commencing on the day
following the Date of Termination and ending on the third anniversary of the
Effective Date (as
6
<PAGE>
defined in Section 1 of this Agreement). Executive's rights under this
Subsection (g) shall survive the termination of his employment under this
Agreement.
6. Confidential Information; Restricted Activities.
(a) Confidential Information. Executive acknowledges that
Company and its affiliates continually develop Confidential Information, that
the Executive may develop Confidential Information for the Company or its
affiliates and that the Executive may learn of Confidential Information during
the course of employment. The Executive will comply with the policies and
procedures of the Company and its affiliates for protecting Confidential
Information and shall never disclose to any person or to any governmental agency
or political subdivision of any government (except as required by applicable law
or for the proper performance of his duties and responsibilities hereunder), or
use for his own benefit or gain, any Confidential Information obtained by the
Executive incident to his employment or other association with the Company or
any of its affiliates. The Executive understands that this restriction shall
continue to apply after his employment terminates, regardless of the reason for
such termination.
"Confidential Information" means any and all information of
the Company and its affiliates that is not generally known by others with whom
they compete or do business, or with whom they actively plan to compete or do
business. Confidential Information includes without limitation such information
relating to (i) the development, research, testing, manufacturing, marketing and
financial activities of the Company and its affiliates, (ii) the costs, sources
of supply, financial performance and
7
<PAGE>
strategic plans of the Company and its affiliates, (iii) the identity and
special needs of the customers of the Company and its affiliates; and (iv) the
people and organizations with whom the Company and its affiliates have business
relationships and those relationships. Confidential Information also includes
comparable information that the Company or any of its affiliates have received
belonging to others or which was received by the Company or any of its
Affiliates with any understanding, express or implied, that it would not be
disclosed.
(b) All documents, records, files, tapes and other media of
every kind and description relating to the business, present or otherwise, of
the Company or any of its affiliates and to their customers, prospective
customers, vendors, and any other persons with whom the Company has business
dealings, including, but not limited to, originals and all copies of all
correspondence, soliciting materials, contracts, proposals, analyses,
performance data and other written or computer software, data bases, programs
and disks, in whole or in part, thereof, whether or not prepared by the
Executive, are the sole and exclusive property of the Company and its affiliates
("Documents"). Upon termination of Executive's employment for any reason,
whether during the period set forth in Section 2 hereof or thereafter, or at
such earlier time or times as the Board may specify, the Executive shall
immediately turn over to the Company all Documents maintained by, or under the
control or possession of, the Executive.
8
<PAGE>
(c) Restricted Activities.
(i) While the Executive is employed hereunder and for a period
of two (2) years after his employment terminates (the "Non-Competition Period"),
the Executive shall not, directly or indirectly, whether as owner, partner,
investor, consultant, agent, employee, coventurer or otherwise, compete with the
Company or any of its affiliates within the United States or undertake with any
third party any planning for any business competitive with the Company or any of
its affiliates. Specifically, but without limiting the foregoing, the Executive
agrees not to engage in any manner in any activity that is directly or
indirectly competitive with the business of the Company or any of its affiliates
as conducted or under active development at any time during the Executive's
employment. Restricted activity includes without limitation accepting employment
or a consulting position with any Person who is, or at any time within twelve
(12) months prior to termination of the Executive's employment has been, a
customer of the Company or any of its affiliates accounting for 5% or more of
the revenues of the Company or such affiliates during its last complete fiscal
year. For the purposes of this Section 7, the business of the Company and its
affiliates shall include all Products and the Executive's undertaking shall
encompass all items, products and services that may be competitive with
Products.
"Products" mean all products under active development,
researched, developed, tested, manufactured, sold, licensed, leased or otherwise
distributed or put into use by the Company or any of its affiliates, together
with all services provided or
9
<PAGE>
under active development by the Company or any of its Affiliates, during the
Executive's employment.
Notwithstanding the foregoing, nothing herein shall preclude
Executive from being employed by a large entity which is engaged in the business
of the manufacture, distribution or sale of consumer electronic products, so
long as Executive is not directly engaged in the marketing, distribution or sale
of products similar to the Products or which compete therewith.
(ii) The Executive agrees that, during his employment
hereunder, he will not undertake any outside activity, whether or not
competitive with the business of the Company or any of its affiliates, that
could reasonably give rise to a conflict of interest or otherwise interfere with
his duties and obligations to the Company or any of its affiliates.
(iii) The Executive further agrees that while he is employed
by the Company hereunder and during the Non-Competition Period, the Executive
will not hire or attempt to hire any employee of the Company or any of its
affiliates, assist in such hiring by any Person, encourage any such employee to
terminate his or her relationship with, the Company or any of its affiliates, or
solicit or encourage any customer or vendor of the Company or any of its
affiliates to terminate or diminish its relationship with them or, in the case
of a customer, to conduct with any Person any business or activity which such
customer conducts or could conduct with the Company or any of its affiliates.
10
<PAGE>
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization, other than
the Company or any of its affiliates.
7. Enforcement. The Executive recognizes that his agreement to the
terms and conditions of this Section 7 represents a material inducement to the
Company to continue the Executive's employment. The Executive acknowledges that
irreparable injury may result to the Company and that the Company will have no
adequate remedy at law in the event that the Executive breaches any of the
provisions of Section 6 hereof. Accordingly, the Executive agrees that in the
event of a breach by the Executive of any of the provisions of Section 6, the
Company shall, in addition to all other rights and remedies, be entitled to
injunctive relief with respect to such breach and/or to a decree for specific
performance of the terms of such Section, in each instance without the necessity
of showing any irreparable injury or special damages.
8. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the Agreement
11
<PAGE>
provided for in this Section 8 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
(b) In the event Executive's employment under this Agreement
shall terminate for any reason while any amounts have been earned but not paid
as of the applicable Date of Termination as defined herein or are otherwise due
the Executive under the terms of Section 5 hereof or by reference thereto, then
the right to receive such amount shall survive and be enforceable after the
termination of Executive's employment hereunder by the Executive, his
successors, assigns, executors, administrators, heirs, legatees, devisees or
legal representatives.
9. Notices. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when mailed by United States registered
or certified mail, return receipt requested, postage prepaid, transmitted by
facsimile transmission or delivered by messenger addressed as follows:
If to the Executive:
Jerrold Cohen
599 Correll Avenue
Staten Island, New York 10309
If to the Company:
JAZZ Photo Corp.
1459 Pinewood Street
Rahway, NJ 07065
With a copy to: Stephen C. Kahr, Esq.
Greenberg & Kahr
3 New York Plaza
New York, New York 10004
12
<PAGE>
or to such other address as any such person may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Amendment and Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and duly authorized officer of the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
Jersey without reference to conflicts of laws.
12. Severability; Survivability. It is the intent of the parties
hereto that in case any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
the other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein. The provisions of Sections 5(g), 6, 7 and 8(b) of this Agreement shall
survive the expiration or termination of Executive's employment
13
<PAGE>
hereunder, whether during the period set forth in Section 2 of this Agreement or
thereafter, and the termination of this Agreement.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Only Employment Agreement. From and after the Effective Date,
this Agreement shall supersede any and all prior employment agreements between
the parties.
15. Future Negotiations. If the Executive is employed by the Company
six (6) months prior to the second anniversary of the Effective Date then the
Company and the Executive shall commence good faith negotiations for the purpose
of determining whether, and on what basis, if any, they can agree that Executive
may be employed by the Company after the third anniversary of the Effective
Date. The Executive shall have no obligation under this Section 15 to remain in
the employ of the Company and the Company shall have no obligation hereunder to
employ the Executive after the second anniversary of the Effective Date.
14
<PAGE>
IN WITNESS WHEREOF, the -in have executed this Agreement as of the
date and year first above written.
JAZZ PHOTO CORP.
BY: /s/ Jack Benun
-------------------------------
Jack Benun, President
/s/ Jerrold Cohen
-------------------------------
Jerrold Cohen
15
<PAGE>
Exhibit 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the day of
February, 1997 between Jazz Photo Corp., a New Jersey corporation (the
"Company"), and James Carfagno, Sr., residing at 75 Blanche Court, North
Barrington, Illinois, 60016, (the "Executive").
WHEREAS, the Company believes it is in the best interests of the Company
to retain the Executive as an executive of the Company on the terms herein
provided; and
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Effectiveness. This Agreement shall be effective as of March 1, 1997
(the "Effective Date") immediately upon the last to occur of (a) the approval by
the Board of Directors of the Company of this Agreement and (b) the execution of
this Agreement by the Company and the Executive.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions set forth
herein for the period commencing on the Effective Date and expiring on the
second anniversary thereof, unless such employment is sooner terminated as
hereinafter set forth (such period is hereinafter sometimes referred to as the
"Term of Executive's Employment").
<PAGE>
3. Position and Duties. During the Term of Executive's Employment
hereunder, the Executive shall serve as Executive Vice President, Direct Mail
Sales reporting to the Chief Executive Officer of the Company and the Board of
Directors of the Company, and shall have responsibility for of the Company's
operations, and shall have such other powers and duties as may from time to time
be prescribed by the Chief Executive Officer or by the Board of Directors of the
Company. The Executive shall devote his entire working time and efforts to the
business and affairs of the Company.
4. Compensation.
(a) (i) Executive Base Compensation. During the Term of Executive's
Employment hereunder, the Executive shall receive a base salary at the annual
rate of $75,000 (the "Executive Base Compensation"), or such amount in excess of
Executive Base Compensation as the Company shall from time to time determine in
its discretion, payable at such intervals or times as shall accord with the
Company's normal procedure.
(ii) In addition to Executive's Base Compensation during the
Term of his Employment he shall receive an amount equal to 2% of the direct mail
sales of the Company for which no other person receives a commission payment (so
called "Non-commission" or "non-repped" sales) for which he is responsible and a
1% override commission on (A) all other direct mail sales and (B) all sales to
professional photographic supply stores.
(b) Expenses. During the Term of his employment hereunder the
Executive shall be entitled to receive reimbursement for all reasonable expenses
2
<PAGE>
incurred by him (in accordance with the policies and procedures currently in
effect for the senior executive officers of the Company) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company policy.
(c) Fringe Benefits. The Executive shall be entitled to participate
in or receive benefits under any profit-sharing or pension plan, savings plan,
stock option plan, stock purchase plan, life insurance and/or death benefits
plan, medical and health-and-accident plans, or arrangement currently made
available by the Company or to be made available in the future to its executives
and key management employees, including the Company's 1997 Long-Term Incentive
Plan, as currently in effect or any comparable successor plan thereto, subject
to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to the Executive
under any plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of Base Compensation to the Executive
hereunder.
(d) Perquisites. The Executive shall be entitled to receive
perquisites appertaining to, and consistent with, the office in accordance with
such practices as may be adopted by the Company from time to time.
(e) Stock Option Grant. The Board of Directors of the Company shall
grant to Executive an option to purchase a total of 15,000 shares of the Class A
Common Stock of the Company (the "Stock Option") in accordance with the terms
and
3
<PAGE>
conditions of the Company's 1997 Long-Term Incentive Plan at an exercise price
of $1.50 per share.
5. Offices; Directorships. The Executive agrees to serve on the Board of
Directors of the Company without additional compensation, if elected or
appointed thereto, in one or more offices in, and/or as a director of, the
Company or any subsidiary or affiliate of the Company.
6. Termination.
(a) Disability. If, based on independent medical advice, from a
physician reasonably acceptable to the Company and Executive, the Board of
Directors determines that, due to physical or mental illness, the Executive has
been unable to perform his duties hereunder for six consecutive months or six
non-consecutive months in any twelve month period, the Company may terminate the
employment of the Executive by delivering a Notice of Termination specifying a
termination date. The return of the Executive to the performance of his duties
in accordance with Section 3 hereof prior to the specified termination date
shall not render such notice ineffective for the purpose of terminating
Executive's employment hereunder.
(b) Termination by the Executive. The Executive may terminate his
employment hereunder voluntarily, provided that the Executive delivers to the
Company a Notice of Termination specifying a termination date not less than
ninety (90) days subsequent to the date of such Notice of Termination.
(c) Termination by the Company. The Company may terminate the
employment of the Executive, with or without cause, by delivering a Notice of
4
<PAGE>
Termination specifying a termination date not less than ninety (90) days
subsequent to such Notice of Termination, except that, in the case of a
Termination for Cause (as herein defined), a Notice of Termination shall be
effective immediately. A "Termination Without Cause" shall mean a termination of
the Executive's employment hereunder, other than a "Termination for Cause" as
defined herein and other than pursuant to subsections (a), (b) or (d) hereof. A
"Termination for Cause" shall mean, in the context of termination of the
employment or the directorship of the Executive, any of the following events or
conditions: (i) the Executive's material failure to perform (other than by
reason of disability) his duties and responsibilities as an employee or director
which are not remedied within 30 days after receipt of written notice thereof
from the Company, (ii) fraud, embezzlement or other material dishonesty with
respect to the Company, (iii) conviction of, or plea of nolo contendere to, any
felony or any other crime involving fraud, dishonesty or moral turpitude, (iv)
the Executive shall have materially breached any confidentiality or
non-competition agreement to which the Executive is a party with the Company
directly, or (v) the Executive shall have materially breached this Agreement,
provided. however. with respect to clauses (i) and (v) hereof Executive shall
have received written notice from the Company and such material failure or
material breach shall not have been remedied within 30 days of receipt of such
notice.
(d) The Executive's employment hereunder shall terminate upon his
death.
5
<PAGE>
(e) Any termination (1) by the Company pursuant to subsections 6(a)
or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be
communicated by written Notice of Termination ("Notice of Termination") to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision
relied upon, and shall set forth the facts and circumstances claimed to provide
a basis for termination of the Executive's employment hereunder.
(f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated under Section 6(a), on the date the
Executive's employment is terminated by the Company in accordance with a Notice
of Termination under Section 6(a), (iii) if the Executive's employment is
terminated pursuant to a Notice of Termination under Section 6(c), the date upon
which such termination becomes effective pursuant to this Agreement and such
Notice of Termination, and (iv) the second anniversary of the Effective Date if
the Executive is employed by the Company at such date.
(g) Except in the case of a Termination Without Cause pursuant to
Section 6(c), the Executive shall be paid all amounts earned to the Date of
Termination. In the case of Termination Without Cause during the Executive's
employment under this Agreement pursuant to Section 6(c), the Executive shall be
paid by the Company his Base Compensation for a period commencing on the day
following the Date of Termination and ending on the second anniversary of the
Effective Date (as defined in
6
<PAGE>
Section 1 of this Agreement). Executive's rights under this Subsection (g) shall
survive the termination of his employment under this Agreement.
7. Confidential Information; Intellectual Property; Restricted Activities.
(a) Confidential Information. Executive acknowledges that Company
and its affiliates continually develop Confidential Information, that the
Executive may develop Confidential Information for the Company or its affiliates
and that the Executive may learn of Confidential Information during the course
of employment. The Executive will comply with the policies and procedures of the
Company and its affiliates for protecting Confidential Information and shall
never disclose to any person or to any governmental agency or political
subdivision of any government (except as required by applicable law or for the
proper performance of his duties and responsibilities hereunder), or use for his
own benefit or gain, any Confidential Information obtained by the Executive
incident to his employment or other association with the Company or any of its
affiliates. The Executive understands that this restriction shall continue to
apply after his employment terminates, regardless of the reason for such
termination.
"Confidential Information" means any and all information of the
Company and its affiliates that is not generally known by others with whom they
compete or do business, or with whom they actively plan to compete or do
business. Confidential Information includes without limitation such information
relating to (i) the development, research, testing, manufacturing, marketing and
financial activities of the Company and its affiliates, (ii) the Products, (iii)
Intellectual Property; (iv) the costs, sources of supply, financial performance
and strategic plans of the Company and its affiliates, (v) the
7
<PAGE>
identity and special needs of the customers of the Company and its affiliates;
and (vi) the people and organizations with whom the Company and its affiliates
have business relationships and those relationships. Confidential Information
also includes comparable information that the Company or any of its affiliates
have received belonging to others or which was received by the Company or any of
its Affiliates with any understanding, express or implied, that it would not be
disclosed.
(b) Intellectual Property. The Executive hereby assigns and agrees
to assign to the Company (or as otherwise directed by the Company) the
Executive's full right, title and interest in and to all Intellectual Property.
The Executive agrees to promptly and fully disclose all Intellectual Property to
the Company and to execute any and all applications for domestic and foreign
patents, copyrights or other proprietary rights and to do such other acts
(including without limitation the execution and delivery of instruments of
further assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce any
patents, copyrights or other proprietary rights to the Intellectual Property.
The Executive will not charge the Company for time spent in complying with these
obligations. All copyrightable works that the Executive creates shall be
considered "work made for hire".
"Intellectual Property" means inventions, discoveries, developments,
methods, processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made,
created, developed or reduced to writing by the Executive (whether alone or with
others,
8
<PAGE>
whether or not during normal business hours or on or off Company premises)
during the Executive's employment that relate to either the Products or any
activity of the Company or any of its Affiliates which is under active
development.
"Products" mean all products under active development, researched,
developed, tested, manufactured, sold, licensed, leased or otherwise distributed
or put into use by the Company or any of its affiliates, together with all
services provided or under active development by the Company or any of its
affiliates, during the Term of Executive's Employment.
(c) All documents, records, files, tapes and other media of every
kind and description relating to the business, present or otherwise, of the
Company or any of its affiliates and to their customers, prospective customers,
vendors, and any other persons with whom the Company has business dealings,
including, but not limited to, originals and all copies of all correspondence,
soliciting materials, contracts, proposals, analyses, performance data and other
written or computer software, data bases, programs and disks, in whole or in
part, thereof, whether or not prepared by the Executive, are the sole and
exclusive property of the Company and its affiliates ("Documents"). Upon
termination of Executive's employment for any reason, whether during the period
set forth in Section 2 hereof or thereafter, or at such earlier time or times as
the Board may specify, the Executive shall immediately turn over to the Company
all Documents maintained by, or under the control or possession of, the
Executive.
9
<PAGE>
(d) Restricted Activities.
(i) While the Executive is employed hereunder and for a period
of two (2) years after his employment terminates (the "Non-Competition Period"),
the Executive shall not, directly or indirectly, whether as owner, partner,
investor, consultant, agent, employee, coventurer or otherwise, compete with the
Company or any of its affiliates within the United States or within any country
in which the Company makes sales of products representing 50% or more of its
revenue undertake with any third party any planning for any business competitive
with the Company or any of its affiliates. Specifically, but without limiting
the foregoing, the Executive agrees not to engage in any manner in any activity
that is directly or indirectly competitive with the business of the Company or
any of its affiliates as conducted or under active development at any time
during the Term of Executive's Employment. For the purposes of this Section 7,
the business of the Company and its affiliates shall include all Products and
the Executive's undertaking shall encompass all items, products and services
that may be competitive with Products.
(ii) The Executive agrees that, during his employment
hereunder, he will not undertake any outside activity, whether or not
competitive with the business of the Company or any of its affiliates, that
could reasonably give rise to a conflict of interest or otherwise interfere with
his duties and obligations to the Company or any of its affiliates.
(iii) The Executive further agrees that while he is employed
by the Company hereunder and during the Non-Competition Period, the Executive
will not
10
<PAGE>
hire or attempt to hire any employee of the Company or any of its affiliates to
perform services for any Person, assist in such hiring by any Person, encourage
any such employee to terminate his or her relationship with, the Company or any
of its affiliates, or solicit or encourage any customer or vendor of the Company
or any of its affiliates to terminate or diminish its relationship with them or,
in the case of a customer, to conduct with any Person any business or activity
which such customer conducts or could conduct with the Company or any of its
affiliates.
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization, other than
the Company or any of its affiliates.
Notwithstanding anything to the contrary contained in this paragraph
(d), nothing shall preclude Executive from continuing to perform services for
Affiliated Enterprises so long as it does not engage in activities different
from those in which it currently engages which compete directly with the
Company.
8. Enforcement. The Executive recognizes that his agreement to the terms
and conditions of this Section 8 represents a material inducement to the Company
to employ the Executive. The Executive acknowledges that irreparable injury may
result to the Company and that the Company will have no adequate remedy at law
in the event that the Executive breaches any of the provisions of Section 7
hereof. Accordingly, the Executive agrees that in the event of a breach by the
Executive of any of the provisions of Section 7, the Company shall, in addition
to all other rights and remedies, be entitled to injunctive relief with respect
to such breach and/or to a decree
11
<PAGE>
for specific performance of the terms of such Section, in each instance without
the necessity of showing any irreparable injury or special damages.
9. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the Agreement provided for in this Section 9 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) In the event Executive's employment under this Agreement shall
terminate for any reason while any amounts have been earned but not paid as of
the applicable Date of Termination as defined herein or are otherwise due the
Executive under the terms of Section 6 hereof or by reference thereto, then the
right to receive such amount shall survive and be enforceable after the
termination of Executive's employment hereunder by the Executive, his
successors, assigns, executors, administrators, heirs, legatees, devisees or
legal representatives.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when mailed by United States registered or
certified mail,
12
<PAGE>
return receipt requested, postage prepaid, transmitted by facsimile transmission
or delivered by messenger addressed as follows:
If to the Executive:
James Carfagno, Sr.
75 Blanche Court
North Barrington, IL 60016
If to the Company:
JAZZ Photo Corp.
1459 Pinewood Street
Rahway, NJ 07065
with a copy to: Stephen C. Kahr, Esq.
Greenberg & Kahr
3 New York Plaza
New York, New York 10004
or to such other address as any such person may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Amendment and Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
13
<PAGE>
12. Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
Jersey without reference to conflicts of laws.
13. Severability; Survivability. It is the intent of the parties hereto
that in case any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect the
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. The provisions of Sections 6(g), 7, 8 and 9(b) of this Agreement shall
survive the expiration or termination of Executive's employment hereunder,
whether during the period set forth in Section 2 of this Agreement or
thereafter, and the termination of this Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Only Employment Agreement. From and after the Effective Date, this
Agreement shall supersede any and all prior employment agreements between the
parties.
16. Future Negotiations. If the Executive is employed by the Company six
(6) months prior to the third anniversary of the Effective Date then the Company
and the Executive shall commence good faith negotiations for the purpose of
determining whether, and on what basis, if any, they can agree that Executive
may be employed by
14
<PAGE>
the Company after the third anniversary of the Effective Date. The Executive
shall have no obligation under this Section 16 to remain in the employ of the
Company and the Company shall have no obligation hereunder to employ the
Executive after the second anniversary of the Effective Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
JAZZ PHOTO CORP.
BY: /s/ Jack Benun
----------------------------------
Jack Benun, President
/s/ James Carfagno, Sr.
----------------------------------
James Carfagno, Sr.
15
<PAGE>
Exhibit 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the ___ day of
February, 1997 between Jazz Photo Corp., a New Jersey corporation (the
"Company"), and Jeffrey Burkard, residing at 102 Noddingham Drive, Eatontown,
New Jersey 07724, (the "Executive").
WHEREAS, the Company believes it is in the best interests of the Company
to retain the Executive as an executive of the Company on the terms herein
provided; and
WHEREAS, the Executive is desirous of committing himself to serve the
Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Effectiveness. This Agreement shall be effective as of January 1, 1997
(the "Effective Date") immediately upon the last to occur of (a) the approval by
the Board of Directors of the Company of this Agreement and (b) the execution of
this Agreement by the Company and the Executive.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions set forth
herein for the period commencing on the Effective Date and expiring on the third
anniversary thereof, unless such employment is sooner terminated as hereinafter
set forth (such period is hereinafter sometimes referred to as the "Term of
Executive's Employment").
<PAGE>
3. Position and Duties. During the Term of Executive's Employment
hereunder, the Executive shall serve as Vice President, Operations reporting to
the Chief Executive Officer of the Company and the Board of Directors of the
Company, and shall have responsibility for of the Company's operations, and
shall have such other powers and duties as may from time to time be prescribed
by the Chief Executive Officer or by the Board of Directors of the Company. The
Executive shall devote his entire working time and efforts to the business and
affairs of the Company.
4. Compensation.
(a) Executive Base Compensation. During the Term of Executive's
Employment hereunder, the Executive shall receive a base salary at the annual
rate of $104,000.00 (the "Executive Base Compensation"), or such amount in
excess of Executive Base Compensation as the Company shall from time to time
determine in its discretion, payable at such intervals or times as shall accord
with the Company's normal procedure.
(b) Expenses. During the Term of his employment hereunder the
Executive shall be entitled to receive reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and procedures currently in
effect for the senior executive officers of the Company) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company policy.
(c) Fringe Benefits. The Executive shall be entitled to participate
in or receive benefits under any profit-sharing or pension plan, savings plan,
stock option plan, stock
2
<PAGE>
purchase plan, life insurance and/or death benefits plan, medical and
health-and-accident plans, or arrangement currently made available by the
Company or to be made available in the future to its executives and key
management employees, including the Company's 1997 Long-Term Incentive Plan, as
currently in effect or any comparable successor plan thereto, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Nothing paid to the Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of Base Compensation to the Executive hereunder.
(d) Perquisites. The Executive shall be entitled to receive
perquisites appertaining to, and consistent with, the office in accordance with
such practices as may be adopted by the Company from time to time.
(e) Stock Option Grant. The Board of Directors of the Company shall
grant to Executive an option to purchase a total of 15,000 shares of the Class A
Common Stock of the Company (the "Stock Option") in accordance with the terms
and conditions of the Company's 1997 Long-Term Incentive Plan at an exercise
price of $1.50 per share.
5. Offices; Directorships. The Executive agrees to serve on the Board of
Directors of the Company without additional compensation, if elected or
appointed thereto, in one or more offices in, and/or as a director of, the
Company or any subsidiary or affiliate of the Company.
3
<PAGE>
6. Termination.
(a) Disability. If, based on independent medical advice, from a
physician reasonably acceptable to the Company and Executive, the Board of
Directors determines that, due to physical or mental illness, the Executive has
been unable to perform his duties hereunder for six consecutive months or six
non-consecutive months in any twelve month period, the Company may terminate the
employment of the Executive by delivering a Notice of Termination specifying a
termination date. The return of the Executive to the performance of his duties
in accordance with Section 3 hereof prior to the specified termination date
shall not render such notice ineffective for the purpose of terminating
Executive's employment hereunder.
(b) Termination by the Executive. The Executive may terminate his
employment hereunder voluntarily, provided that the Executive delivers to the
Company a Notice of Termination specifying a termination date not less than
ninety (90) days subsequent to the date of such Notice of Termination.
(c) Termination by the Company. The Company may terminate the
employment of the Executive, with or without cause, by delivering a Notice of
Termination specifying a termination date not less than ninety (90) days
subsequent to such Notice of Termination, except that, in the case of a
Termination for Cause (as herein defined), a Notice of Termination shall be
effective immediately. A "Termination Without Cause" shall mean a termination of
the Executive's employment hereunder, other than a "Termination for Cause" as
defined herein and other than pursuant to subsections (a), (b) or (d) hereof. A
"Termination for Cause" shall mean, in the context
4
<PAGE>
of termination of the employment or the directorship of the Executive, any of
the following events or conditions: (i) the Executive's material failure to
perform (other than by reason of disability) his duties and responsibilities as
an employee or director which are not remedied within 30 days after receipt of
written notice thereof from the Company, (ii) fraud, embezzlement or other
material dishonesty with respect to the Company, (iii) conviction of, or plea of
nolo contendere to, any felony or any other crime involving fraud, dishonesty or
moral turpitude, (iv) the Executive shall have materially breached any
confidentiality or non-competition agreement to which the Executive is a party
with the Company directly, or (v) the Executive shall have materially breached
this Agreement, provided, however, with respect to clauses (i) and (v) hereof
Executive shall have received written notice from the Company and such material
failure or material breach shall not have been remedied within 30 days of
receipt of such notice and provided, further, that the termination of the
employment of the Executive shall not be deemed to be a Termination for Cause
unless (1) the written notice of termination indicates the specific termination
provision relied upon and sets forth the facts and circumstances claimed to
provide a basis for termination; (2) an opportunity is provided for the
Executive, together with his counsel, to be heard before the Board of Directors
on the matter of termination; and (3) the Executive receives a letter of
termination from the Board of Directors stating that in the good faith opinion
of the Board, the Executive was guilty of the conduct set forth in clauses (c),
(i), (ii), (iii), (iv), and (v).
5
<PAGE>
(d) The Executive's employment hereunder shall terminate upon his
death.
(e) Any termination (1) by the Company pursuant to subsections 6(a)
or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be
communicated by written Notice of Termination ("Notice of Termination") to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision
relied upon, and shall set forth the facts and circumstances claimed to provide
a basis for termination of the Executive's employment hereunder.
(f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated under Section 6(a), on the date the
Executive's employment is terminated by the Company in accordance with a Notice
of Termination under Section 6(a), (iii) if the Executive's employment is
terminated pursuant to a Notice of Termination under Section 6(c), the date upon
which such termination becomes effective pursuant to this Agreement and such
Notice of Termination, and (iv) the third [2-second] anniversary of the
Effective Date if the Executive is employed by the Company at such date.
(g) Except in the case of a Termination Without Cause pursuant to
Section 6(c), the Executive shall be paid all amounts earned to the Date of
Termination. In the case of Termination Without Cause during the Executive's
employment under this Agreement pursuant to Section 6(c), the Executive shall be
paid by the Company his Base Compensation for a period commencing on the day
following the Date of
6
<PAGE>
Termination and ending on the third [second] anniversary of the Effective Date
(as defined in Section 1 of this Agreement). Executive's rights under this
Subsection (g) shall survive the termination of his employment under this
Agreement.
7. Confidential Information; Intellectual Property; Restricted Activities.
(a) Confidential Information. Executive acknowledges that Company
and its affiliates continually develop Confidential Information, that the
Executive may develop Confidential Information for the Company or its affiliates
and that the Executive may learn of Confidential Information during the course
of employment. The Executive will comply with the policies and procedures of the
Company and its affiliates for protecting Confidential Information and shall
never disclose to any person or to any governmental agency or political
subdivision of any government (except as required by applicable law or for the
proper performance of his duties and responsibilities hereunder), or use for his
own benefit or gain, any Confidential Information obtained by the Executive
incident to his employment or other association with the Company or any of its
affiliates. The Executive understands that this restriction shall continue to
apply after his employment terminates, regardless of the reason for such
termination.
"Confidential Information" means any and all information of the
Company and its affiliates that is not generally known by others with whom they
compete or do business, or with whom they actively plan to compete or do
business. Confidential Information includes without limitation such information
relating to (i) the development, research, testing, manufacturing, marketing and
financial activities of the Company and its affiliates, (ii) the Products, (iii)
Intellectual Property; (iv) the costs, sources of supply,
7
<PAGE>
financial performance and strategic plans of the Company and its affiliates, (v)
the identity and special needs of the customers of the Company and its
affiliates; and (vi) the people and organizations with whom the Company and its
affiliates have business relationships and those relationships. Confidential
Information also includes comparable information that the Company or any of its
affiliates have received belonging to others or which was received by the
Company or any of its Affiliates with any understanding, express or implied,
that it would not be disclosed.
(b) Intellectual Property. The Executive hereby assigns and agrees
to assign to the Company (or as otherwise directed by the Company) the
Executive's full right, title and interest in and to all Intellectual Property.
The Executive agrees to promptly and fully disclose all Intellectual Property to
the Company and to execute any and all applications for domestic and foreign
patents, copyrights or other proprietary rights and to do such other acts
(including without limitation the execution and delivery of instruments of
further assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce any
patents, copyrights or other proprietary rights to the Intellectual Property.
The Executive will not charge the Company for time spent in complying with these
obligations. All copyrightable works that the Executive creates shall be
considered "work made for hire".
"Intellectual Property" means inventions, discoveries, developments,
methods, processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made,
created,
8
<PAGE>
developed or reduced to writing by the Executive (whether alone or with others,
whether or not during normal business hours or on or off Company premises)
during the Executive's employment that relate to either the Products or any
activity of the Company or any of its Affiliates which is under active
development.
"Products" mean all products under active development, researched,
developed, tested, manufactured, sold, licensed, leased or otherwise distributed
or put into use by the Company or any of its affiliates, together with all
services provided or under active development by the Company or any of its
affiliates, during the Term of Executive's Employment.
(c) All documents, records, files, tapes and other media of every
kind and description relating to the business, present or otherwise, of the
Company or any of its affiliates and to their customers, prospective customers,
vendors, and any other persons with whom the Company has business dealings,
including, but not limited to, originals and all copies of all correspondence,
soliciting materials, contracts, proposals, analyses, performance data and other
written or computer software, data bases, programs and disks, in whole or in
part, thereof, whether or not prepared by the Executive, are the sole and
exclusive property of the Company and its affiliates ("Documents"). Upon
termination of Executive's employment for any reason, whether during the period
set forth in Section 2 hereof or thereafter, or at such earlier time or times as
the Board may specify, the Executive shall immediately turn over to the Company
all Documents maintained by, or under the control or possession of, the
Executive.
9
<PAGE>
(d) Restricted Activities.
(i) While the Executive is employed hereunder and for a period
of two (2) years after his employment terminates (the "Non-Competition Period"),
the Executive shall not, directly or indirectly, whether as owner, partner,
investor, consultant, agent, employee, coventurer or otherwise, compete with the
Company or any of its affiliates within the United States or within any country
in which the Company makes sales of products representing 50% or more of its
revenue undertake with any third party any planning for any business competitive
with the Company or any of its affiliates. Specifically, but without limiting
the foregoing, the Executive agrees not to engage in any manner in any activity
that is directly or indirectly competitive with the business of the Company or
any of its affiliates as conducted or under active development at any time
during the Term of Executive's Employment. For the purposes of this Section 7,
the business of the Company and its affiliates shall include all Products and
the Executive's undertaking shall encompass all items, products and services
that may be competitive with Products.
(ii) The Executive agrees that, during his employment
hereunder, he will not undertake any outside activity, whether or not
competitive with the business of the Company or any of its affiliates, that
could reasonably give rise to a conflict of interest or otherwise interfere with
his duties and obligations to the Company or any of its affiliates.
(iii) The Executive further agrees that while he is employed
by the Company hereunder and during the Non-Competition Period, the Executive
will not
10
<PAGE>
hire or attempt to hire any employee of the Company or any of its affiliates to
perform services for any Person, assist in such hiring by any Person, encourage
any such employee to terminate his or her relationship with, the Company or any
of its affiliates, or solicit or encourage any customer or vendor of the Company
or any of its affiliates to terminate or diminish its relationship with them or,
in the case of a customer, to conduct with any Person any business or activity
which such customer conducts or could conduct with the Company or any of its
affiliates.
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization, other than
the Company or any of its affiliates.
8. Enforcement. The Executive recognizes that his agreement to the terms
and conditions of this Section 8 represents a material inducement to the Company
to employ the Executive. The Executive acknowledges that irreparable injury may
result to the Company and that the Company will have no adequate remedy at law
in the event that the Executive breaches any of the provisions of Section 7
hereof. Accordingly, the Executive agrees that in the event of a breach by the
Executive of any of the provisions of Section 7, the Company shall, in addition
to all other rights and remedies, be entitled to injunctive relief with respect
to such breach and/or to a decree for specific performance of the terms of such
Section, in each instance without the necessity of showing any irreparable
injury or special damages.
11
<PAGE>
9. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the Agreement provided for in this Section 9 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) In the event Executive's employment under this Agreement shall
terminate for any reason while any amounts have been earned but not paid as of
the applicable Date of Termination as defined herein or are otherwise due the
Executive under the terms of Section 6 hereof or by reference thereto, then the
right to receive such amount shall survive and be enforceable after the
termination of Executive's employment hereunder by the Executive, his
successors, assigns, executors, administrators, heirs, legatees, devisees or
legal representatives.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when mailed by United States registered or
certified mail,
12
<PAGE>
return receipt requested, postage prepaid, transmitted by facsimile transmission
or delivered by messenger addressed as follows:
If to the Executive:
Jeffrey Burkard
102 Noddingham Drive
Eatontown, NJ 07724
If to the Company:
JAZZ Photo Corp.
1459 Pinewood Street
Rahway, NJ O7065agreement
with a copy to: Stephen C. Kahr, Esq.
Greenberg & Kahr
3 New York Plaza
New York, New York 10004
or to such other address as any such person may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Amendment and Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
13
<PAGE>
12. Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
Jersey without reference to conflicts of laws.
13. Severability; Survivability. It is the intent of the parties hereto
that in case any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect the
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. The provisions of Sections 6(g), 7, 8 and 9(b) of this Agreement shall
survive the expiration or termination of Executive's employment hereunder,
whether during the period set forth in Section 2 of this Agreement or
thereafter, and the termination of this Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Only Employment Agreement. From and after the Effective Date, this
Agreement shall supersede any and all prior employment agreements between the
parties.
16. Future Negotiations. If the Executive is employed by the Company six
(6) months prior to the third anniversary of the Effective Date then the Company
and the Executive shall commence good faith negotiations for the purpose of
determining whether, and on what basis, if any, they can agree that Executive
may be employed by
14
<PAGE>
the Company after the third anniversary of the Effective Date. The Executive
shall have no obligation under this Section 16 to remain in the employ of the
Company and the Company shall have no obligation hereunder to employ the
Executive after the second anniversary of the Effective Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
JAZZ PHOTO CORP.
By: /s/ Jack Benun
------------------
Jack Benun, President
/s/ Jeffrey Burkard
-------------------
Jeffrey Burkard
15
<PAGE>
Exhibit 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the __ day of
April, 1997 among Jazz Photo Corp., a New Jersey corporation ("Jazz"), Jazz
Photo (Hong Kong) Limited, a corporation formed under the laws of Hong Kong (the
"Company"), and Jessie Szeto, residing at 21/F, Flat C, Block II, Ho Fai Garden,
Sai Lau Kok Street, Tsuen Wan, Hong Kong (the "Executive").
WHEREAS, the Company believes it is in the best interests of the Company
to retain the Executive as an executive of the Company on the terms herein
provided; and
WHEREAS, the Executive is desirous of committing herself to serve the
Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Effectiveness. This Agreement shall be effective as of April 1, 1997
(the "Effective Date") immediately upon the last to occur of (a) the approval by
the Board of Directors of the Company of this Agreement and (b) the execution of
this Agreement by the Company, Jazz and the Executive.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions set forth
herein for the period commencing on the Effective Date and expiring on the third
anniversary thereof, unless such employment is sooner terminated as hereinafter
set
<PAGE>
forth (such period is hereinafter sometimes referred to as the "Term of
Executive's Employment").
3. Position and Duties. During the Term of Executive's Employment
hereunder, the Executive shall serve as Managing Director of the Company
reporting to the Chief Executive Officer of Jazz, the Board of Directors of the
Company and Jazz, and shall have responsibility for all aspects of the Company's
operations, and shall have such other powers and duties as may from time to time
be prescribed by the Chief Executive Officer or by the Board of Directors of the
Company and Jazz. The Executive shall devote her entire working time and efforts
to the business and affairs of the Company.
4. Compensation.
(a) (i) Executive Base Compensation. During the Term of Executive's
Employment hereunder, the Executive shall receive a base salary at the annual
rate of HK$ 780,000 (the "Executive Base Compensation"), or such amount in
excess of Executive Base Compensation as the Company shall from time to time
determine in its discretion, payable at such intervals or times as shall accord
with the Company's normal procedure.
(b) Expenses. During the Term of her employment hereunder the
Executive shall be entitled to receive reimbursement for all reasonable expenses
incurred by her (in accordance with the policies and procedures currently in
effect for the senior executive officers of the Company) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company
2
<PAGE>
policy. Executive shall have an expense allowance of HK$8,000 per month to
employ persons to provide part-time services.
(c) Fringe Benefits. The Executive shall be entitled to participate
in or receive benefits under any profit-sharing or pension plan, savings plan,
stock option plan, stock purchase plan, life insurance and/or death benefits
plan, medical and health-and-accident plans, or arrangement currently made
available by the Company or Jazz or to be made available in the future to its
executives and key management employees, including Jazz's 1997 Long-Term
Incentive Plan, as currently in effect or any comparable successor plan thereto,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to the Executive
under any plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of Base Compensation to the Executive
hereunder.
(d) Perquisites. The Executive shall be entitled to receive
perquisites appertaining to, and consistent with, the office in accordance with
such practices as may be adopted by the Company from time to time.
(e) Stock Option Grant. The Board of Directors of Jazz shall grant
to Executive an option to purchase a total of 20,000 shares of the Class A
Common Stock of the Company (the "Stock Option") in accordance with the terms
and conditions of the Company's 1997 Long-Term Incentive Plan at an exercise
price of $1.50 per share.
5. Offices; Directorships. The Executive agrees to serve on the Board of
Directors of the Company without additional compensation, if elected or
appointed
3
<PAGE>
thereto, in one or more offices in, and/or as a director of, the Company or any
subsidiary or affiliate of the Company.
6. Termination.
(a) Disability. If, based on independent medical advice, from a
physician reasonably acceptable to the Company and Executive, the Board of
Directors determines that, due to physical or mental illness, the Executive has
been unable to perform her duties hereunder for six consecutive months or six
non-consecutive months in any twelve month period, the Company may terminate the
employment of the Executive by delivering a Notice of Termination specifying a
termination date. The return of the Executive to the performance of her duties
in accordance with Section 3 hereof prior to the specified termination date
shall not render such notice ineffective for the purpose of terminating
Executive's employment hereunder.
(b) Termination by the Executive. The Executive may terminate her
employment hereunder voluntarily, provided that the Executive delivers to the
Company a Notice of Termination specifying a termination date not less than
ninety (90) days subsequent to the date of such Notice of Termination.
(c) Termination by the Company. The Company may terminate the
employment of the Executive, with or without cause, by delivering a Notice of
Termination specifying a termination date not less than ninety (90) days
subsequent to such Notice of Termination, except that, in the case of a
Termination for Cause (as herein defined), a Notice of Termination shall be
effective immediately. A "Termination Without Cause" shall mean a termination of
the Executive's employment hereunder,
4
<PAGE>
other than a "Termination for Cause" as defined herein and other than pursuant
to subsections (a), (b) or (d) hereof. A "Termination for Cause" shall mean, in
the context of termination of the employment or the directorship of the
Executive, any of the following events or conditions: (i) the Executive's
material failure to perform (other than by reason of disability) her duties and
responsibilities as an employee or director which are not remedied within 30
days after receipt of written notice thereof from the Company, (ii) fraud,
embezzlement or other material dishonesty with respect to the Company, (iii)
conviction of, or plea of nolo contendere to, any felony or any other crime
involving fraud, dishonesty or moral turpitude, (iv) the Executive shall have
materially breached any confidentiality or non-competition agreement to which
the Executive is a party with the Company directly, or (v) the Executive shall
have materially breached this Agreement, provided, however, with respect to
clauses (i) and (v) hereof Executive shall have received written notice from the
Company and such material failure or material breach shall not have been
remedied within 30 days of receipt of such notice.
(d) The Executive's employment hereunder shall terminate upon her
death.
(e) Any termination (1) by the Company pursuant to subsections 6(a)
or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be
communicated by written Notice of Termination ("Notice of Termination") to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision
relied upon, and shall set
5
<PAGE>
forth the facts and circumstances claimed to provide a basis for termination of
the Executive's employment hereunder.
(f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by her death, the date of her death, (ii) if the
Executive's employment is terminated under Section 6(a), on the date the
Executive's employment is terminated by the Company in accordance with a Notice
of Termination under Section 6(a), (iii) if the Executive's employment is
terminated pursuant to a Notice of Termination under Section 6(c), the date upon
which such termination becomes effective pursuant to this Agreement and such
Notice of Termination, and (iv) the third anniversary of the Effective Date if
the Executive is employed by the Company at such date.
(g) Except in the case of a Termination Without Cause pursuant to
Section 6(c), the Executive shall be paid all amounts earned to the Date of
Termination. In the case of Termination Without Cause during the Executive's
employment under this Agreement pursuant to Section 6(c), the Executive shall be
paid by the Company her Base Compensation for a period commencing on the day
following the Date of Termination and ending on the third anniversary of the
Effective Date (as defined in Section 1 of this Agreement). Executive's rights
under this Subsection (g) shall survive the termination of her employment under
this Agreement.
7. Confidential Information; Intellectual Property; Restricted Activities.
(a) Confidential Information. Executive acknowledges that Company
and its affiliates continually develop Confidential Information, that the
Executive may develop Confidential Information for the Company or its affiliates
and that the Executive
6
<PAGE>
may learn of Confidential Information during the course of employment. The
Executive will comply with the policies and procedures of the Company and its
affiliates for protecting Confidential Information and shall never disclose to
any person or to any governmental agency or political subdivision of any
government (except as required by applicable law or for the proper performance
of her duties and responsibilities hereunder), or use for her own benefit or
gain, any Confidential Information obtained by the Executive incident to her
employment or other association with the Company or any of its affiliates. The
Executive understands that this restriction shall continue to apply after her
employment terminates, regardless of the reason for such termination.
"Confidential Information" means any and all information of the
Company and its affiliates that is not generally known by others with whom they
compete or do business, or with whom they actively plan to compete or do
business. Confidential Information includes without limitation such information
relating to (i) the development, research, testing, manufacturing, marketing and
financial activities of the Company and its affiliates, (ii) the Products, (iii)
Intellectual Property; (iv) the costs, sources of supply, financial performance
and strategic plans of the Company and its affiliates, (v) the identity and
special needs of the customers of the Company and its affiliates; and (vi) the
people and organizations with whom the Company and its affiliates have business
relationships and those relationships. Confidential Information also includes
comparable information that the Company or any of its affiliates have received
belonging to others or which was received by the Company or any of its
Affiliates with any understanding, express or implied, that it would not be
disclosed.
7
<PAGE>
(b) Intellectual Property. The Executive hereby assigns and agrees
to assign to the Company (or as otherwise directed by the Company) the
Executive's full right, title and interest in and to all Intellectual Property.
The Executive agrees to promptly and fully disclose all Intellectual Property to
the Company and to execute any and all applications for domestic and foreign
patents, copyrights or other proprietary rights and to do such other acts
(including without limitation the execution and delivery of instruments of
further assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce any
patents, copyrights or other proprietary rights to the Intellectual Property.
The Executive will not charge the Company for time spent in complying with these
obligations. All copyrightable works that the Executive creates shall be
considered "work made for hire".
"Intellectual Property" means inventions, discoveries, developments,
methods, processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made,
created, developed or reduced to writing by the Executive (whether alone or with
others, whether or not during normal business hours or on or off Company
premises) during the Executive's employment that relate to either the Products
or any activity of the Company or any of its Affiliates which is under active
development.
"Products" mean all products under active development, researched,
developed, tested, manufactured, sold, licensed, leased or otherwise distributed
or put into use by the Company or any of its affiliates, together with all
services provided or
8
<PAGE>
under active development by the Company or any of its affiliates, during the
Term of Executive's Employment.
(c) All documents, records, files, tapes and other media of every
kind and description relating to the business, present or otherwise, of the
Company or any of its affiliates and to their customers, prospective customers,
vendors, and any other persons with whom the Company has business dealings,
including, but not limited to, originals and all copies of all correspondence,
soliciting materials, contracts, proposals, analyses, performance data and other
written or computer software, data bases, programs and disks, in whole or in
part, thereof, whether or not prepared by the Executive, are the sole and
exclusive property of the Company and its affiliates ("Documents"). Upon
termination of Executive's employment for any reason, whether during the period
set forth in Section 2 hereof or thereafter, or at such earlier time or times as
the Board may specify, the Executive shall immediately turn over to the Company
all Documents maintained by, or under the control or possession of, the
Executive.
(d) Restricted Activities.
(i) While the Executive is employed hereunder and for a period
of two (2) years after her employment terminates (the "Non-Competition Period"),
the Executive shall not, directly or indirectly, whether as owner, partner,
investor, consultant, agent, employee, coventurer or otherwise, compete with the
Company or any of its affiliates within the United States or within any country
in which the Company makes sales of products representing 50% or more of its
revenue undertake with any
9
<PAGE>
third party any planning for any business competitive with the Company or any of
its affiliates. Specifically, but without limiting the foregoing, the Executive
agrees not to engage in any manner in any activity that is directly or
indirectly competitive with the business of the Company or any of its affiliates
as conducted or under active development at any time during the Term of
Executive's Employment. For the purposes of this Section 7, the business of the
Company and its affiliates shall include all Products and the Executive's
undertaking shall encompass all items, products and services that may be
competitive with Products.
(ii) The Executive agrees that, during her employment
hereunder, she will not undertake any outside activity, whether or not
competitive with the business of the Company or any of its affiliates, that
could reasonably give rise to a conflict of interest or otherwise interfere with
her duties and obligations to the Company or any of its affiliates.
(iii) The Executive further agrees that while she is employed
by the Company hereunder and during the Non-Competition Period, the Executive
will not hire or attempt to hire any employee of the Company or any of its
affiliates to perform services for any Person, assist in such hiring by any
Person, encourage any such employee to terminate her or her relationship with,
the Company or any of its affiliates, or solicit or encourage any customer or
vendor of the Company or any of its affiliates to terminate or diminish its
relationship with them or, in the case of a customer, to conduct with any Person
any business or activity which such customer conducts or could conduct with the
Company or any of its affiliates.
10
<PAGE>
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization, other than
the Company or any of its affiliates.
8. Enforcement. The Executive recognizes that her agreement to the terms
and conditions of this Section 8 represents a material inducement to the Company
to employ the Executive. The Executive acknowledges that irreparable injury may
result to the Company and that the Company will have no adequate remedy at law
in the event that the Executive breaches any of the provisions of Section 7
hereof. Accordingly, the Executive agrees that in the event of a breach by the
Executive of any of the provisions of Section 7, the Company shall, in addition
to all other rights and remedies, be entitled to injunctive relief with respect
to such breach and/or to a decree for specific performance of the terms of such
Section, in each instance without the necessity of showing any irreparable
injury or special damages.
9. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the Agreement
11
<PAGE>
provided for in this Section 9 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
(b) In the event Executive's employment under this Agreement shall
terminate for any reason while any amounts have been earned but not paid as of
the applicable Date of Termination as defined herein or are otherwise due the
Executive under the terms of Section 6 hereof or by reference thereto, then the
right to receive such amount shall survive and be enforceable after the
termination of Executive's employment hereunder by the Executive, her
successors, assigns, executors, administrators, heirs, legatees, devisees or
legal representatives.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, transmitted by
facsimile transmission or delivered by messenger addressed as follows:
If to the Executive:
Jessie Szeto
21/F, Flat C,
Block II, Ho Fai Garden
Sai Lau Kok Street
Tsuen Wan
Hong Kong
12
<PAGE>
If to Jazz:
JAZZ Photo Corp.
1459 Pinewood Street
Rahway, NJ 07065
with a copy to: Stephen C. Kahr, Esq.
Greenberg & Kahr
3 New York Plaza
New York, New York 10004
or to such other address as any such person may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Amendment and Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
12. Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
Jersey without reference to conflicts of laws.
13. Severability; Survivability. It is the intent of the parties hereto
that in case any one or more of the provisions contained in this Agreement
shall, for any reason, be
13
<PAGE>
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. The provisions of
Sections 6(g), 7, 8 and 9(b) of this Agreement shall survive the expiration or
termination of Executive's employment hereunder, whether during the period set
forth in Section 2 of this Agreement or thereafter, and the termination of this
Agreement.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Only Employment Agreement. From and after the Effective Date, this
Agreement shall supersede any and all prior employment agreements between the
parties.
16. Future Negotiations. If the Executive is employed by the Company six
(6) months prior to the third anniversary of the Effective Date then the Company
and the Executive shall commence good faith negotiations for the purpose of
determining whether, and on what basis, if any, they can agree that Executive
may be employed by the Company after the third anniversary of the Effective
Date. The Executive shall have no obligation under this Section 16 to remain in
the employ of the Company and the Company shall have no obligation hereunder to
employ the Executive after the second anniversary of the Effective Date.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
JAZZ PHOTO CORP.
BY: s/
------------------------------------
Roger F. Lorenzini, President
JAZZ Photo (HONG KONG) LIMITED
BY: s/
------------------------------------
Roger F. Lorenzini
/s/ Jessie Szeto
------------------------------------
Jessie Szeto
15
<PAGE>
Exhibit 10.9
CONSULTING AGREEMENT
AGREEMENT made as of this _____ day of __________, 1997 by and
between Jazz Photo Corp. ("JAZZ"), a corporation organized under the laws of the
State of New Jersey and having its place of business at 1459 Pinewood Street,
Rahway, NJ 07065, U.S.A.; and George Erfurt ("Consultant") residing at 806
Dellwood Lane, Whippany, New Jersey 07981.
WITNESSETH
WHEREAS, JAZZ is engaged in the design, development, marketing,
distribution and sale of cameras and other photographic products worldwide; and
WHEREAS, Consultant has expertise in marketing and sale of camera
and related products; and
WHEREAS, JAZZ wishes to retain Consultant to assist in sales and
marketing on the terms and conditions hereinafter set forth;
NOW, THEREFORE, it is hereby agreed by and between the parties
hereto as follows:
A. Consultant agrees to assist JAZZ:
1) with respect to all aspects of the marketing and sale of
its products in the U.S. and other markets, designing a broad marketing plan,
defining and developing plans for market sectors and in supporting sales to
customers, in each case at the request of the senior executives of the Company
and its Board of Directors.
<PAGE>
Consultant shall make available his services for the purpose of consulting
directly in person and/or by telephone with Roger F. Lorenzini ("Lorenzini"),
the Chief Executive Officer of JAZZ. Such consultations may take place in the
offices of JAZZ or in the offices of Consultant or in such other location or
locations as may be mutually agreed to the parties.
B. Consultant will render its services as contemplated in this
Agreement directly to Lorenzini or to other personnel of JAZZ who may from time
to time be designated by Lorenzini or JAZZ's Board of Directors. JAZZ shall
clearly identify Consultant to its customers, vendors and financing sources as
its consultant, and not an employee of JAZZ. Any written disclosure by either
party to persons not parties to this Agreement of its relationship to the other
party will be subject to mutual approval by the parties. The parties will agree
to terms and conditions with respect to oral descriptions of their relationship.
In no event will Consultant be characterized as an officer, director, partner or
employee of JAZZ.
C. The relationship of Consultant and its employees to JAZZ shall be
that of independent contractors during the term hereof. Nothing herein shall be
construed to create any partnership, joint venture, employment, agency or
similar relationship or subject JAZZ or Consultant to any implied duties or
obligations not expressly stated herein. Consultant shall not have any right,
express or implied, to assume or create any obligation or duty, on behalf of, or
in the name of JAZZ, or to bind JAZZ in any respect whatsoever.
2
<PAGE>
2. Compensation. Consultant shall be paid a consulting fee of $1,500 per
week. As additional compensation for the consulting services rendered hereunder,
JAZZ shall pay Consultant an amount equal to 1.00% of the Net Sales for products
of JAZZ shipped during the preceding month, payable on the 10th business day of
each calendar month during the term of this Agreement to customers whose names
are listed on the annexed Schedule A or whose names are added thereto by mutual
agreement. "Net Sales" shall mean Gross Revenues from all products and services
of JAZZ less returns, discounts and allowances.
In addition to the foregoing Consultant shall be reimbursed for any actual
out-of-pocket expenses reasonably incurred by Consultant in connection with
travel or otherwise for the performance of his consulting services hereunder.
The parties may from time to time amend this Agreement with respect to
additional compensation to be paid to Consultant
3. Term. This Agreement will continue in effect until December 31, 1997
(the "Term") unless sooner terminated by the Company or Consultant on thirty
(30) days advance written notice by the terminating party to the other.
4. In addition to the foregoing general expense reimbursement, JAZZ shall
reimburse Consultant for the costs and expenses incurred relevant to
Consultant's use, operation and garaging of an automobile in connection with the
performance of his duties pursuant to the terms of this Agreement. The total
cost incurred by JAZZ therefor shall not exceed Six Hundred ($600.00) per month.
3
<PAGE>
5. Exclusivity. During the term of this Agreement and, if the Agreement is
terminated by JAZZ, for three months thereafter, without the prior consent of
JAZZ, Consultant will not perform consulting services of the kind contemplated
by this Agreement for any other entity engaged in a business which competes
directly with the business of JAZZ as now or hereafter conducted.
6. Non-Solicitation. Consultant will not solicit or enable others to
solicit any customers of JAZZ for Consultant or others to provide products or
services to them during the term of this Agreement.
7. Confidentiality. It is understood that in the course of performing its
consulting services under this Agreement, Consultant will become privy to
confidential and proprietary information about the customers, vendors and
business of JAZZ. Consultant agrees that such information will be kept
confidential and not used by or divulged to any person except with the express
prior written consent of JAZZ.
8. Assignability: Either party hereto may assign its rights and
obligations under this Agreement to an entity controlled by, controlling, or
under common control with such party.
9. Governing Law: Arbitration of Disputes. This Agreement is made in, and
shall be interpreted in accordance with the laws of, the State of New Jersey,
U.S.A. Any disputes arising under or in connection with the interpretation or
performance of this Agreement shall be submitted to arbitration before a single
arbitrator of the American Arbitration Association in New Jersey, in accordance
with the rules thereof, unless the parties mutually agree to use some other
forum for resolution of such
4
<PAGE>
disputes. Each party hereby consents to the jurisdiction of such arbitration
panel and to entry and enforcement of the final award thereof in any court of
competent jurisdiction.
10. Representations and Warranties.
A. JAZZ represents and warrants to Consultant that it is authorized
to enter into and perform this Agreement; that its signatory is authorized to
execute and deliver this document on its behalf.
B. Consultant represents and warrants to JAZZ that he is under no
legal disability or contractual restraint which precludes him from entering into
and performing this Agreement and that he is not aware of anything which would
limit or impair his ability to furnish his services to JAZZ, as contemplated
hereby.
11. Miscellaneous.
A. This Agreement may be executed in more than one counterpart, all
of which shall be deemed to be one and the same Agreement.
B. This Agreement constitutes the entire agreement of the parties
hereto on the subject matter hereof, and may not be modified except by a writing
signed by both parties.
C. Any notice permitted or required hereunder shall be made to the
address of such party as set forth at the beginning of this Agreement, or such
other address as such party shall notify the other party in writing.
5
<PAGE>
IN WiTNESS WHEREOF, the parties have signed this Agreement as of the
_______ day of [Illegible}, 1997.
JAZZ PHOTO CORP.
By /s/ [illegible]
---------------------
/s/ George Erfurt
----------------------
George Erfurt
6
<PAGE>
Exhibit 10.10
CONSULTING AGREEMENT
AGREEMENT made as of this 2nd day of April, 1997 by and between Jazz Photo
Corp. ("JAZZ"), a corporation organized under the laws of the State of New
Jersey and having its place of business at 1459 Pinewood Street, Rahway, NJ
07065, U.S.A.; and JCB Consultants, Inc. ("JCB"), a corporation organized under
the laws of the State of New Jersey and having its place of business at 80
Wickapecko Drive, Allenhurst, NJ 07711, U.S.A.
WITNESSETH
WHEREAS, JAZZ is engaged in the design, development, marketing,
distribution and sale of cameras and other photographic products worldwide; and
WHEREAS, JCB was recently formed for the purpose of providing to JAZZ and
other businesses in the camera and photographic product business its expertise
in the development and marketing of products in such businesses and the
financing of such businesses; and
WHEREAS, Jack C. Benun ("Benun") is the President and principal
shareholder and an employee of JCB and until recently served as Chief Executive
Officer and a director of JAZZ; and
WHEREAS, JAZZ wishes to retain JCB to assure that the services of Benun
continue to be available to it and to use the expertise of Benun, and JCB is
prepared to
<PAGE>
make the services of Benun available to JAZZ as described in this Agreement, on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, it is hereby agreed by and between the parties hereto as
follows:
1. Duties
A. JCB agrees to assist JAZZ:
1) with respect to all aspects of the development and
procurement of camera and other photographic products for marketing and sale in
the U.S. and other markets, designing a broad marketing plan, defining and
developing plans for market sectors and timing the introduction of new products
in them, recommending potential vendors and contract manufacturers for its
products and related matters; 2) in supporting sales to customers; 3) in
obtaining institutional debt and equity financing; and 4) in the development of
its business generally, in each case at the request of the senior executives of
the Company and its Board of Directors. JCB will make available the services of
Benun for at least 50 hours during each calendar month during the term of this
Agreement, for the purpose of consulting directly in person and/or by telephone
with Roger F. Lorenzini ("Lorenzini"), the Chief Executive Officer of JAZZ. Such
consultations may take place in the offices of JAZZ or in the offices of JCB or
in such other location or locations as may be mutually agreed to by the parties.
B. JCB will render its services as contemplated in this Agreement
directly to Lorenzini or to other personnel of JAZZ who may from time to time be
2
<PAGE>
designated by Lorenzini or JAZZ's Board of Directors. JAZZ shall clearly
identify Benun to its customers, vendors and financing sources as an employee of
JCB, its consultant, and not of JAZZ. Neither JCB nor Benun will be responsible
for decisions or actions taken by JAZZ or any of its officers, directors or
shareholders whether or not based on consultation with JCB, Benun or any other
employee of JCB. Any written disclosure by either party to persons not parties
to this Agreement of its relationship to the other party will be subject to
mutual approval by the parties. The parties will agree to terms and conditions
with respect to oral descriptions of their relationship. In no event will Benun
be characterized as an officer, director, partner or employee of JAZZ.
C. The relationship of JCB and its employees to JAZZ shall be that
of independent contractors during the term hereof. Nothing herein shall be
construed to create any partnership, joint venture, employment, agency or
similar relationship or subject JAZZ, JCB or JCB's employees, including Benun,
to any implied duties or obligations not expressly stated herein. JCB and its
employees, including Benun, shall not have any right, express or implied, to
assume or create any obligation or duty, on behalf of, or in the name of JAZZ,
or to bind JAZZ in any respect whatsoever.
2. Compensation. As compensation for the consulting services rendered
hereunder, JAZZ shall pay JCB with respect to each calendar year of the term of
this Agreement (i) (a) 2.25% of the Net Sales of products of JAZZ up to Ten
Million Dollars ($10,000,000), (b) 4.5% of the Net Sales of products of JAZZ
exceeding Ten Million Dollars ($10,000,000) (the "Threshold Amount") but not
exceeding Twenty Million Dollars ($20,000,000) and (c) 2.25% of Net Sales of
products of JAZZ exceeding
3
<PAGE>
Twenty Million Dollars ($20,000,000) for such year and (ii) 10% of any
commission revenue earned by JAZZ for the sale of the products of third parties
to others, for which JCB is responsible. "Net Sales" shall mean Gross Revenues
from all products and services of JAZZ, less returns, discounts and allowances
as defined in accordance with generally accepted accounting principles. JAZZ
shall make monthly advance payments hereunder of $15,000 per month. At such time
as Net Sales shall exceed the Threshold Amount, JAZZ shall commence making
minimum monthly payments to JCB of $25,000 per month hereunder. Payments made by
JAZZ in respect of Net Sales for each full calendar year of this Agreement shall
not be more than $300,000. Payments to JAZZ in respect of Net Sales with respect
to any full calendar year of the term of this Agreement shall also not exceed 8%
of the Gross Profit attributable to such Net Sales for such year. "Gross Profit"
shall be determined in accordance with generally accepted accounting principles.
In addition to the foregoing JCB shall be reimbursed for any actual
out-of-pocket expenses reasonably incurred by JCB in connection with travel of
its personnel or otherwise for the performance of its consulting services
hereunder. The parties may from time to time amend this Agreement with respect
to additional compensation to be paid to JCB.
3. Term. This Agreement shall be effective as of January 1, 1997 and shall
continue until December 31, 2001 (the "Term"), unless sooner terminated by
mutual
4
<PAGE>
agreement of the parties to terminate the Agreement or as otherwise provided in
Section 5 hereof. The terms hereof shall bind the parties hereto immediately
upon the resignation of Benun as an officer and director of JAZZ.
4. Expenses
In addition to the foregoing general expense reimbursement, JAZZ
shall reimburse JCB for:
(a) health benefits identical to those that until his resignation
were being maintained for Benun by the JAZZ; and
(b) the reasonable costs and expenses incurred by JCB for Benun's
use, operation and garaging of an automobile in connection with the performance
of his duties pursuant to the terms of this Agreement. Such automobile expenses
shall include commutation expenses. JAZZ shall provide an automobile for Benun's
use at its cost.
5. Termination - This Agreement may be terminated:
5.1 By JAZZ for Cause: JAZZ may, at any time during the Term by
notice to JCB terminate the Term for "Cause". "Cause" shall mean (i) the
continued failure of JCB or Benun to substantially perform its duties to JAZZ;
(ii) Benun's or JCB's arrest or indictment for any felony or any crime involving
moral turpitude or theft; (iii) theft, fraud or embezzlement, at JAZZ '5
expense; (iv) the material breach by JCB of this Agreement, including any
failure of JCB to make Benun available to perform the services to be rendered by
JCB hereunder; or (v) the inability of any employee of JCB who provides
significant services to JAZZ to perform his duties as a result of his
5
<PAGE>
addiction to alcohol or drugs, other than drugs legally prescribed and
administered by a duly licensed physician. Prior to terminating the Term for
Cause for any reason set forth herein, JAZZ must give JCB written notice of the
facts and circumstances giving rise to Cause and provide JCB with thirty (30)
days to cure, remedy or rectify the situation.
5.2 By JAZZ for Disability. During the Term, if, solely as a result
of physical or mental incapacity or infirmity (other than alcoholism or drug
addiction), Benun shall be unable to perform in any material respect JCB's
duties under this Agreement for periods aggregating at least six months during
the Term of this Agreement ("Disability Period"), Benun shall be deemed disabled
(the "Disability") JAZZ, by notice to JCB, shall have the right to terminate the
Agreement. Notwithstanding the foregoing, JAZZ shall be required to pay JCB
during the Disability Period.
5.3 Death. The Term shall terminate on the date of Benun's death.
5.4 By JAZZ Without Cause. JAZZ may cause the Agreement to be
terminated at any time, without Cause, by delivery to JCB of 30 days' prior
written notice of termination.
5.5 Voluntarily by JCB. JCB may cause the Agreement to be terminated
at any time, without Cause, by delivery to JAZZ of 30 days' prior written notice
of termination.
5.6 Termination Payments. Upon termination of the Term pursuant to
the provisions of any of paragraph 5.1, 5.2, 5.3 or 5.5 above, JCB's right to
receive payments pursuant to paragraphs 2 and 4 of this Agreement shall
immediately
6
<PAGE>
terminate, except for amounts due on account of services rendered or expense
incurred prior to the date of termination and payable to JCB during the
Disability Period. In the event of a termination of the Term by JAZZ pursuant to
the provisions of paragraph 5.4 above, JAZZ shall continue to be obligated to
make the payments provided for in paragraphs 2 and 4 above through December 31,
2001.
6. Exclusivity. During the term of this Agreement and, if the Agreement is
terminated by JAZZ ,for three months thereafter, without the prior consent of
JAZZ, JCB will not perform, and will not permit its employees to perform,
consulting services of the kind contemplated by this Agreement for any other
entity engaged in a business which competes directly with the business of JAZZ
as now conducted.
7. Non-Solicitation. JCB will not solicit or enable others to solicit any
customers of JAZZ for JCB or others to provide products or services to them
during the term of this Agreement.
8. Confidentiality. It is understood that in the course of performing its
consulting services under this Agreement, JCB will become privy to confidential
and proprietary information about the customers, vendors and business of JAZZ.
JCB agrees that such information will be kept confidential and not used by or
divulged to any person except with the express prior written consent of JAZZ.
9. Assignability: Services of Benun. Either party hereto may assign its
rights and obligations under this Agreement to an entity controlled by,
controlling, or under common control with such party, or which succeeds to
substantially all of the
7
<PAGE>
business of such party, provided, however, that the services of Benun are
essential to the performance by JCB or its assignee of the obligations of JCB
hereunder.
10. Governing Law: Arbitration of Disputes. This Agreement is made in, and
shall be interpreted in accordance with the laws of, the State of New Jersey,
U.S.A. Any disputes arising under or in connection with the interpretation or
performance of this Agreement shall be submitted to arbitration before a single
arbitrator of the American Arbitration Association in New Jersey, in accordance
with the rules thereof, unless the parties mutually agree to use some other
forum for resolution of such disputes. Each party hereby consents to the
jurisdiction of such arbitration panel and to entry and enforcement of the final
award thereof in any court of competent jurisdiction.
11. Representations and Warranties.
A. JAZZ represents and warrants to JCB that it is authorized to
enter into and perform this Agreement; that its signatory is authorized to
execute and deliver this document on its behalf.
B. JCB represents and warrants to JAZZ that all necessary corporate
action has been taken to authorize JCB to enter into and perform this Agreement;
that Benun is President of JCB and is duly authorized to execute and deliver
this document on behalf of JCB; and that JCB is not aware of anything which
would limit or impair its ability to furnish the services of its employee,
Benun, as contemplated hereby.
C. JCB has advised JAZZ and JAZZ hereby acknowledges such advice
that Benun, JCB's President and principal shareholder, is the subject of an
order
8
<PAGE>
of Permanent Injunction issued by the Federal District Court of the District of
Columbia in 1994 which prohibits Benun, among other things, from serving as an
officer or director of a public company, including JAZZ, if it becomes a public
company, and JAZZ acknowledges that it has been furnished with a copy of such
order.
12. Benun's Compensation: Withholding: JCB shall be fully responsible for
all payments due to Benun in connection with services rendered by Benun pursuant
to this Agreement. JCB shall also be responsible for the payment of any
withholding taxes, FICA, unemployment insurance or any other such amounts with
respect to Benun. Benun and JCB agree to indemnify and hold JAZZ harmless from
any claims, amounts due, penalties and/or interest related to their failure to
make such payments. JAZZ acknowledges that JCB and Benun have the right to enter
into other consulting agreements and to perform consulting or other business
services for third parties or for themselves during the term of this Agreement,
except as otherwise provided herein.
13. Miscellaneous.
A. This Agreement may be executed in more than one counterpart, all
of which shall be deemed to be one and the same Agreement.
B. This Agreement constitutes the entire agreement of the parties
hereto on the subject matter hereof, and may not be modified except by a writing
signed by both parties.
C. Any notice permitted or required hereunder shall be made to the
address of such party as set forth at the beginning of this Agreement, or such
other address as such party shall notify the other party in writing.
9
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
2nd day of April 1997.
JAZZ PHOTO CORP.
By /s/ Roger F. Lorenzini
------------------------------------
JCB CONSULTANTS, INC.
By /s/ Jack C. Benun
------------------------------------
Jack C. Benun, President
10
<PAGE>
Exhibit 10.11
LEASE AGREEMENT
Intending to be legally bound, this Agreement made the 6th day of March,
1997, by and Deneret Associates Limited Partnership or its assigns (hereinafter
call "Landlord") and Jazz Photo Corp. (hereinafter called "Tenant").
1. TERM, MINIMUM RENTAL. Landlord hereby demises and lets unto Tenant all
that certain office and warehouse space comprised of approximately 23,100 square
feet, in the building known as 600 Blair Road, Carteret, New Jersey to be used
and occupied only as a lawful and proper office, warehouse and shipment facility
for Tenant's business for the term of Sixty (60) months commencing on the 1st
day of April, 1997, and terminating on the 31st day of March, 2002. The initial
annual minimum rental shall be in the amount of One Hundred Three Thousand Nine
Hundred Fifty and 00/XX Dollars ($103,950.00) which the Tenant covenants to pay,
without any previous demand therefore, in equal monthly payments of Eight
Thousand Six Hundred Sixty-Two and 50/XX Dollars ($8,662.50) on the first day of
each month commencing the 1st day of June, 1997, payable to the offices of
Landlord specified in this Lease, or as may be designated by the Landlord. The
first month's rental obligation shall be tendered upon the signing of this Lease
Agreement. If the term of this lease commences after the 1st day of the calendar
month, the aforesaid first installment shall include the portion due for the
first partial month as well as the succeeding month. Tenant is also responsible
for any other obligation that may be due under this Lease or as specified in
<PAGE>
Addenda attached hereto. Landlord is responsible for and timely completion in a
workmanlike manner of all work as set forth in Exhibit A attached hereto as well
as the space plan dated ____________ ____. Occupancy shall commence when the
premises are delivered to Tenant in broom clean condition with such work
substantially completed as evidenced by a Certificate of Occupancy issued by the
local municipality. Any finishing work shall be completed within 15 days or
Tenant may complete such work and set off the reasonable costs thereof against
rent payments. Landlord and Tenant shall jointly inspect the Premises
immediately prior to Tenant taking possession and shall sign off on a jointly
prepared list setting forth both any pre-existing conditions which a) Landlord
is to repair or b) permit Landlord a set-off against the security, if caused by
Tenant might otherwise require repair by Tenant. The premises shall be delivered
to Tenant by March l5, 1997 and if delivered later, then the rent shall commence
being paid one day later for each day of delay in the delivery of possession of
the premises to Tenant.
2. SECURITY DEPOSIT. The Tenant shall pay a security deposit of Eight
Thousand Six Hundred Sixty-Two and 50/XX Dollars ($8,662.50), to the Landlord as
additional rent when the Tenant signs this Lease Agreement. The Landlord shall
keep the security deposit with its general funds until the end of the Term. The
Tenant shall not apply the term security deposit to any base rent or additional
rent during the Term. Within thirty (30) days after the end of the Term, the
Landlord shall return the security deposit
2
<PAGE>
to the Tenant, without any interest excluding any amount applied to any base
rent or additional rent with is outstanding at that time. The said deposit is
not to be considered as the last monthly rent due under the lease. Prior to when
the Tenant moves out, upon notice from Tenant, Landlord agrees to inspect the
Premises and within five days provide an itemized statement of any damages to
the Premises for which Landlord believes it is entitled to a set off against the
deposit. Similarly, the Landlord will inspect the Premises within fifteen
business days after the move out by Tenant and at that time will provide an
itemized statement of any additional damages to the Premises for which it
intends to apply a set off against the security deposit.
3. LICENSES, PERMITS, ETC. Prior to Tenant taking possession Landlord
shall provide a Certificate of Occupancy and represents that subject to any
additional requirements which result from Tenant's specific use of the Premises,
the use of the space as a warehouse and distribution facility is in compliance
with the Certificate of Occupancy and all applicable zoning regulations and
other governmental requirements. Tenant shall be solely responsible for
obtaining all special licenses or permits which relate to its specific use of
the premises and which may be required in addition to the Certificate of
Occupancy, by any governmental agency or authority in order for Tenant to
continue to lawfully conduct its business, which Tenant shall obtain at its sole
cost and expense. Landlord shall obtain such licenses permits
3
<PAGE>
and approvals at its expense which may be required with regard to capital
improvements, structural repairs and other work to be done by Landlord whether
pursuant to the terms of this Lease or as a result of governmental requirements
imposed during the term of this lease. If the Landlord is required by law to
make capital improvements to the Premises which exceed out-of-pocket costs of
$50,000 in order for Tenant to continue its business from the Premises, Landlord
may terminate this lease (unless Tenant agrees to pay such excess) and the lease
shall terminate 90 days after such notice and the party shall have no further
rights one against the other. A change in the use of other space in the building
which results in Landlord being required to make capital improvements to the
Premises costing in excess of $50,000 shall not trigger Landlord's right to
terminate this Lease.
4. INABILITY TO GIVE POSSESSION. If Landlord is unable to give Tenant
possession of the demised premises as herein provided, by reason of the holding
over of a previous occupant or by any other reasonable cause, Landlord shall not
be liable in damages to Tenant therefore, and during the period that Landlord is
unable to give possession, all rights and remedies of both parties hereunder
shall be suspended. This suspension shall not go into effect, and Tenant shall
commence paying rent on the above referenced date, if Landlord is unable to
commence interior construction immediately upon the signing of this Lease due to
failure of Tenant to approve, in writing, construction specifications or
particulars.
4
<PAGE>
Notwithstanding anything contained herein to the contrary, if Tenant is not
given possession of the Premises by April 31, 1997, this lease shall be void.
5. AFFIRMATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it
will without demand:
(a) Pay the rent and all other charges herein reserved as rent on
the days and times that the same are made payable without fail, and without
setoff, deduction or counter-claim. Upon written notice from Landlord and the
failure of Tenant to pay within ten business days thereafter. Tenant shall pay a
late charge at the rate of five (5%) percent on each dollar of rent, or any
other sum collectible as rent under this lease. If Landlord shall at any time or
times accept said rent or rent charges after the same shall have become due and
payable, such acceptance shall not excuse delay, upon subsequent occasions, or
constitute, or be construed as a waiver of any of the Landlord's rights. Tenant
agrees that any charge or payment herein reserved, included or agreed to be
treated or collected as rent may be proceeded for and recovered by Landlord in
the same manner as rent due and in arrears.
(b) Comply with all requirements of any of the constituted public
authorities, and with the terms of any State or Federal statute or local
ordinance or regulation applicable to
5
<PAGE>
Tenant on its use of the demised premises, and save Landlord harmless from all
penalties, fines, costs or damages resulting from Tenant's failure to do so.
Expenditures for capital or structural improvements required to operate the
Premises as a warehousing and distribution operation shall be the expense of
Landlord.
(c) Comply with the reasonable rules and regulations from time to
time made by Landlord for the safety, care, upkeep and cleanliness of the
demised premises and the building and appurtenances of which it is a part.
Tenant agrees that such rules and regulations shall, when written notice thereof
is given to Tenant, form a part of this lease. Such rules shall not unduly
impair Tenant's use of the space as contemplated in this lease and shall be
consistent with rules for comparable space in comparable buildings in the State
of New Jersey and shall not be applied in a discriminatory manner.
(d) Keep the demised premises in good order and condition, ordinary
wear and tear excepted, and upon termination of this lease to deliver up to
Landlord the demised premises in the same condition as Tenant has herein agreed
to keep them.
(e) Keep nothing which is dangerous or explosive or which might
increase the risk or fire or other casualty at the Premises.
6
<PAGE>
(f) Comply with all reasonable requirements of the Landlord's
property casualty insurance carrier.
(g) Keep all trash within covered dumpsters or containers.
(h) Keep the walkways, which surround and serve the demised
premises, free of snow and ice.
(i) Give to Landlord prompt written notice of any accident, fire or
damage occurring on or to the demised premises within twenty-four (24) hours of
occurrence thereof.
(j) Peaceably deliver up and surrender possession of the demised
premises to Landlord at the expiration or sooner termination of this lease and
promptly deliver to Landlord at its office all keys for the demised premises.
(k) Conduct its business in the Premises during such hours as it
seems fit and use the Premises without disturbing the "possession" or quiet
enjoyment of any other Tenant.
(1) Park its cars and cause its employees to park their cars only in
those portions of the parking area as may be designated for Tenant by Landlord.
Tenant shall be allocated 30 spaces as shown on Exhibit C attached hereto.
7
<PAGE>
(m) Tenant to maintain existing window coverings, or install, at its
own expense and with the written approval of Landlord, window coverings
consistent with the decor of the facility.
6. OCCUPANCY AND ASSIGNMENT. Tenants shall not occupy or permit to be
occupied the demised premises or any part thereof, other than as hereinbefore
specified, nor shall Tenant assign, mortgage or pledge this lease, or underlet
or sublet the demised premises, or any part thereof, without the written consent
of Landlord. Notwithstanding anything to the contrary contained herein,
commencing on the first day of the thirty-sixth month of this Lease, Tenant
shall have the right to sublet the Premises upon written consent of Landlord,
which consent shall not be unreasonably withheld or delayed.
7. NEGATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it will
do none of the following without the written consent of Landlord:
(a) Place or allow to be placed upon the demised premises or on the
inside or outside of the building of which the demised premises are a part any
sign, projection, device, or window covering. In case of the breach of this
covenant (in addition to all other remedies given to Landlord hereunder)
Landlord shall have
8
<PAGE>
the right of removing such sign, projection, device, or window covering and
restoring the premises to their former condition. Subject to applicable law,
Tenant will be permitted to have a free standing sign on the main road
approximately 4' x 5'. Tenant shall be responsible for obtaining any required
sign permits.
(b) Make any alterations, improvements, or additions (hereinafter
called AIA) to the demised premises except with the approval of the Landlord
which shall not be unreasonably withheld or delayed. All AIA or fixtures whether
installed before or after the execution of this lease, which shall remain upon
the premises at the expiration or upon termination of this lease shall become
the property of Landlord. Landlord shall reserve the right to request, at any
time, that the Tenant, at his own expense, remove any AIA installed without the
Landlord's written approval. With regard to AIA installed after Tenant takes
possession, Tenant agrees that it will remove such AIA if so requested in
writing by Landlord prior to surrender of the Premises.
(c) Use, operate or maintain any machinery, equipment or fixture
that, in Landlord's reasonable opinion, is harmful to the building and
appurtenances of which the demised premises is a part or is unreasonably
disturbing to the other tenants occupying any other part thereof.
(d) Place any weights in any portion of the demised
9
<PAGE>
premises beyond the safe carrying capacity of the building of which the demised
premises is a part.
(e) Do, cause or suffer to be done, any act, matter or thing
objectionable to the fire insurance companies whereby the fire insurance or any
other insurance now in force or hereafter to be placed on the demised premises,
or any part thereof, or on the building of which the demised premises may be a
part, shall become void or suspended, or whereby the same shall be rated as a
more hazardous risk at than the date of execution of this lease. In case of a
breach of this covenant (in addition to all other remedies herein given to
Landlord) Tenant agrees to pay Landlord as additional rent any and all increase
or increases of premiums on Insurance reasonably carried by Landlord on the
demised premises, or on the building and appurtenant land of which the demised
premises may be a part, resulting from such breach.
(f) Store any vehicle for a period of 24 hours or longer on premises
or use loading dock(s) or loading area for truck or trailer storage, except
along the rear wall of the demised premises or in the parking spaces designated
for Tenant herein.
(g) Remove, attempt to remove or manifest an intention to remove
Tenant's goods or property from or out of the demised premises otherwise than in
the ordinary and usual course of business, without having first paid and
satisfied Landlord for all
10
<PAGE>
rent, costs and attorneys fees which may become due during the entire term of
this lease, in addition to all sums denominated as additional rent under this
lease. Notwithstanding anything to the contrary contained herein, Tenant shall
be permitted to remove its goods from the demised premises if it is current on
its rental payments and it provides Landlord six (6) months prior written notice
of its intention to move its goods out of the demised premises and its intention
sublet the demised in accordance with the terms and conditions contained
elsewhere in this Lease Agreement.
(h) Shall not permit the demised to be used or occupied in a
congested manner. The number of people that shall use or occupy the demised
premises shall be reasonable for the size of the demised premises taking into
consideration the safety of the occupants, the burden that an unreasonable
number of occupants will place upon the electricity, heating and air
conditioning equipment, the congestion that would result in the common
facilities of said building and its appurtenances such as hallway, washrooms,
parking lot, etc. If in Landlord's opinion the demised premises are being used
or occupied by more people than is reasonable, Tenant agrees to reduce the
number thereof upon written demand of Landlord to the number that Landlord
determines to be reasonable for the demised premises. Notwithstanding the
foregoing, Tenant's occupancy of the space by no more than 25 persons at any one
time shall not be deemed to violate this provision.
11
<PAGE>
8. LANDLORD'S RIGHT TO ENTER. Tenant shall permit Landlord, Landlord's
agents, employees or any other person(s) authorized by Landlord, during the
normal work day, on reasonable notice to inspect the demised premises, and if
Landlord shall so elect, for the purpose of making reasonable alterations,
improvements or repairs to the building of which the demised premises are a
part, or for any reasonable purpose in connection with the operation and
maintenance of the building. Landlord shall have sole liability for injuries to
any such persons authorized or directed to enter the Premises in accordance with
the foregoing. Landlord shall make any reasonable alterations, improvements or
repairs in an expeditious manner so as to minimize the negative impact on the
operations of Tenant's business. All such alterations, improvements or repairs
shall only be made after advance consultation with Tenant and shall be scheduled
to minimize their negative impact on Tenant's business. Where such alterations,
improvements or repairs will have a substantial adverse impact on Tenant's
business, Landlord agrees to make such alterations, improvements or repairs when
possible at a time other than during normal business hours.
9. RELEASE OF LANDLORD. Tenant shall be responsible for any and all
liability by reason of any injury, loss, damage to any person or property in the
demised Premises caused by it, its officers, employees, agents and invitees,
whether the same be due to fire, breakage, leakage, water flow, gas, use,
misuse, or
12
<PAGE>
defects therein, or condition anywhere in the demised premises, failure of water
supply or light or power or electricity, wind, lightning, storm or any other
cause whatsoever, whether the loss, injury or damage be to the person or
property of Tenant or any other persons.
Notwithstanding anything to the contrary set forth in this Lease, it
is specifically understood and agreed by Tenant that there shall be absolutely
no personal liability on the part of Landlord or on the part of the partners or
agents of Landlord with respect to any of the terms, covenants and conditions of
the Lease, and Tenant shall look solely to the equity, if any, of Landlord in
the Property in which the Demised Premises is a part for the satisfaction of
each of the terms, covenants and conditions of this Lease to be performed by
Landlord. This exculpation of personal liability of Landlord, its partner and
agents is absolute and without any exception whatsoever.
10. FIRE OR OTHER CASUALTY.
(a) If during the term of this lease or any renewal or extension
thereof, the demised premises or the building of which the demised premises is a
part is totally destroyed or is so damaged by fire or other casualty that the
same cannot be repaired or restored within ninety (90) regular working days from
the date of the happening, then this lease shall absolutely cease and terminate
and the rent shall abate for the balance of the term. In
13
<PAGE>
such case, Tenant shall pay the rent apportioned to the date of damage and
Landlord may enter upon and repossess the demised premises upon notice.
(b) If the damage caused by fire or other casualty can be repaired
or restored within ninety (90) regular working days and said damage and the cost
of repairs and restoration are fully covered by the Landlord's insurance,
Landlord may exercise either of the following options by giving written notice
to the Tenant within 20 days.
(1) Landlord shall have the option to restore the premises.
The rent shall be apportioned based on the percentage of the Tenant's normal
business operations which may be effectively continued on the Premises during
the time Landlord is in possession: if a dispute arises as to the amount of rent
due under this clause, Tenant agrees to pay the full amount claimed by Landlord
and Tenant shall have the right to proceed by law to recover the excess payment,
if any.
(2) Landlord shall have the option to terminate this lease by
giving written notice of such termination to Tenant within 20 days and upon the
giving of such notice, the lease shall expire by lapse of time after thirty (30)
days and the Tenant shall vacate the demised premises.
14
<PAGE>
(c) If the damage caused by fire or other casualty is only slight,
Landlord shall repair whatever portion, if any, of the demised premises that may
have been damaged by fire or other casualty and the rent accrued or accruing
shall not be apportioned or suspended except to the extent that Tenant's ability
to operate its business is impaired.
(d) If said damage by fire or other casualty was caused by the
negligence of Tenant or his agents, employees or invitees, Tenant shall not be
entitled to any abatement or apportionment of the rent under 10(c).
11. INSURANCE.
(a) Tenant shall obtain at its own expense and cost: (a) insurance
on its own business personal property and Landlord is not responsible for damage
to tenant's business personal property except as otherwise provided for in this
lease, (b) commercial general liability insurance in the amount of not less than
Two (2) Million Dollars.
(b) The commercial general liability insurance policy shall: (a)
name Landlord as additional insured, (b) contain a provision stating that the
insurer shall notify the Landlord at least thirty (30) days before the effective
date of any modification or termination of the insurance policy that effects
15
<PAGE>
the Landlord, (c) contain a provision for damage insurance in the amount of no
less than Five Hundred Thousand Dollars ($500,000), and (d) contain a
contractual liability endorsement.
(c) The insurance policy shall be issued by an insurance company
authorized to do business in the State of New Jersey. By the beginning of the
term, and from time to time thereafter when the insurance policy is renewed or
replaced, the Tenant shall provide the Landlord with Certificate of Insurance
which states that the Landlord is an additional insured party and that the
insurance policy in effect is in compliance with the terms of this clause.
(d) Landlord hereby represents to the Tenant and Tenant hereby
represents to Landlord that each now has the right to waive and hereby does
waive the subrogation rights of any insurer that presently provides property
damage coverage on the building and/or the demised premises and/or the land upon
which the building is constructed.
12. SERVICES. The following services and facilities shall be supplied by
Landlord to Tenant in connection with Tenant's use of the demised premises
Landlord represents and covenants that each such service is and when Tenant take
possession and shall be in good working order:
16
<PAGE>
(a) Heat and air conditioning equipment and facilities with separate
controls for the premises. All utilities for which Tenant is charged based on
usage shall be separately metered with meters installed at Landlord's expense.
Water and sewage in connection with toilet facilities shall also be provided.
(b) Electric and gas service for HVAC, lighting, power to operate
business equipment, and meters for the measurement of tenant electric and gas
usage. Tenant shall pay utility company directly for such usage.
(c) Unless Landlord is the direct cause, Landlord shall have no
responsibility or liability to Tenant, nor shall there be any abatement in said
rent for any failure to supply any of said services and facilities that Landlord
has agreed to supply hereunder during such period as the services and facilities
are out of order, undergoing repair or if Landlord is prevented from providing
said service or facility by reason of labor disorders, strikes, accidents or
other causes beyond Landlord's control. If, in its reasonable discretion,
Landlord interrupts any of said services in order to make repairs, alterations,
or improvements or because of labor disturbances, strikes, accidents or causes
beyond Landlord's control, Landlord may do so for the period that Landlord deems
expedient and advisable without any abatement in rent or other liability to
Tenant. Landlord will provide Tenant with as much notice as possible about any
potential interruption. To the
17
<PAGE>
extent possible, Landlord shall attempt to make repairs to essential services at
a time other than during normal business hours if such repairs will materially
interfere with the operation of Tenant's business and shall make repairs on an
emergency basis if such repairs are necessary for the operation of Tenant's
business.
13. REPAIRS AND MAINTENANCE.
(a) The Tenants obligations for repairs as provided in Paragraph (b)
of this article shall include, without limitation, repairs or replacements
related to the following part of the Premises: (1) water, plumbing, sewer, and
sprinkler systems, (2) electric, gas, lighting, and HVAC systems, (3) windows
and frames, (4) doors and frames, (5) loading dock bumpers and seals, (6) party,
demising, and interior partitions unless such repairs are required as a result
of latent or other defects existing at the time of the commencement of this
Lease or result from the activities of Landlord or other Tenants in which can
such prompt repair shall be the responsibility of the Landlord.
(b) Except as specifically otherwise provided in Paragraph (c) and
(d) of this Article, Tenant, at its sole cost and expense and throughout the
term of this lease, shall keep and maintain the demised premises in good order
and condition, free of accumulation of dirt and rubbish, and except for
structural items
18
<PAGE>
and other items listed in (c) and (d) shall promptly make all repairs,
replacements and renewals necessary to keep and maintain such good order and
condition, whether such repairs, replacements and renewals are interior or
exterior unless such repairs are required as a result of latent or other defects
existing at the time of the commencement of this Lease or result from the
activities of Landlord or other Tenants. Tenants shall not use or permit the use
of any portion of the Property for outdoor storage of any kind. All repairs,
replacements and renewals made by Tenant shall utilize materials and equipment
which are as good or better in quality and usefulness to those originally used
in constructing the building and the Premises. Tenant shall maintain all HVAC
systems appurtenant to the demised premises using a service firm(s) acceptable
to Landlord (which approval shall not be unreasonably withheld or delayed),
which shall be hired to provide service and maintenance in accordance with the
manufacturer's recommendations and shall provide a copy of the contact to
Landlord.
(c) Landlord, throughout the term of this lease and at Landlord's
sole cost and expense, shall make all necessary repairs to the footings and
foundations and the structural steel columns and girders forming a part of the
Premises, unless such repairs are caused by the negligent acts of Tenant, its
agents, employees, vendors, invitees or licensees: provided, however, that
Landlord shall have no responsibility to make any repair unless and until
Landlord receives written notice of the need for such repair.
19
<PAGE>
(d) Landlord, throughout the term of this lease, shall make all
necessary repairs to the roof, walls, exterior portions of the Premises and the
Building, utility lines, equipment and other utility facilities in the Building,
which serve more than one tenant of the Building, and to any driveways,
sidewalks, curbs, loading, parking and landscaped areas, and other exterior
improvements on the Property (collectively "Items"); provided, however, that
the Landlord shall have no responsibility to make any repairs unless and until
Landlord receives written notice of the need for such repair. Tenant shall pay
its proportionate share of the cost of all repairs to be performed by Landlord
pursuant to this Paragraph (d) as additional rent as provided for in operating
Expense Addendum. When replacement of the roof or walls of the Building becomes
necessary, Landlord shall perform such work at its own cost and expense.
Notwithstanding anything to the contrary contained herein, any such repairs
performed by the Landlord as a result of extraordinary use of the aforesaid
Items by the Landlord or other Tenants which result in the need for repairs,
shall not be charged back to the Tenant. Repairs which are intended to upgrade
or otherwise improve the quality of the aforesaid Items shall not be charged
back to Tenant unless requested by Tenant.
(e) Landlord shall keep and maintain all common areas of the
Property in a clean and orderly condition, free of accumulation of dirt,
rubbish, snow and ice, and shall keep and maintain all landscaped areas in a
neat and orderly condition. Tenant shall pay
20
<PAGE>
its proportionate share of the cost of all work to be performed by Landlord
pursuant to this Paragraph (e) as provided for in the Operating Expense
Addendum. The costs for the above work shall be charged at competitive rates.
14. DEFAULT The following shall constitute events of default under this
Lease:
(1) failure to pay when due any installment of Rent or any
other sum required to be paid by Tenant under this Lease (all such sums being
deemed rent) when and as the same shall become due and payable, or any part of
any of them, which failure shall continue for a period of ten (10) days or more;
(2) failure in the performance of or compliance with any of
the other covenants, conditions and/or terms of this Lease, which failure shall
continue for more than thirty (30) days after written notice thereof to Tenant,
provided, however, if the default complained of in the notice is of such nature
that it could not reasonably be cured within thirty (30) days, then there shall
be no default so long as Tenant (i) commences cure within thirty (30) days after
the notice, (ii) pursues the cure with all due diligence, and (iii) completes
the cure within no more than ninety (90) days after the notice (except if the
default is of a kind that is not susceptible of being cured within such 90 day
period, then the cure period shall be extended to allow a reasonable period of
time for cure of that default to be complete);
(3) if this Lease shall be assigned, sublet, pass to
21
<PAGE>
or devolve upon one other than the Tenant, except as permitted in Paragraph 6;
or
(4) the filing by or against Tenant of any petition with
respect to its own financial condition under any bankruptcy law or any amendment
thereto (including, without limitation, a petition for reorganization,
arrangement or extension), or under any other insolvency law or laws providing
for the relief of debtors which petition, if filed against Tenant, shall not be
dismissed within ninety (90) days; the appointment of a receiver, trustee,
custodian, conservator or liquidator for Tenant on all or substantially all of
Tenant's assets, and the underlying proceeding is not dismissed within ninety
(90) days after the commencement thereof, the admission by Tenant of its
insolvency, making of a general assignment for the benefit of creditors.
15. Landlord's Remedies
a. Upon the occurrence of an event of default, Landlord, in addition
to any and all rights and remedies it may have at law and equity, may exercise
any one or more of the following remedies:
1. Landlord may give Tenant a notice (the "Termination
Notice") of its election to terminate this Lease specifying a date not less than
ten (10) days thereafter, upon which date this Lease, the term and estate hereto
granted and all rights of Tenant hereunder shall expire and terminate.
Notwithstanding the foregoing, or the election of any other rights and remedies
of Landlord under this Lease or at law: (i) Tenant
22
<PAGE>
shall remain liable for damages as hereinafter set forth, and (ii) Landlord may
institute dispossess proceedings for non-payment of rent, or other proceedings
to enforce the payment of rent without giving the Termination Notice. Upon any
such termination or expiration of this Lease, Tenant shall peaceably quit and
surrender the Demised Premises to Landlord, and Landlord may without further
notice enter upon, re-enter, possess and repossess itself thereof, by force,
summary proceedings, ejectment or otherwise and may have, hold and enjoy the
Demised Premises and the right to receive all rental and other income of and
from the same as heretofore provided.
2. Regardless of whether Landlord relets the Demised Premises,
or enters or re-enters the same, whether by summary proceedings, termination or
otherwise, Tenant will pay Landlord, and be liable to Landlord for the full
amount of all Rent and other charges then due or thereafter to become due to
Landlord hereunder less any sums collected by Landlord during the remaining term
of this Lease; said amount shall be paid by Tenant to Landlord on the days
originally fixed herein for payment thereof;
3. If Tenant shall fail to pay any taxes or make any other
payment required to be made under this lease, or shall default in the
performance of any covenant, agreement, term, provision or condition herein
contained, Landlord may, without being under any obligation to do so, and
without thereby waiving such default, make such payment and/or remedy such
default for the account and at the sole expense of Tenant. Tenant shall pay to
23
<PAGE>
Landlord, on demand, the amount of all sums so paid and all expenses so incurred
by Landlord, together with interest, at the rate set forth in subparagraph 15(b)
(4) below, on such sums and expenses from the date incurred until payment in
full;
4. Interest on any sums due to Landlord from Tenant under this
Lease shall accrue from the date such sums became due and payable, at a variable
rate equal to two (2) percentage points above the prime interest rate as set
daily by Chase Manhattan Bank, N.Y.C., N.Y.
b. Tenant shall be liable for any and all reasonable attorney's fees
which Landlord may incur as a result of enforcing or protecting its rights in a
litigation against Tenant under this Lease provided the Landlord is more
successful than not with regard to all claims in dispute.
16. RIGHT OF ASSIGNEE OF LANDLORD. The right to enforce all of the
provisions of this lease may be exercised by any assignee of the Landlord's
right, title and interest in this lease in its, his, her or their own name, and
Tenant hereby expressly waives the requirements of any and all laws regulating
the manner and/or form in which such assignments shall be executed and
witnessed. Notwithstanding the foregoing, in the event of transfer of title of
the building of which the Premises are a part the transferee shall be bound by
the terms of this Lease.
17. REMEDIES CUMULATIVE. All of the remedies hereinbefore
24
<PAGE>
given to Landlord and all rights and remedies given to Landlord by law and
equity shall be cumulative and concurrent. No termination of this Lease or the
taking or recovering of the premises shall deprive Landlord of any of its
remedies or actions against Tenant for any and all sums due at the time or
which, under the terms hereof, would in the future become due, nor shall the
bringing of any action for rent or breach of covenant, or the resort to any
other remedy herein provided for the recovery of rent be construed as a waiver
of the right to obtain possession of the premises.
18. ATTORNMENT. In the event of the sale or assignment of Landlord's
interest in the building of which the demised premises is a part or in the event
of exercise of the power of sale under any mortgage made by Landlord covering
the building of which the demised premises is a part, Tenant shall attorn to the
purchaser and recognize such purchaser as Landlord under lease.
19. SUBORDINATION, ETC. At the option of Landlord or Landlord's permanent
lender, or both of them, this lease and the Tenant's interest hereunder shall be
subject and subordinate at all times to any mortgage, deed or deeds of trust, or
such other security instrument or instruments, including all renewals,
extensions, consolidations, assignments and refinances of the same, as well as
all advances made upon the security thereof, which now or hereafter become liens
upon the landlord's fee and/or leasehold interest in the demised premises,
and/or any and all of the
25
<PAGE>
buildings now and hereafter erected or at be erected and/or any and all of the
land comprising the Property, provided, however, that in each such case, the
holder of such other security, the trustee of such deed of trust or holder of
such other security instrument shall agree that this lease shall not be divested
or in any way affected by foreclosure or other default proceedings under said
mortgage, deed or trust, or other instrument or other obligations secured
thereby, so long as the Tenant shall not be in default under the terms of this
lease; and Tenant agrees that this lease shall remain in full force and effect
notwithstanding any such default proceedings.
20. EXECUTION OF DOCUMENTS. The above subordination shall be self
executing, but Tenant agrees upon demand to execute such other document or
documents as may be required by a mortgagee, trustee under any deed of trust, or
holder of similar security interest or any party to the types of documents
enumerated herein for the purpose of subordinating this lease in accordance with
the foregoing.
21. ESTOPPEL AGREEMENTS. Tenant shall within five business days of the
request execute an estoppel agreement in favor of any mortgagee or purchaser of
Landlord's interest herein, if requested to do so by Landlord or any mortgagee
provided such estoppel agreement shall be in standard form.
26
<PAGE>
22. LITIGATION INVOLVING LANDLORD AND AGENT. In the event that Landlord or
its Agent shall without fault on its part be made a party to any litigation
commenced by or against Tenant, then, and to such extent Tenant shall protect
and hold Landlord and Agent harmless from and against any liability arising
therefrom, and shall pay all of Landlord's reasonable costs, expenses and
attorney's fees. In the event the Tenant or its Agent shall without fault on its
part be made a party to any litigation commenced by or against Landlord, then,
and to such extent Landlord shall protect and hold Tenant and its Agent harmless
from and against any liability arising therefrom, and shall pay all of Tenant's
reasonable costs, expenses and attorney's fees.
23. CONDEMNATION. If the whole of the premises shall be acquired or
condemned by eminent domain, then the term of this lease shall cease and
terminate as of the date on which possession of the premises is required to be
surrendered to the condemning authority. All rent shall be paid up to the date
of termination.
24. NOTICES. All notices required to be given by either party to the other
shall be in writing. All such notices shall be deemed to have been properly
given if served personally or if sent United States certified mail, postage
prepaid, addressed to Landlord at 171 Route 173, Suite 201, Asbury, New Jersey
08802 and addressed to Tenant at the demised premises or to such other address
which either party may designate hereafter in writing and,
27
<PAGE>
if mailed, shall be deemed effective three business days after mailing.
25. RETURN OF PREMISES. By the end of the Term, or upon rightful
termination of this Lease, the Tenant, at its own expense, shall return the
Premises to the Landlord in the same condition as at the beginning of the Term,
excluding normal wear and tear. The Tenant shall perform all acts necessary to
comply with the terms of this clause, including, without limitation: (a)
removing all of the Tenant's property, including all of the Tenant's signs, (b)
removing all rack bolts and restoring all affected surfaces, (c) removing all
trash, and (d) leaving the Premises in broom clean condition. The tenant shall
notify the Landlord two (2) weeks in advance of the termination of any utility
service.
If the Tenant leaves any of the Tenant's property at the Premises after the end
of the Term or after the rightful termination of this Lease, then such property
shall be deemed to be abandoned. The Landlord may keep and use the Tenant's
abandoned property or may sell, store, or dispose of that property, in which
case the costs related hereto shall be payable as additional rent.
26. BINDING EFFECT. All rights and liabilities herein given to, or imposed
upon the respective parties hereto, shall extend to and bind the several and
respective heirs, executors, administrators, successors and assigns of said
parties.
28
<PAGE>
27. QUIET ENJOYMENT. Provided Tenant is in compliance with the terms of
this Lease and its obligations thereunder, Landlord covenants that Tenant shall
have quiet enjoyment of the Premises during the term of this Lease.
28. MECHANICS' LIEN. Tenant shall promptly pay any contractors and
materialmen who supply labor, work or materials to Tenant at the demised
premises or the Property so as to minimize the possibility of a lien attaching
to the Premises or the Property. Tenant shall take all steps permitted by law in
order to avoid the imposition of any mechanic's laborer's or materialmen's lien
upon the Premises the Property or the lot. Should any such lien or notice of
lien be filed for work performed for Tenant other than by Landlord, Tenant shall
bond against or discharge the same within forty-five (45) days after the lien or
claim is filed or formal notice of said lien or claim has been issued regardless
of the validity of such lien or claim. Nothing in this lease is intended to
authorize tenant to do or cause any work or labor to be done or any materials to
be supplied for the account of Landlord, all of the same to be solely for
Tenant's account and at Tenant's risk and expense.
29. SEVERABLE TERMS. If any provision in this Lease is contrary to any
law, declared unenforceable or unconstitutional, then the rest of this Lease
shall remain in effect.
29
<PAGE>
30. Environmental Compliance. Tenant's obligation to comply with the
Industrial Site Recovery Act, N.J.S.A. 13:lk-6 et. seq. and the regulations
promulgated thereunder ("ISRA"), as well as all other environmental laws now or
hereafter enacted and applicable to the premises, are strictly limited to
situations and conditions directly resulting from Tenant's, its officers',
employees' agents' guests', invitees' and contractors' use of the premises, or
their activities at the premises or their storage of materials at the premises
(collectively Tenant's Activities) (ISRA and such other laws are collectively
referred to as "Environmental Laws"). With regard to Discharges or other
conditions requiring Remediation or Remediation Plans with regard to the
premises caused by other tenants in the property, prior tenants of the premises
or property, or any other person whose actions are not Tenant Activities
(referred to collectively as "Third Party Discharges"), if and only if
applicable Environmental Laws require Remediation or Remediation Plans for such
Third Party Discharges, then all Remediation, Remediation Plans and any other
actions imposed under Environmental Laws on Landlord and Tenant shall be the
obligation of the Landlord and not the Tenant, but Tenant shall cooperate with
Landlord in connection therewith.
In the event Tenant Activities shall violate any Environmental Law, Tenant
shall promptly give Landlord notice of such violation and Tenant shall
expeditiously and diligently undertake all necessary actions to fully cure and
remedy such violations within
30
<PAGE>
the required time periods under the applicable Environmental Law.
With regard to Tenant Activities which result in a Discharge on the
premises, Tenant shall have the following obligations at Tenant's own expense:
make all submissions to, provide all information to, and comply with all
requirements of, the New Jersey Department of Environmental Protection (the
"NJDEP") or such other appropriate governmental agencies charged with the
administration of Environmental Laws (hereinafter collectively referred to as
the "Agency"). Should the Agency determine that a Remediation plan be prepared
and that Remediation or investigation be undertaken because of Tenant Activities
which result in a Discharge at the Property, Tenant shall carry out or implement
the approved Remediation plans and such other filings and submissions in form
and substance reasonably satisfactory to Landlord. In no event shall Tenant's
Remediation plans involve the deferral of any remedial action or any engineering
or institutional controls, including without limitation, capping, deed notice,
deed restrictions or other use restrictions. Notwithstanding provisions of any
Environmental Law, in no event shall Tenant's Remediation meet standards any
less stringent than (i) those for residential sites or (ii) the most stringent
standards applicable for the hazardous substances or wastes at issue without
regard to the actual use of the Property.
If Tenant Activities result in Discharges, Tenant's
31
<PAGE>
obligations under this Paragraph shall also arise if there is any closing,
termination or transferring of operations or ownership of an industrial
establishment at the Demised Premises or any other triggering event under ISRA
or other Environmental Law which would necessitate compliance, irrespective of
the initiator or cause of such triggering event.
With regard to Remediation required as a result of Tenant Activities,
Tenant shall notify Landlord of all meetings scheduled between Tenant or
Tenant's representatives and any Agency, sufficiently in advance of such meeting
so Landlord is afforded a reasonable opportunity to attend and Landlord and its
representatives shall have the right, without the obligation, to attend and
participate in all such meetings. Tenant shall deliver to Landlord, without need
for prior request, all environmental documentation concerning Tenant Activities
resulting in Discharges or potential Discharges, the environmental condition at
the premises or its environs or concerning violations, actual or alleged, of
Environmental Laws by Tenant, in the possession or under the control of Tenant,
including without limitation all Remediation Plans, affidavits, sampling or
testing results, reports regarding correspondence to or from any Agency,
correspondence to or from Tenant's environmental consultants and experts,
submissions to any Agency, notices of violation or directives from any Agency,
and any approvals or disapprovals from any Agency. At no expense to Landlord,
Tenant shall promptly provide all information with
32
<PAGE>
regard to Tenant Activities resulting in Discharges and conditions resulting
therefrom requested by Landlord for preparation of documents necessary to file
under ISRA or any other Environmental Law and shall promptly sign affidavits and
other such documents when requested by Landlord.
With regard to Tenant Activities resulting in a Discharge, Tenant shall
indemnify, defend and save Landlord harmless from all fines, suits, procedures,
claims, losses, damages, penalties, cost, expenses, and actions of any kind,
foreseen or unforeseen, including without limitation, legal, engineering and
other professional or expert fees incurred by Landlord, arising out of or
directly connected with (i) such Discharge at the Property; (ii) Tenant's
failure to provide all information, make all submissions and take all actions
required under any Environmental Law or by an Agency arising out of Tenant
Activities resulting in a Discharge; or (iii) Tenant's action or inaction with
regard to Tenant's obligations under this Paragraph. Tenant's failure to abide
by the terms of this Paragraph shall be restrainable or enforceable by
injunction.
With regard to Tenant Activities resulting in a Discharge, Tenant shall
effectuate and complete full compliance with ISRA and any other applicable
Environmental Law, including without limitation any necessary Remediation,
subject to the provisions of this Paragraph, prior to the Termination Date of
this Lease, and
33
<PAGE>
will be liable for damages to Landlord if it fails to do so, which at a minimum
shall equal a per diem rental for the period after the end of the term until
compliance is completed (unless the premises are rented prior to the completion
of such Remediation) at the fair market rental at the end of the term. Provided
Tenant has timely notice of such Discharge, Tenant shall commence its compliance
with such laws in sufficient time prior to the Termination Date so as to
complete its obligations under this Paragraph by no later than the Termination
Date. Promptly upon completion of all required Remediation activities, Tenant
shall restore the affected areas from any damage or condition caused by the
work, including without limitation, closing, pursuant to law, any wells which
had been installed. In the event ISRA shall apply to Tenant Activities with
regard to occupancy of the Demised Premises and its termination of operations at
the Demised Premises, Tenant shall deliver to Landlord a non-qualified approval
of Tenant's negative declaration or non-qualified no further action letter on or
before the Termination Date.
Tenant's obligations under this Paragraph shall survive the termination of
this Lease.
31. ENTIRE AGREEMENT. This Lease and any riders that may be attached
hereto set forth all the promises, agreements, conditions and understandings
between Landlord or its agents and Tenant
34
<PAGE>
relative to the demised premises, and there are no promises, agreements,
conditions or understandings, either oral or written, between them other than
are herein set forth. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by them.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound to
the terms of this Lease, have caused this lease to be executed the day and year
first above written.
JAZZ PHOTO CORP. DENERET ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ [ILLEGIBLE] PRES By: /s/ [ILLEGIBLE]
------------------------- ------------------------------
Title: Title: G.P.
Attest: /s/ [ILLEGIBLE] Attest: /s/ [ILLEGIBLE]
--------------------- --------------------------
Title: VP Title:
---------------------- ---------------------------
OPERATING EXPENSE ADDENDUM
ATTACHED TO and made a part of the Commercial Lease Agreement made
the 28th day of Feb., 1997, by and between Deneret Associates Limited
Partnership (hereafter called "Landlord") and Jazz Photo Corp. (hereafter called
"Tenant").
35
<PAGE>
1. PAYMENT. Tenant shall pay to Landlord an Operating Expense
Allowance initially set at of Thirty Four Thousand Six Hundred Fifty and 00/XX
Dollars ($34,650.00) per year in equal monthly installments of Two Thousand
Eight Hundred Eighty-Seven and 50/XX Dollars ($2,887.50) payable on the first
day of each month. If the term of this Lease commences other than on the first
day of a calendar month, then the Operating Expense Allowance for the first
calendar month of the term of this Lease shall be adjusted proportionately, and
the aforesaid first installment paid by Tenant upon the execution of this Lease
shall include the portion due for the first partial month as well as the
succeeding month.
If Landlord's Operating Expenses for any Operating Year shall be
greater than the total Operating Expenses Allowance for such year, Tenant shall
pay to Landlord as additional rent an amount equal to Tenant's Proportionate
Share of the difference (hereinafter referred to as the "Operating Expense
Adjustment".) If Tenant occupies the demised premises or a portion thereof for
less than a full Operating Year, the Operating Expense Adjustment will be
calculated in proportion to the amount of time in such Operating Year that
Tenant occupied the demised premises.
Such Operating Expenses Adjustment shall be paid in the following
manner. Within one hundred twenty days (120) following the end of the first and
each succeeding Operating Year, Landlord shall furnish to Tenant an Operating
Expense Statement setting forth (a) the Operating Expense for the preceding
Operating Year,
36
<PAGE>
(b) the Operating Expense Allowance; and (c) Tenant's Operating Expense
Adjustment for such Operating Year. Within fifteen (15) days following receipt
of such Operating Expense Statement (the "Expense Adjustment Date") Tenant shall
pay to Landlord as additional rent the Operating Expense Adjustment for such
Operating Year. If for any year the Operating Expenses, Operating Expense
Allowance and/or the Operating Expense Adjustment are recalculated with regard
to the calculation of additional rent or other payments to be made by any tenant
so as to reduce the payments which would otherwise be made by such tenant then
Tenant's Operating Expense payment for that period shall be similarly
recalculated and reduced.
Commencing with the first month of the second Operating Year, Tenant
shall pay to Landlord, in addition to the Operating Expense Allowance, on
account of the Operating Expense Adjustment for such Operating Year, monthly
installments in advance equal to one-twelfth (1/12) of the estimated Operating
Expense Adjustment for such Operating year. On the next succeeding Expense
Adjustment Date, Tenant shall pay to Landlord (or Landlord shall credit to
Tenant) any deficiency (or excess) between the installments paid on account of
the proceeding year's Operating Expense Adjustment and the actual Operating
Expense Adjustment for such Operating Year.
As used in this Addendum, the following words and terms shall be
defined as hereinafter set forth:
37
<PAGE>
A. "Operating Year" shall mean each calendar year, or other period
of twelve (12) months as hereinafter may be adopted by Landlord as its fiscal
year, occurring during the term of the Lease.
B. "Operating Expense Allowance" shall mean and equal the monthly
amount hereinabove set forth.
C. "Operating Expense Statement" shall mean a statement in writing
signed by Landlord, setting forth in reasonable detail (i) the Operating Expense
for the preceding Operating Year, (ii) the Operating Expenses Allowance; and
(iii) the Tenant's Operating Expense Adjustment for such Operating Year or
portion thereof. The Operating Expense Statement for each Operating Year shall
be available for inspection by Tenant at Landlord's office during normal
business hours.
D. "Operating Expense" shall mean the following expenses incurred by
the Landlord in connection with the operation, repair and maintenance of the
demised premises, the building of which it is a part and the land on which it is
located: (i) Real estate taxes and other taxes or charges levied in lieu of such
taxes, general and special public assessments amortized over the life of the
improvements, charges imposed by any governmental authority pursuant to
anti-pollution or environmental legislation not involving capital improvements,
taxes on the rentals of the
38
<PAGE>
building in which the demised premises are located or the use, occupancy or
renting of space therein but not income taxes; (ii) premiums and fees for fire
and extended coverage insurance, insurance against loss of rentals for space in
the building of which the demised premises are a part as a result of fire or
other damage to such building and public liability insurance, all in amounts and
coverages (with additional policies against additional risks) as may be
reasonably required by Landlord or the holder of any mortgage; (iii) water and
sewer connection and service charges, electricity and utility charges not
separately metered to tenants in the building of which the demised premises are
a part except that each tenant shall be metered except for incidental use of
water and sewage; (iv) all maintenance and repair costs but not the costs of
improvements to all areas of the building in which the demised premises are
located, including, but not limited to repairs and replacements of supplies and
equipment, snow and trash removal and paving, lawn and general grounds upkeep,
maintenance and repair of all mechanical equipment such as HVAC, electrical,
plumbing and sprinkler equipment, and the costs of all labor, materials and
supplies incidental thereto; (v) wages, salaries, fees and other compensation
and payments and payroll taxes and contributions to any social security,
unemployment insurance, welfare, pension or similar fund and payments for other
fringe benefits required by law, union agreement or otherwise made to or on
behalf of all employees of Landlord (but not including part time central office
employees) rendered in connection with the operation and
39
<PAGE>
maintenance of the building and/or land within which the demised premises are
located, including, without limitation, payments made directly to or through
independent contractors for performance of such services or for servicing or
maintenance contracts; (vii) management fees payable to any unaffiliated
managing agent for the demised premises; (viii) any and all other expenditures
of Landlord incurred in connection with the operation, repair or maintenance of
the demised premises and the building or land within which they are located
which are properly expensed in accordance with generally accepted accounting
principles consistently applied in the operation, maintenance and repair of a
building operated as a warehouse distribution facility.
The term "Operating Expense" shall not include depreciation on the
building or equipment therein, interest, net income, franchise or capital stock
taxes payable by Landlord, executive salaries, real estate broker's commissions
or the cost of service provided especially for any particular tenant and not
uniformly available to all tenants within the building of which the demised
premises are a part nor shall it include upgrade in services on facilities.
E. "Tenant's Proportionate Share" is equivalent to a fraction, the
numerator of which shall be the square feet of floor area of the demised
premises and the denominator of which shall be the square feet of all leasable
floor area in the building of which
40
<PAGE>
the demised premises are a part. Landlord reserves the right to determine if
Tenant's usage of water, sewer, other common utility, or trash removal exceeds
Tenant's pro-rata share, and assess additional operating expenses accordingly.
2. FINAL YEAR OF LEASE TERM. During the calendar year in which the
term of this Lease ends, Landlord shall have the right to submit to Tenant a
statement of Landlord's reasonable estimate of the Operating Expense Adjustment
during the period (the "Final Period") beginning on the first day of the final
Operating Year of the term or, if later, the date of the immediately preceding
Operating Expense Adjustment and ending on the final day of the term of this
Lease. Upon the earlier to occur of the thirtieth (30th) day following Tenant's
receipt of such statement or the final day of the term of this Lease, Tenant
shall pay to Landlord said estimated Operating Expense Adjustment minus the
total amount of payments previously made by Tenant pursuant to Section 1 above
during the general period. If requested by Tenant, Landlord shall submit to
Tenant a statement setting forth the actual amount of said Operating Expense
Adjustment after Landlord's final calculation of same, and within fifteen (15)
days after Tenant's receipt of such statement, Tenant shall pay to Landlord any
deficiency, or, as the case may be, Landlord shall refund to Tenant any
overpayment occasioned by Tenant's payment of the aforesaid estimate.
41
<PAGE>
ADDENDUM B
1. Rental Rate.
For the second 12 month period of this lease term commencing April 1, 1998 the
rental shall be One Hundred Twenty-One Thousand Two Hundred Seventy-Five and
00/XX Dollars, ($121,275.00).
For the third 12 month period of this lease term commencing April 1, 1999 the
rental shall be One Hundred Thirty-Two Thousand Eight Hundred Twenty-Five and
00/XX Dollars, ($132,825.00).
For the fourth 12 month period of this lease term commencing April 1, 2000 the
rental shall be One Hundred Thirty-Five Thousand One Hundred Thirty-Five and
00/XX Dollars, ($135,135.00).
For the fifth 12 month period of this lease term commencing April 1, 2001 the
rental shall be One Hundred Thirty-Seven Thousand Four Hundred Forty-Five and
00/XX Dollars, ($137,445.00).
2. Tenant Improvements. Landlord agrees to make the following improvements to
the demised premises all to be done in a workmanlike manner prior to Tenant
taking possessions:
a. Paint and carpet the office space.
b.
c. Construct a stairway and doorway by the loading docks.
d. Remove or raise some of the dropped lights.
e. Install a demising wall.
See Attached
43
<PAGE>
3. Option to Renew.
Tenant shall have the right to extend the Lease term for one additional term of
five (5) years which if exercised would commence immediately following the
expiration of the initial Lease term. Tenant may exercise said option by giving
Landlord written notice of its intention to exercise no later than six (6)
months prior to the end of the then current Lease term. All provisions of the
Lease shall remain in full force and effect, except the rental rate shall be
adjusted as follows.
On the first day of the extended Lease term in 2001, and thereafter as of the
first day of each successive Lease year of the extended Lease term, the rent
shall be adjusted by any change in the Index now known as the United States
Bureau of Labor Statistics, Consumer Price Index, for All Urban Consumers, All
Items for Allentown, PA SMSA (1982/84=100), hereafter referred to as the Index.
Such adjustment shall be accomplished by multiplying the aforementioned basic
monthly rental by a fraction, the numerator of which shall be the most recently
published monthly Index preceding the first day of the Lease year for which
adjustment is made, the denominator of which fraction shall be the corresponding
monthly index for the month of March 1996. If such Index shall be discontinued
the parties agree to substitute with a successor or comparable successor Index
and a comparable formula. Lease year shall be defined as each successive twelve
(12) month period during the term
44
<PAGE>
of this Lease, as extended, beginning with the Term Commencement Date.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed the day and year first above written.
JAZZ PHOTO CORP. DENERET ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ [ILLEGIBLE] PRES By: /s/ [ILLEGIBLE]
--------------------------- ---------------------------------
Title: Title: General Partner
Attest: /s/ [ILLEGIBLE] Attest: /s/ [ILLEGIBLE]
----------------------- -----------------------------
Title: VP Title: Secretary
----------------------- ------------------------------
45
<PAGE>
[LOGO] JAZZ PHOTO CORP
- --------------------------------------------------------------------------------
1459 PINEWOOD STREET, RAHWAY, NEW JERSEY 07065 USA
TEL: (908) 499-7945 -- FAX: (908) 499-7348
TO: BERNIE ZIMMEL
FROM: JEFF BURKARD
DATE: FEBRUARY 14, 1997
RE: BUILDING AT 600 BLAIR ROAD, CARTERET, NEW JERSEY
Please have the landlord agree to the following improvements.
A) Paint and carpet the offices.
B) Construct a stairway and doorway by the loading dock.
C) Remove all dropped florescent lights.
D) Install demising wall separating warehouse.
E) Install a door between offices #6 & #7.
F) Construct a 16' by 16' warehouse area by loading docks. Office to
include: linoleum floor, dropped ceiling, 2 doors, 3 windows(2 fixed,
1 sliding). and electric outlets to code.
See attached drawing.
Thank you,
Jeff
<PAGE>
Exhibit 10.12
JAZZ PHOTO CORP.
1997 LONG-TERM INCENTIVE PLAN
1. Purpose
The purpose of the Jazz Photo Corn. Long-Term Incentive Plan (the "Plan")
is to attract and retain and provide incentives to employees, officers,
directors and consultants of, and vendors to, the Corporation, and to thereby
increase overall shareholders' value. The Plan generally provides for restricted
and unrestricted grants of capital stock, stock options, stock appreciation
rights, or any combination of the foregoing to the eligible participants.
2. Definitions
(a) "Award" includes, without limitation, stock options (including
incentive stock options within the meaning of Section 422(b) of the Code) with
or without stock appreciation rights, dividend equivalent rights, stock awards,
restricted share awards, or other awards that are valued in whole or in part by
reference to, or are otherwise based on, the Common Stock and Class A Common
Stock ("other Common Stock-based Awards") all on a stand alone, combination or
tandem basis, as described in or granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the terms
and conditions of each Award made under this Plan.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Code" means the Internal Revenue Code of 1986, (as amended from time
to time.)
(e) "Committee" means the Committee of the Board as may be designated by
the Board from time to time to administer this Plan, the members of which shall
consist solely of members of the Board who are "disinterested persons" within
the meaning of Rule 16b-3 of the Exchange Act and are "outside directors" for
purposes of Code Section 162(m)(4)(C) of the Code.
(f) "Common Stock" means the Common Stock of the Corporation, par value
$.O1 per share. "Class A Common Stock" means the Class A Common Stock of the
Corporation, par value $.O1 per share.
(g) "Corporation" means Jazz Photo Corp., a New Jersey corporation.
<PAGE>
(h) "Employee" means an employee of the Corporation or a Subsidiary.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) "Fair Market Value" means the closing price for the Common Stock or
Class A Common Stock, as applicable, as quoted on a national securities exchange
or the quotation system of a registered national inter-dealer association, as
applicable, on the relevant valuation date or, if there were no sales on the
valuation date, on the next preceding date on which such closing price was
recorded. If such shares are not traded on any national securities exchange or
quoted in any inter-dealer market, the Committee may in the exercise of its good
faith judgment adopt some other definition of Fair Market Value.
(k) "Participant" means an Employee, officer, director, consultant or
vendor who has been granted an Award under the Plan.
(l) "Plan Year" means a twelve-month period beginning with January 1 of
each year.
(m) "Subsidiary" means any corporation or other entity, whether domestic
or foreign, in which the Corporation has or obtains, directly or indirectly, a
proprietary interest of more than 50% by reason of stock ownership or otherwise.
3. Eligibility
My Employee, officer, director, consultant or vendor of the Corporation or
Subsidiary selected by the Committee is eligible to receive an Award.
4. Plan Administration
(a) Except as otherwise determined by the Board, the Plan shall be
administered by the Committee. The Board, or the Committee, to the extent
determined by the Board, shall periodically make determinations with respect to
the participation of Employees, officers, directors, consultants and vendors in
the Plan and, except as otherwise required by law or this Plan, the grant terms
of Awards, including vesting schedules, price, restriction or option period,
dividend rights, post-retirement and termination rights, payment alternatives
such as cash, stock, contingent awards or other means of payment consistent with
the purposes of this Plan, and such other terms and conditions as the Board or
the Committee deems appropriate which shall be contained in an Award Agreement
with respect to a Participant.
(b) The Committee shall have authority to interpret and construe the
provisions of the Plan and any Award Agreement and make determinations pursuant
to any Plan provision or Award Agreement which shall be final and binding on all
persons.
2
<PAGE>
No member of the Committee shall be liable for any action or determination made
in good faith, and the members shall be entitled to indemnification and
reimbursement in the manner provided in the Corporation's Certificate of
Incorporation, as it may be amended from time to time.
(c) The Committee shall have the authority at any time to provide for the
conditions and circumstances under which Awards shall be forfeited.
5. Capital Stock Subject to the Provisions of this Plan
(a) The capital stock subject to the provisions of this Plan shall be
shares of Common Stock and Class A Common Stock either authorized and unissued
or held as treasury stock, or both. Subject to adjustment in accordance with the
provisions of Section 10, and subject to Section 5(c) below, the total number of
shares of Common Stock and Class A Common Stock available for grants of Awards
shall not exceed _______ shares and shall consist of shares of Common Stock and
Class A Common Stock in any proportion so long as the total number of shares of
both such classes taken together issuable hereunder shall not exceed ________
shares.
(b) Any shares ceasing to be subject to an option because of the surrender
of such option in lieu of exercise shall become again available for Awards under
the Plan. The grant of a restricted share Award shall be deemed to be equal to
the maximum number of shares which may be issued under the Award. Awards payable
only in cash will not reduce the number of shares available for Awards granted
under the Plan.
(c) There shall be carried forward and be available for Awards under the
Plan, in addition to shares available for grant under paragraph (a) of this
Section 5, all of the following: (i) any unused portion of the limit set forth
in paragraph (a) of this Section 5; (ii) shares represented by Awards which are
cancelled, forfeited, surrendered, terminated, paid in cash or expire
unexercised; and (iii) the excess amount of variable Awards which become fixed
at less than their maximum limitations.
6. Awards Under This Plan
(a) Discretionary Awards. As the Board or Committee may determine, the
following types of Awards and other Common Stock-based Awards may be granted
under this Plan on a stand alone, combination or tandem basis:
(i) Stock Option. A right to buy a specified number of shares of
Common Stock or Class A Common Stock at a fixed exercise price during a
specified time, all as the Committee may determine; provided that the exercise
price of any option shall not be less than 100% of the Fair Market Value of the
Common Stock or Class A Common Stock, as applicable, on the date of grant of the
Award.
3
<PAGE>
(ii) Incentive Stock Option. An Award in the form of a stock option
which shall comply with the requirements of Section 422 of the Code or any
successor section as it may be amended from time to time. Subject to adjustment
in accordance with the provisions of Section 10, the aggregate number of shares
which may be subject to incentive stock option Awards under this Plan shall not
exceed 300,000 shares (less those shares awarded under Section 5 above). To the
extent that Section 422 of the Code requires certain provisions to be set forth
in a written plan, said provisions are incorporated herein by this reference.
(iii) Stock Appreciation Right. A right contained in the grant of a
stock option or incentive stock option to receive the excess of the Fair Market
Value of a share of Common Stock or Class A Common Stock, as applicable, on the
date the option is surrendered over the option exercise price contained in the
Award Agreement.
(iv) Restricted Shares. A transfer of Common Stock or Class A Common
Stock, as applicable, to a Participant subject to forfeiture until such
restrictions, terms and conditions as the Committee may determine are fulfilled.
(v) Dividend or Equivalent. A right to receive dividends or their
equivalent in value in Common Stock or Class A Common Stock, as applicable, cash
or in a combination of both with respect to any new or previously existing
Award.
(vi) Stock Award. An unrestricted transfer of ownership of Common
Stock or Class A Common Stock which may only be made to Employees other than
Employees who are officers or directors of the Corporation for purposes of
Section 16 of the Exchange Act, when the Exchange Act is applicable to the
Corporation.
(vii) Other Stock-Based Awards. Other Common Stock-based Awards
which are related to or serve a similar function to those Awards set forth in
this Section 6(a).
7. Award Agreements
Each Award under the Plan shall be evidenced by an Award Agreement setting
forth the terms and conditions of the Award and executed by the Corporation and
Participant.
8. Other Terms and Conditions
(a) Assignability. Unless provided to the contrary in any Award, no Award
shall be assignable or transferable except where expressly authorized in the
Award Agreement, by will and by the laws of descent and distribution. During the
lifetime of a Participant, the Award shall be exercisable only by such
Participant.
4
<PAGE>
(b) Termination of Employment. The Committee shall determine the
disposition of the grant of each Award in the event of the retirement,
disability, death or other termination of a Participant's employment or other
relationship with the Corporation or a Subsidiary
(c) Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to shares covered by an Award until the date the
Participant is the holder of record of the shares subject to the Award. No
adjustment will be made for dividends or other rights for which the record date
is prior to such date.
(d) No Obligation to Exercise. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Awards for
which a payment is due from a Participant may be payable: (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the
Corporation, by money transfers or direct account debits; (ii) through the
delivery or deemed delivery based on attestation to the ownership of shares of
Common Stock or Class A Common Stock, as applicable, with a Fair Market Value
equal to the total payment due from the Participant; (iii) pursuant to a
broker-assisted "cashless exercise" program if established by the Corporation;
(iv) by a combination of the methods described in (i) through (iii) above; or
(v) by such other methods as the Committee may deem appropriate.
(f) Withholding. Except as otherwise provided by the Committee, (i) the
deduction of withholding and any other taxes required by law will be made from
all amounts paid in cash and (ii) in the case of payments of Awards in shares of
Common Stock or Class A Common Stock the Participant shall be required to pay
the amount of any taxes required to be withheld prior to receipt of such stock,
or alternatively, the Participant may transfer to the Corporation that number of
shares of Common Stock and/or Class A Common Stock which have a Fair Market
Value equal to the amount required to be withheld.
(g) Restrictions on Sale and Exercise. With respect to officers and
directors for purposes of Section 16 of the Exchange Act, from and after the
date when shares of Common Stock or Class A Common Stock of the Corporation are
registered under Section 12 of the Exchange Act and if required to comply with
rules promulgated thereunder, (i) no Award providing for exercise, a vesting
period, a restriction period or the attainment of performance standards shall
permit unrestricted ownership of Common Stock by the Participant for at least
six months from the date of grant, and (ii) Common Stock or Class A Common
Stock, as applicable, acquired pursuant to this Plan (other than Common Stock or
Class A Common Stock acquired as a result of the granting of a "derivative
security") may not be sold for at least six months after acquisition.
5
<PAGE>
(h) Maximum Awards. The maximum number of shares of Common Stock and Class
A Common Stock that may be issued to any single Participant pursuant to options
under this Plan is 250,000 shares.
9. Termination, Modification and Amendments
(a) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Corporation present or represented and entitled to vote at a
duly held stockholders meeting or by written consent pursuant to Section 14A:5-6
of the Business Corporation Act of the State of New Jersey.
(b) The Board may at any time terminate the Plan or from time to time make
such modifications or amendments of the Plan as it may deem advisable; provided,
however, that the Board shall not make any material amendments to the Plan
without the approval of at least the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock of the Corporation present or
represented and entitled to vote at a duly held stockholders meeting or by
written consent pursuant to Section 14A:5-6 of the New Jersey Business
Corporation Act of the State of New Jersey.
(c) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by an Award without the consent of the recipient
thereof.
10. Recapitalization
The aggregate number of shares of Common Stock and Class A Common Stock as
to which Awards may be granted to Participants, the number of shares thereof
covered by each outstanding Award and by each option award granted or to be
granted and the price per share thereof in each such Award, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock or Class A Common Stock, as applicable, resulting from a
subdivision or consolidation of shares or other capital adjustment, or the
payment of a stock dividend or other increase or decrease in such shares,
effected without receipt of consideration by the Corporation, or other change in
corporate or capital structure; provided, however, that any fractional shares
resulting from any such adjustment shall be eliminated. The Committee may also
make the foregoing changes and any other changes, including changes in the
classes of securities available, to the extent it is deemed necessary or
desirable to preserve the intended benefits of the Plan for the Corporation and
the Participants in the event of any other reorganization, recapitalization,
merger, consolidation, spin-off, extraordinary dividend or other distribution or
similar transaction.
6
<PAGE>
11. No Right to Employment
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to be
retained in the employ of, or in the other relationship with, the Corporation or
a Subsidiary. The Corporation and each Subsidiary expressly reserve the right at
any time to dismiss a Participant free from any liability, or any claim under
the Plan.
12. Governing Law
To the extent that federal laws do not otherwise control, the Plan shall
be construed in accordance with and governed by the laws of the State of New
Jersey.
13. Effective Date and Term
The effective date of this Plan is January 6, 1997 as amended April 2,
1997, subject to its approval by the holders of the Common Stock of the
Corporation. The Plan shall terminate on January 6, 2007 as amended April 2,
1997. No awards shall be granted after the termination of the Plan.
7
<PAGE>
JAZZ PHOTO CORP.
1997 LONG-TERM INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
AWARD AGREEMENT
In consideration of the value of the continuing services of _____________
(hereinafter called "Optionee"), which continuing services the grant of this
option is designed to secure, and in consideration of the undertakings made
herein by Optionee, and pursuant to its 1997 Long-Term Incentive Plan
(hereinafter called the "Plan"), Jazz Photo Corp. (the "Company") hereby grants
to Optionee an option, evidenced by this option agreement (the "Agreement"),
exercisable for the period and upon the terms and conditions hereinafter set
out, to purchase _________________________________ (________) shares of Class A
Common Stock ("Class A Common Stock") of the Company at a price of $____ per
share, which price represents at least 100% of the fair market value of a share
of the Class A Common Stock at the Date of Grant (as hereinafter defined).
1. Term of Option. This option is granted and dated on the date set forth
next above the Company's signature on page 6 hereof (sometimes hereinafter
called the "Date of Grant"), and will terminate and expire, to the extent not
previously exercised, ten (10) years after the Date of Grant, or at such earlier
time as may be specified in the Agreement or the Plan.
2. Subject to Plan. This option is subject to all the terms and conditions
of the Plan, and specifically to the power (i) of the Committee of the Board of
Directors of the Company to make interpretations of the Plan and of the Awards
including options granted thereunder, and (ii) of the Board of Directors of the
Company to alter, amend, suspend or discontinue the Plan subject to the
limitations expressed in the Plan. By acceptance hereof, Optionee acknowledges
receipt of a copy of the Plan and recognizes and agrees that all determinations,
interpretations or other actions respecting the Plan may be made by a majority
of the Board of Directors of the Company or of the Committee, and that such
determination, interpretations or other actions are final, conclusive and
binding upon all parties, including Optionee.
3. Exercise of Option.
(a) Each option shall become exercisable with respect to one-third
of the total number of shares subject to the option one year after the Date of
Grant and with respect to an additional one-third at the end of each
twelve-month period thereafter, during the succeeding two-year period.
Notwithstanding the previous
<PAGE>
sentence, the options shall become exercisable immediately upon an "Exercise
Event" of the Company (as defined below). For this purpose an Exercise Event
shall be deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended), other than persons
who were stockholders immediately prior to the Date of Grant becomes the
beneficial owner of 20% or more of the combined voting power of the Company's
then outstanding securities unless the Board of Directors specifically
determines that any specific acquisition or holder of securities shall not
constitute an Exercise Event of the Company;
(B) at any time the individuals who currently constitute the
Board of Directors of the Company cease for any reason to constitute at least a
majority thereof. For this purpose, any individual who is (i) a current director
of the Company or (ii) a director who was nominated by the Board of Directors of
the Company, the majority of whom are either current directors or were nominated
by persons described in clauses (i) or (ii), shall be treated as a person who is
currently a member of the Board of Directors of the Company;
(C) the Company shall sell Common Stock of the Company to the
public in an initial public offering pursuant to an effective registration
statement filed with the federal Securities and Exchange Commission or in
connection with any transaction described in clause (D) below; or
(D) the Company shall (i) merge or consolidate with or into
another entity, in which holders of the Common Stock or Class A Common Stock of
the Company immediately prior to such merger or consolidation shall not own more
than 50% of the outstanding equity capitalization of the entity surviving such
merger or of such consolidated entity immediately after such merger or
consolidation, or (ii) sell all or substantially all of its assets to any entity
in which the holders of the Common Stock and Class A Common Stock of the Company
immediately prior to such sale shall not own more than 50% of the equity
capitalization of the entity which purchases such assets.
(b) Upon the happening of an Exercise Event (as defined above) upon
exercise the Optionee shall receive Common Stock, par value $.01 per share, upon
exercise on a share4or-share basis instead of Class A Common Stock.
4. Manner of Exercise.
(a) Shares of Class A Common Stock purchased upon exercise of
options shall at the time of purchase be paid for in full. To the extent that
the right to purchase shares has accrued hereunder, options may be exercised
from time to time
2
<PAGE>
by providing written notice to the Company stating the full number of shares
with respect to which the option is being exercised and the time of delivery
thereof, which shall be at least fifteen days after the giving of such notice
unless an earlier date shall have been mutually agreed upon. The aforesaid
notice must be accompanied by full payment for the shares, which payment is to
be by certified or official bank check or the equivalent thereof acceptable to
the Company or by delivering Common Stock or Class A Common Stock of the
Company, valued at its Fair Market Value (determined as provided in the Plan).
At the time of delivery, the Company shall, without transfer or issue tax to the
Optionee (or other person entitled to exercise the option), deliver to the
Optionee (or to such other person) at the principal office of the Company, or
such other place as shall be mutually agreed upon, a certificate or certificates
for such shares; provided, however, that the time of delivery may be postponed
by the Company for such period as may be required for it with reasonable
diligence to comply with any requirements of law. In the event the Class A
Common Stock issuable upon exercise is not registered under the Securities Act
of 1933 (the "Act"), then the Company at the time of exercise will require, in
addition to the foregoing that the registered owner deliver an investment
representation in form acceptable to the Company and its counsel and the Company
will place a legend on the certificate for such Common Stock restricting the
transfer of same. There shall be no obligation or duty for the Company to
register under the Act at any time that Class A Common Stock is issued upon
exercise of the options, or at any time thereafter.
(b) Limitation of Amount. Notwithstanding any other provision of the
Plan, the aggregate Fair Market Value (determined at the time an Incentive
Option is granted) of the Class A Common Stock with respect to which incentive
options are exercisable by the Optionee (or other person entitled to exercise
the incentive option) during any calendar year shall not exceed $100,000.
(c) Non-Assignability of Option Rights. No option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution. During the lifetime of an Optionee, the option is exercisable only
by the Optionee.
5. Termination of Employment.
(a) In the event that Optionee's employment by the Company or a
Subsidiary shall terminate, and the provisions of Sections 5(b), 5(c) or 5(e) do
not apply, the option granted to Optionee pursuant to this Agreement shall
terminate immediately.
(b) In the event that Optionee shall die while in the employment of
the Company (or a Subsidiary) or if Optionee's employment by the Company (or a
Subsidiary) is terminated because Optionee has become disabled within the
meaning of Section 105(d)(4) of the Code, Optionee, Optionee's estate or
beneficiary shall have
3
<PAGE>
the right to exercise Optionee's options at any time within six months from the
date of death of Optionee or termination due to disability. Notwithstanding the
foregoing, the provisions of this Section 5(b) shall be subject to Section 3,
5(c) and 5(e) as may earlier terminate the option.
(c) In the event that any termination of employment is due to
retirement with the consent of Optionee's employer, the Optionee shall have the
right to exercise the option at any time within three months after such
retirement to the extent he was entitled to exercise the same immediately prior
to retirement. Notwithstanding the foregoing, the provisions of this Section
5(c) shall be subject to Section 3, 5(b) and 5(e) as may earlier terminate the
option.
(d) Adjustment of Options on Recapitalization. The aggregate number
of shares of Common Stock or Class A Common Stock for which options may be
granted to persons participating under the Plan, the number of shares subject to
outstanding options, and the exercise price per share for each such option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock or Class A Common Stock of the Company resulting
from the subdivision or consolidation of shares, or the payment of a stock
dividend after the effective date of this Plan, or other increase or decrease in
such shares effected without receipt of consideration by the Company; provided,
however, that any options to purchase fractional shares resulting from any such
adjustment shall be eliminated and provided further, that any such adjustment
shall be made in a manner so as not to constitute a modification as defined in
Section 425(h)(3) of the Code.
(e) Dissolution of Issuer of Option Stock. In the event of the
proposed dissolution or liquidation of the Company, the options granted
hereunder shall terminate as of a date to be fixed by the Committee, provided
that not less than thirty (30) days' prior written notice of the date so fixed
shall be given to the Optionee, and the Optionee shall have the right, during
the period of thirty (30) days preceding such termination, to exercise his
option. Notwithstanding the foregoing, the provisions of this Section shall be
subject to Section 3.
(f) Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock or Class A Common Stock
of the Company held under the option until the date of issuance of the stock
certificates to Optionee or Optionee's agent or custodian for such shares.
(g) Stock Legend. Certificates evidencing shares of the Company's
Class A Common Stock purchased upon the exercise of any option issued under this
Agreement shall be endorsed with a legend in substantially the following form:
"The shares evidenced by this certificate may not be sold or
transferred prior to _____________ 19__,
4
<PAGE>
in the absence of a written statement from Jazz Photo Corp. (the
"Company") to the effect that the Company is aware of the fact of
such sale or transfer.
"The blank contained in such legend shall be filled in with the date
which is the later of two years and one day from the day the
Incentive Option was granted or one year and one day after the date
of exercise of such Incentive Option. Upon delivery to the Company,
at its principal executive office, of a written statement to the
effect that such shares have been sold or transferred prior to such
date, the Company does hereby agree to promptly deliver to the
transfer agent for such shares a written statement to the effect
that the Company is aware of the fact of such sale or transfer."
(h) Act Legend. Each certificate representing shares of Class A
Common Stock issued pursuant to the exercise of an option under this Agreement
shall bear the following Securities Act of 1933 legend:
"The offer or sale of the shares evidenced by this certificate have
not been registered under the Securities Act of 1933 and,
accordingly, such shares may not be sold, transferred or otherwise
disposed of except upon full compliance with such law or an
exemption therefrom."
6. Shareholders' Agreement. Reference is made to a certain Shareholders'
Agreement (the "Shareholders' Agreement") among the Company and certain of its
shareholders including Optionee. Upon the exercise of any option under this
Agreement by Optionee, the shares issuable hereunder shall be subject to all the
terms and conditions of the Shareholders' Agreement and shall bear a legend to
the following effect:
"The shares represented by this certificate are subject to the terms
of a Shareholders' Agreement dated as of January __ 1997, which,
among other provisions, restrains the disposition hereof. A copy of
the Shareholders' Agreement may be examined by the holder of this
certificate at the offices of the Company."
5
<PAGE>
IN WITNESS WHEREOF, this Incentive Stock Option Agreement is
executed as of the __th day of January, 1997.
JAZZ PHOTO CORP.
By:_______________________________
The undersigned Optionee hereby accepts the benefits of the
foregoing Incentive Stock Option Agreement.
__________________________________
, Optionee
6
<PAGE>
JAZZ PHOTO CORP.
1997 LONG-TERM INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------
AWARD AGREEMENT
----------
In consideration of the value of the continuing services of _____________
(hereinafter called "Optionee"), which continuing services the grant of this
option is designed to secure, and in consideration of the undertakings made
herein by Optionee, and pursuant to its 1997 Long-Term Incentive Plan
(hereinafter called the "Plan"), Jazz Photo Corp. (the "Company") hereby grants
to Optionee an option, evidenced by this option agreement (the "Agreement"),
exercisable for the period and upon the terms and conditions hereinafter set
out, to purchase _________________________________ _______ shares of Class A
Common Stock ("Class A Common Stock") of the Company at a price of $____ per
share, which price represents at least 100% of the fair market value of a share
of the Class A Common Stock at the Date of Grant (as hereinafter defined).
1. Term of Option. This option is granted and dated on the date set forth
next above the Company's signature on page 6 hereof(sometimes hereinafter called
the "Date of Grant"), and will terminate and expire, to the extent not
previously exercised, ten (10) years after the Date of Grant, or at such earlier
time as may be specified in the Agreement or the Plan.
2. Subject to Plan. This option is subject to all the terms and conditions
of the Plan, and specifically to the power (i) of the Committee of the Board of
Directors of the Company to make interpretations of the Plan and of the Awards
including options granted thereunder, and (ii) of the Board of Directors of the
Company to alter, amend, suspend or discontinue the Plan subject to the
limitations expressed in the Plan. By acceptance hereof, Optionee acknowledges
receipt of a copy of the Plan and recognizes and agrees that all determinations,
interpretations or other actions respecting the Plan may be made by a majority
of the Board of Directors of the Company or of the Committee, and that such
determination, interpretations or other actions are final, conclusive and
binding upon all parties, including Optionee.
3. Exercise of Option.
(a) Each option shall become exercisable with respect to one-third
of the total number of shares subject to the option one year after the Date of
Grant and with respect to an additional one-third at the end of each
twelve-month period thereafter, during the succeeding two-year period.
Notwithstanding the previous
<PAGE>
sentence, the options shall become exercisable immediately upon an "Exercise
Event" of the Company (as defined below). For this purpose an Exercise Event
shall be deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and I
4(d)(2) of the Securities Exchange Act of 1934, as amended), other than persons
who were stockholders immediately prior to the Date of Grant becomes the
beneficial owner of 20% or more of the combined voting power of the Company's
then outstanding securities unless the Board of Directors specifically
determines that any specific acquisition or holder of securities shall not
constitute an Exercise Event of the Company;
(B) at any time the individuals who currently constitute the
Board of Directors of the Company cease for any reason to constitute at least a
majority thereof. For this purpose, any individual who is (i) a current director
of the Company or (ii) a director who was nominated by the Board of Directors of
the Company, the majority of whom are either current directors or were nominated
by persons described in clauses (i) or (ii), shall be treated as a person who is
currently a member of the Board of Directors of the Company;
(C) the Company shall sell Common Stock of the Company to the
public in an initial public offering pursuant to an effective registration
statement filed with the federal Securities and Exchange Commission or in
connection with any transaction described in clause (D) below; or
(D) the Company shall (i) merge or consolidate with or into
another entity, in which holders of the Common Stock or Class A Common Stock of
the Company immediately prior to such merger or consolidation shall not own more
than 50% of the outstanding equity capitalization of the entity surviving such
merger or of such consolidated entity immediately after such merger or
consolidation, or (ii) sell all or substantially all of its assets to any entity
in which the holders of the Common Stock and Class A Common Stock of the Company
immediately prior to such sale shall not own more than 50% of the equity
capitalization of the entity which purchases such assets.
(b) Upon the happening of an Exercise Event (as defined above) upon
exercise the Optionee shall receive Common Stock, par value $.01 per share, upon
exercise on a share-for-share basis instead of Class A Common Stock.
4. Manner of Exercise.
(a) Shares of Class A Common Stock purchased upon exercise of
options shall at the time of purchase be paid for in full. To the extent that
the right to purchase shares has accrued hereunder, options may be exercised
from time to time
2
<PAGE>
by providing written notice to the Company stating the full number of shares
with respect to which the option is being exercised and the time of delivery
thereof, which shall be at least fifteen days after the giving of such notice
unless an earlier date shall have been mutually agreed upon. The aforesaid
notice must be accompanied by full payment for the shares, which payment is to
be by certified or official bank check or the equivalent thereof acceptable to
the Company or by delivering Common Stock or Class A Common Stock of the
Company, valued at its Fair Market Value (determined as provided in the Plan).
At the time of delivery, the Company shall, without transfer or issue tax to the
Optionee (or other person entitled to exercise the option), deliver to the
Optionee (or to such other person) at the principal office of the Company, or
such other place as shall be mutually agreed upon, a certificate or certificates
for such shares; provided, however, that the time of delivery may be postponed
by the Company for such period as may be required for it with reasonable
diligence to comply with any requirements of law. In the event the Class A
Common Stock issuable upon exercise is not registered under the Securities Act
of 1933 (the "Act"), then the Company at the time of exercise will require, in
addition to the foregoing that the registered owner deliver an investment
representation in form acceptable to the Company and its counsel and the Company
will place a legend on the certificate for such Common Stock restricting the
transfer of same. There shall be no obligation or duty for the Company to
register under the Act at any time that Class A Common Stock is issued upon
exercise of the options, or at any time thereafter.
(b) Non-Assignability of Option Rights. No option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution. During the lifetime of an Optionee, the option is exercisable only
by the Optionee.
5. Termination of Employment.
(a) In the event that Optionee's employment by the Company or a
Subsidiary shall terminate, and the provisions of Sections 5(b), 5(c) or 5(e) do
not apply, the option granted to Optionee pursuant to this Agreement shall
terminate immediately
(b) In the event that Optionee shall die while in the employment of
the Company (or a Subsidiary) or if Optionee's employment by the Company (or a
Subsidiary) is terminated because Optionee has become disabled within the
meaning of Section 105(d)(4) of the Code, Optionee, Optionee's estate or
beneficiary shall have the right to exercise Optionee's options at any time
within six months from the date of death of Optionee or termination due to
disability. Notwithstanding the foregoing, the provisions of this Section 5(b)
shall be subject to Section 3, 5(c) and 5(e) as may earlier terminate the
option.
3
<PAGE>
(c) In the event that any termination of employment is due to
retirement with the consent of Optionee's employer, the Optionee shall have the
right to exercise the option at any time within three months after such
retirement to the extent he was entitled to exercise the same immediately prior
to retirement. Notwithstanding the foregoing, the provisions of this Section
5(c) shall be subject to Section 3, 5(b) and 5(e) as may earlier terminate the
option.
(d) Adjustment of Options on Recapitalization. The aggregate number
of shares of Common Stock or Class A Common Stock for which options may be
granted to persons participating under the Plan, the number of shares subject to
outstanding options, and the exercise price per share for each such option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock or Class A Common Stock of the Company resulting
from the subdivision or consolidation of shares, or the payment of a stock
dividend after the effective date of this Plan, or other increase or decrease in
such shares effected without receipt of consideration by the Company; provided,
however, that any options to purchase fractional shares resulting from any such
adjustment shall be eliminated; and provided further, that any such adjustment
shall be made in a manner so as not to constitute a modification as defined in
Section 425(h)(3) of the Code.
(e) Dissolution of Issuer of Option Stock. In the event of the
proposed dissolution or liquidation of the Company, the options granted
hereunder shall terminate as of a date to be fixed by the Committee, provided
that not less than thirty (30) days' prior written notice of the date so fixed
shall be given to the Optionee, and the Optionee shall have the right, during
the period of thirty (30) days preceding such termination, to exercise his
option. Notwithstanding the foregoing, the provisions of this Section shall be
subject to Section 3.
(f) Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock or Class A Common Stock
of the Company held under the option until the date of issuance of the stock
certificates to Optionee or Optionee's agent or custodian for such shares.
(g) Stock Legend. Certificates evidencing shares of the Company's
Class A Common Stock purchased upon the exercise of any option issued under this
Agreement shall be endorsed with a legend in substantially the following form:
"The shares evidenced by this certificate may not be sold or
transferred in the absence of a written statement from Jazz Photo
Corp. (the "Company") to the effect that the Company is aware of the
fact of such sale or transfer."
4
<PAGE>
(h) Act Legend. Each certificate representing shares of Class A
Common Stock issued pursuant to the exercise of an option under this Agreement
shall bear the following Securities Act of 1933 legend:
"The offer or sale of the shares evidenced by this certificate have
not been registered under the Securities Act of 1933 and,
accordingly, such shares may not be sold, transferred or otherwise
disposed of except upon full compliance with such law or an
exemption therefrom."
IN WITNESS WHEREOF, this Stock Option Agreement is executed as of
the __th day of April, 1997.
JAZZ PHOTO CORP.
By:_______________________________
The undersigned Optionee hereby accepts the benefits of the
foregoing Stock Option Agreement.
__________________________________
,Optionee
5
<PAGE>
Exhibit 10.13
FACTORING AGREEMENT
ROSENTHAL & ROSENTHAL, Inc.
1370 Broadway
New York, N.Y. 10018
New York, New York July 12, 1995
Jazz Photo Corp.
1459 Pinewood Street
Rahway, NJ 07065
THE FOLLOWING IS THE AGREEMENT UNDER WHICH WE ARE TO ACT AS YOUR SOLE FACTOR:
1. You hereby sell and assign to us, making us absolute owner thereof, all
of your accounts, contract rights, and all other obligations to you, now
existing or hereafter arising, for the payment of money arising out of the sale
of goods or rendition of services ("receivables"), together with all proceeds
thereof, all security and guarantees therefor, and all of your rights to any
goods and property represented thereby. We shall have all the rights of an
unpaid seller of any goods, the sale of which gives rise to each receivable,
including the right of stoppage in transit, reclamation and replevin. Upon each
sale of goods or rendition of services, you shall execute and deliver to us such
further and confirmatory assignments of your receivables as we require, in form
and manner satisfactory to us, together with copies of invoices and all shipping
or delivery receipts and such other proof of sale and delivery or performance as
we from time to time may require. You will make appropriate notations upon your
books and ledgers indicating the sale and assignment of your receivables to us.
All invoices or other statements to customers evidencing receivables shall be
mailed at your expense whether mailed by you or at our options by us and shall
clearly state in a manner satisfactory to us that such receivables has been
assigned to us and is payable to us only.
2. Before accepting or filling any order from any customer, the amount and
terms of sale are to be submitted to us for our credit approval, which approval
must be in writing and shall be limited to the specific terms and amounts
described therein. We reserve the right to withdraw such credit approval at any
time before delivery or performance and, in any event, a credit approval shall
be deemed to be withdrawn if full delivery or performance is not made within 30
days after the delivery or shipment date specified in the terms of sale
submitted for such approval, or, if no delivery or shipment date is specified,
within 30 days of the date of such credit approval. On sales approved and
accepted by us, we shall assume the credit risk, being responsible only for the
financial inability of your customers to pay at maturity, such assumption of
credit risk going into effect upon delivery or performance, and acceptance of
the goods or services by such customer, without dispute. We shall not be
responsible for any nonpayment of a receivable because of the assertion of any
claim or dispute by a customer or the exercise of any counterclaim or offset
(whether or not such claim, dispute, counterclaim or offset relates to the
specific receivable) or where nonpayment is a consequence of enemy attack, civil
commotion, the acts or restraint of public authorities, acts of God or force
majeure, or if any warranty made by you to us in respect of such receivables has
been breached. We shall have no liability of any kind for refusing to give or
for withdrawing credit approval pursuant to the terms of this Agreement, or for
exercising or refusing to exercise any rights or remedies we have under this
Agreement or otherwise. Any sale of goods or rendition of services made by you
which is not approved in writing by us as to credit shall be known as a C.R.
(Client's risk) receivable. All such C.R. receivables assigned to and purchased
by us are with full recourse to you and at your credit risk, but are otherwise
subject to the covenants, terms and conditions provided herein in respect of
approved receivables on which we have assumed the credit risk. We shall have the
rights to charge back to your account the amount of such C.R. receivables at any
time either before or after their maturity and you agree to pay us upon demand
the amount thereof, together with all expenses including collection charges and
other collection and attorney's fees incurred by us up to the date of such
payment in attempting to collect or enforce any such payment and in attempting
to collect or enforce any such receivable. In no event shall we have any credit
risk on any receivable, whether or not approved by us, if the net amount of such
receivable is less than $250.00.
3. Any goods rejected or returned by any customer shall be our property
held by you in trust for us separate and apart from any other goods, and upon
demand shall forthwith be delivered to us or disposed of by you at our direction
<PAGE>
and without charge to us. You shall report to us in writing all disputes and
claims made by your customers, and the return of or offer to return any goods,
and you will promptly settle all such claims and disputes at your expense. As
absolute owner of each receivable, we may in our sole discretion enforce, effect
any compromise, settle and adjust any receivable, in our name or yours, without
affecting or limiting your obligation to us under this Agreement, and whether or
not any such receivable shall have been charged back. We reserve the right at
any time to charge back to your account the full amount of the receivable
involved in any claim, dispute or return asserted by your customer, and you
agree to pay us upon demand the full amount thereof. The charge back to your
account of the amount of any receivable shall not be deemed a reassignment
thereof to you and title thereto, to the proceeds thereof, to all security and
guarantees therefor and to your interest in the goods represented thereby, shall
remain in us. You shall indemnify us for, and hold us harmless against, any
loss, liability, claim or expense of any kind arising from any claims of, or
dispute with, your customer as to terms, price, quality, or otherwise, with
respect to receivables, including any claim for a return of any payments
thereunder.
4. If any checks, drafts, notes acceptances, cash collections or payments
in any form shall be received by you on receivables, you will immediately
transmit and deliver them to us in the identical form received. You agree that
we and any such person or entity as we may from time to time designate, shall
have the right to sign and/or endorse your name on all remittances and all
papers, bills of lading, receipts, instruments and documents relating to the
receivables and the transactions between us. We shall have the right to deposit
any checks or other remittances received on receivables regardless of notations
or conditions placed thereon by your customers or deductions reflected thereby
and to charge the amount of any such deductions to your account.
5. As to each receivable assigned to us, you hereby warrant that: (i) it
is a bona fide existing obligation created by the sale and actual delivery of
goods or the rendition of services to customers in the ordinary course of
business, which you then own free of liens and encumbrances, and which is then
unconditionally owing to you without defense, offset or counterclaim; and(ii)
the customers have received and will accept the goods and services, and the
invoices therefor, without dispute or claim of any kind. You hereby warrant that
you are solvent, that you have full right and authority to sell and assign to us
and to grant to us a security interest in your receivables, that you have not
granted a security interest therein or in any of your inventory, other than to
us, at any time during the term of this Agreement and until the security
interests granted hereunder have been terminated. You further represent and
warrant that your name, place of business, chief executive office and location
of your books and records relating to your receivables is as you are addressed
above and you agree to notify us promptly of any change in such or in your
corporate or business structure.
6. (a) For our services hereunder, we shall receive a factoring commission
equal to 1.125% of the invoice amount of each receivable, less selling discounts
(at our option, calculated on shortest terms), which commission shall be due and
payable by you as at the date a receivable arises, and shall then be chargeable
to your account with us.
(b) Our charge specified in paragraph 6(a) hereof is based upon
maximum selling terms of sixty (60) days, and no more extended terms or
additional dating shall be granted by you to any customer without our prior
written approval. When such approval is given by us, our charge with respect to
the receivables covered thereby shall by increased twenty-five percent (25%),
provided that the minimum increase shall be one quarter of one percent (.25%)
for each additional 30 days or portion thereof of extended terms or additional
dating.
(c.) Amounts taken by customers for anticipation at an annual rate
in excess of two (2%) percent under the Prime Rate (as defined in paragraph 7
(b) hereof) shall be charged to your account.
(d) The minimum factoring commission on each invoice in respect of
any receivable shall be $5.00.
(e) The minimum aggregate monthly factoring commissions payable
under this Agreement shall be $2,000 but not less than $24,000 in the aggregate
per contract year, which to the extent of any deficiency (after giving effect to
commissions payable and other charges under the foregoing subparagraphs), shall
be chargeable to your account with us on a monthly basis.
(f) Should we open letters of credit or issue guarantees for your
account, we shall receive a commission equal to 0.5% of the face amount of such
letters of credit or guarantees plus an additional 0.25% for each 30 days or
portion thereof that the letter of credit (or any resulting acceptance) or
guarantee remains open and unpaid plus preparation fees and bank charges.
7. (a) The purchase price for each receivable shall be the invoice amount
of the receivable, less returns (whenever made), less all selling discounts (at
our option, calculated on shortest terms) and credits or deductions of any kind
allowed or granted to or taken by the customer at any time, and less our
commission provided for herein. No discount, credit or allowance with respect to
the receivables shall be granted by you to any customer, and no return of goods
shall be accepted
<PAGE>
by you without our prior written consent. A discount, credit or allowance may be
claimed only by the customer. All amounts collected against the receivables
shall be credited to your account adding ten (10) banking days for collection
and clearance of remittances.
(b) If you require funds from time to time, we will advance to you,
at our discretion, up to seventy percent (70%) of the net amount of receivables
purchased by us and not as yet collected. You will be charged with interest on
all sums paid, advanced or charged to you at a rate equal to eleven and one
quarter percent (11.25%) per annum upon the average daily debt cash balance in
your account. That portion of advances made by us to you which is in excess of
the above stated percentage of your receivables shall bear interest at a per
annum rate which is 3% in excess of such interest rate. The rates of interest
and discount provided for in this paragraph 7 shall be increased or decreased by
three-tenths of one percent (3/10ths of 1%) per annum for each increase or
decrease respectively of one quarter of one percent (1/4 of 1%) per annum that
is hereafter made in the prime rate of The Chase Manhattan Bank (National
Association) as announced by such Bank from time to time ("Prime Rate"), such
change to become effective when and as the Prime Rate shall change, provided
that at no time shall such percentage interest or discount rate be less than
2.5% per annum above the Prime Rate. Notwithstanding the foregoing, in no event
shall the rate of interest agreed to by or charged to you hereunder exceed the
maximum rate of interest permitted to be so agreed or charged under the law of
the jurisdiction whose laws are applicable to such rate of interest. We shall
have the privilege of remitting to you at any time any amount standing to your
credit on our books. The present Prime Rate is 8.75% per annum.
(c) About fifteen (15) days after the end of each month, we will
render to you a statement with respect to the receivables purchased by us in the
previous month, together with advances and charges made to your account under
this Agreement. In addition to any other amounts chargeable to your account,
your account shall be charged with our expenses consisting of postage on
invoices, bank wire and similar charges and in addition all expenses and costs
from time to time hereafter incurred by us during the course of periodic
examinations of your books and records, and operations, plus a per diem charge
at the rate of $500 per person, per day, for our examiners, in the field and
office. All statements, reports or accountings rendered or issued by us to you
shall be deemed accepted and be finally conclusive and binding upon you unless
you notify us to the contrary by registered or certified mail within thirty (30)
days after the date such statement, report or accounting is sent to you.
8. As collateral security for any and all of your (and your subsidiaries
and affiliates) indebtness and obligations to us and to each of our subsidiaries
and affiliates, whether matured or unmatured, absolute or contingent, now
existing or that may hereafter arise (including under indemnity or reimbursement
agreements or by subrogation), and howsoever acquired by us, whether arising
directly between us or acquired by us by assignment, whether relating to this
Agreement or independent hereof, including all obligations incurred by you to
any other concern factored or financed by us (collectively, the "Obligations"),
you grant to us a security interest in all of your accounts, contract rights and
general intangibles (whether or not specifically assigned to us), now existing
and hereafter arising, and in the proceeds thereof, any security and guarantees
therefor, in the goods and property represented thereby, in all of your books
and records relating to the foregoing, in all sum of money at any time to your
credit with us, all your present and future claims against us under or in
connection with this Agreement and any of your property at any time in our
possession. All Obligations shall be due and payable on demand, and you hereby
irrevocably authorize and direct us to charge at any time to your account any
Obligations, and to pay any Obligations owing to any of our subsidiaries or
affiliates by so charging at any time to your account. You agree to execute
financing statements and any and all other instruments and documents that may
now or hereafter be provided for by the Uniform Commercial Code or other law
applicable thereto reflecting the security interests granted to us hereunder.
You authorize us to file such financing statements without your signature,
signed only by us as a secured party, to reflect the security interests granted
to us hereunder. You shall be liable for, and we may charge your account with,
all costs and expenses of filing such statements (including any filing or
recording taxes), the making of lien searches, and any attorney's fees which may
be incurred by us in protecting, preserving and enforcing our security interests
and rights hereunder.
9. This Agreement shall commence on the date hereof, and shall continue
until July 31, 1996, and automatically from year to year thereafter, unless you
give us notice in writing, by registered or certified mail, sixty days prior to
the expiration of the original term of this Agreement (or any renewal term
thereof), of your intention to terminate this Agreement as at the end of such
term, with the understanding that we may terminate this Agreement at any time
upon thirty days notice to you by registered or certified mail. If you become
insolvent or become unable to meet your debts as they mature, or fail, suspend
or go out of business or apply for, consent to, or suffer the appointment of a
receiver, trustee or custodian (or similar person) for you or any of your
property, make an assignment for the benefit of creditors, or commence or become
the subject of a case or proceeding under any federal bankruptcy law, or if you
shall be in default under this Agreement or under any other agreement with us or
any Obligations to us, or if there is a change (by death or otherwise) in your
controlling stockholders or owners, then notwithstanding the foregoing, we shall
have the right to terminate this Agreement at any time without notice. Our
rights and your Obligations arising out of transactions having their inception
prior to the termination date shall not be affected by any termination or notice
<PAGE>
thereof. Termination of this Agreement shall not become effective in respect of
the liens and security interests granted to us hereunder until you have fully
paid and discharged any and all of your Obligations to us, and you shall
continue to furnish confirmatory assignments and schedules of receivables
assigned to us and all proceeds in respect thereof. After the giving of any
notice of termination hereunder and until the full liquidation of your account
and the payment in full of all Obligations, you shall not be entitled to receive
any equities or payments from us, to the extent we are obligated to make
payments to you under this Agreement. From and after the effective date of
termination, all amounts charged or chargeable to your account hereunder, and
all your Obligations to us, shall become immediately due and payable without
further notice or demand.
10. This Agreement is deemed made in the State of New York and shall be
governed, interpreted and construed in accordance with the laws of the State of
New York. No modification, waiver or discharge of this Agreement shall be
binding upon us unless in writing and signed by us. If at any time we should
fail to exercise any right or remedy hereunder, it shall not constitute a waiver
on our part of exercising the same or any other right or remedy at any
subsequent time. If any taxes are imposed upon, or if we shall be required to
withhold or pay any tax or penalty because of or in connection with any
transactions between us under this Agreement, you agree to indemnity us and hold
us harmless in respect thereof. Trial by jury is hereby waived by each of us in
any action, proceeding or counterclaim brought by either of us against the other
on any matters whatsoever arising out of or in any way connected with this
Agreement or the relationship created hereby, and you hereby consent to the
jurisdiction of the Supreme Court of the State of New York (or the Civil Court
of the City of New York if such matters be within its jurisdiction), and of any
Federal Court in such State, for a determination of any dispute as to any such
matters. In connection therewith, you hereby waive personal service of any
summons, complaint or other process and agree that service thereof may be made
by registered or certified mail directed to you at your address set forth above,
or such other address as shall have previously been communicated to us by
registered or certified mail. Within thirty days after such mailing, you shall
appear to answer to such summons, complaint or other process. Should you fail to
appear or answer within said thirty-day period, you shall be deemed in default
and judgment may be entered by us against you for the amount as demanded in any
summons, complaint or other process so served. In the event we shall retain
counsel for the purpose of enforcing the performance, payment or collection of
any of the Obligations, then in that event you agree to pay the reasonable fees
of our counsel, the amount of which is hereby expressly fixed (to the extent
permitted by applicable law) at a sum that shall be equal to fifteen percent of
the Obligations plus any and all expenses and disbursements incurred in
connection therewith and/or incidental thereto. Our books and records shall be
admissable as prima facie evidence of the status of the account between us. This
Agreement shall be binding upon and inure to the benefit of each of us and our
respective heirs, executors, administrators, successors and assigns.
ROSENTHAL & ROSENTHAL, INC.
By: /s/ Jerry Sandak
--------------------
Name and Title: Jerry Sandak, Exec. Vice Pres.
The foregoing is acknowledged,
accepted and agreed to:
Jazz Photo Corp.
By: /s/ [ILLEGIBLE]
---------------
<PAGE>
RE: FACTORING AGREEMENT
It is mutually agreed that the above mentioned agreement between us shall be
amended as hereafter provided:
The following is hereby added to the last sentence of Paragraph 6(a):
"... except for those receivables due from a customer (or any affiliates
or subsidiaries thereof) listed on the Special Accounts Schedule submitted
herewith and/or from time to time hereafter (by certified mail) for which
the commission on paid receivables shall be increased by an amount equal
to the surcharge set forth on the said Special Accounts Schedule to the
extent of the amount credit approved."
The foregoing amendment shall be effective as of July 12, 1995.
In all other respects the terms and conditions of the aforesaid agreement, as
the same may have heretofore been amended, shall remain unchanged.
ROSENTHAL & ROSENTHAL, INC.
By: /s/ [ILLEGIBLE] Sr VP
-------------------------------
THE FOREGOING IS ACKNOWLEDGED AND AGREED TO:
JAZZ PHOTO CORP.
By: /s/ [ILLEGIBLE]
------------------------------
<PAGE>
SPECIAL ACCOUNT SCHEDULE
1% SURCHARGE
- --------------------------------------------------------------------------------
AMES DEPARTMENT STORES INC.
- --------------------------------------------------------------------------------
C.R. ANTHONY COMPANY
- --------------------------------------------------------------------------------
CALDOR INC.
- --------------------------------------------------------------------------------
BROADWAY STORES INC.
- --------------------------------------------------------------------------------
McCRORY CORP. -D.I.P.
- --------------------------------------------------------------------------------
BRADLESS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SPECIAL ACCOUNT SCHEDULE
2% Surcharge
================================================================================
LESLIE FAY COMPANIES DIP
SASSCO division
SPITALNICK CORP. subsidiary
PIECE GOODS SHOPS COMPANY L.P. DIP
BILLS DOLLAR STORES INC. DIP
JAMESWAY CORP. DIP
ROSES STORES INC, DIP
BRADLEES INC. DIP
MERRY GO ROUND ENTERPRISES, INC. DIP
SOLO SERVE CORP. DIP
WOODWARD & LOTHROP INC. DIP
NO NAME STORES INC. DIP
FINES MENS SHOPS INC. DIP
JAY JACOBS INC. DIP
WEINER STORES INC. DIP
Rev. 06/28/95
<PAGE>
New York, New York July 12, 1995
Rosenthal & Rosenthal, Inc.
1370 Broadway
New York, New York 10018
Gentlemen:
We do hereby agree that the Factoring Agreement between us dated July 12, 1995,
be and the same hereby is amended and supplemented by adding thereto the
following clauses:
We hereby pledge, assign, consign, transfer and set over to you, and you
shall at all times have a continuing general lien upon, and we hereby grant you
a continuing security interest in, all of our Inventory and the proceeds
thereof. "Inventory" shall include but not be limited to raw materials, work in
process, finished merchandise and all wrapping, packing and shipping materials,
wheresoever located, now owned or hereafter acquired, presently existing or
hereafter arising, and all additions and accessions thereto, the resulting
product or mass and any documents representing all or any part thereof. Upon
your request, we will at any time and from time to time, at our expense, deliver
such Inventory to you or such person as you may designate, cause the same to be
stored in your name at such place as you may designate, deliver to you documents
of title representing the same or otherwise evidence your security interest in
such manner as you may require.
The aforesaid pledge, assignment, consignment, transfer, lien and security
interest shall secure any and all of our obligations to you, matured or
unmatured, absolute or contingent, now existing or that may hereafter arise, and
howsoever acquired by you, whether arising directly between us or acquired by
you by assignment and whether relating to this agreement or independent hereof,
together with all interest, charges, commissions, expenses, attorneys' fees and
other items chargeable against us in connection with any of said obligations.
We agree, at our expense, to keep all Inventory insured to the full value
thereof against such risks and by policies of insurance issued by such companies
as you may designate or approve, and the policies evidencing such insurance
shall be duly endorsed in your favor with a long form lender's loss payable
rider or such other document as you may designate and said policies shall be
delivered to you. Should we fail for any reason to furnish you with such
insurance, you shall have the right to effect the same and charge any costs in
connection therewith to us. You shall have no risk, liability or responsibility
in connection with payment or nonpayment of any loss, you sole obligation being
to credit our account with the net proceeds of any such insurance payments
received on account of any loss. Any and all assessments, taxes or other charges
that may be assessed upon or payable with respect to the Inventory or any part
thereof shall forthwith be paid by us, and we agree that you, in your
discretion, may effect such payment and charge the amount thereof to us. We
further agree that except for the pledge, assignment, consignment, transfer,
lien and security interest granted to you hereby, we shall not permit said
Inventory to otherwise become liened or encumbered nor shall we grant any
security interest therein to any other party. We shall not, without your written
consent first obtain, remove or dispose of any of such Inventory except to bona
fide purchasers thereof in the ordinary course of our business on orders first
approved in writing by you. All such sales shall be reported to you promptly and
the accounts or other proceeds thereof shall be subject to the security
interests in your favor. You shall have the right at all times to the immediate
possession of all Inventory and its products and proceeds and we shall make such
Inventory and all our records pertaining thereto available to you for inspection
at any time requested by you. You shall have the right, in your discretion, to
pay any liens or claims upon said Inventory, including, but not limited to,
warehouse charges, dyeing, finishing and processing charges, landlords' claims,
etc. and the amount of any such payment shall be charged to our account and
secured hereby. You shall not be liable for the safekeeping of any of the
Inventory or for any loss, damage or diminution in the value thereof or for any
act or default of any warehouseman, carrier or other person dealing in and with
said Inventory, whether as your agent or otherwise, or for the collection of any
proceeds thereof but the same shall at all times be at our sole risk.
Prior to its sale to a bona fide purchaser in the ordinary course of
business, Inventory shall at all times remain at our address specified below and
shall not be removed therefrom without your prior written consent.
Upon our default in the payment, performance or discharge of any of our
obligations and liabilities to you as and when the same become due, or in the
event of our insolvency, or if a receiver or trustee is appointed for our assets
or affairs, or if we discontinue doing business, or if a petition in bankruptcy
or for arrangement or reorganization is filed by or against us, or if we make an
assignment for the benefit of our creditors, or suspend the operation of our
business or commence the liquidation thereof, or make any offer of settlement,
extension or composition with our creditors, or upon the appointment of a
committee of our creditors or a liquidating agent for us, or the issuance of any
attachment or execution against us, or the filing of a judgment or other lien
against us, or upon our any default hereunder or under any other agreement
between us, you shall have the right, upon reasonable notice to us, to sell all
or any part of our Inventory, at public or private sale, or make other
disposition thereof, at which sale or disposition you may be a purchaser. We
agree that written notice sent to us by postpaid mail, at least five days before
the date of any intended public sale or the date
<PAGE>
after which any private sale or other intended disposition of the inventory is
to be made, shall be deemed to be reasonable notice thereof. We do hereby waive
all notice of any such sale or other intended disposition if said Inventory is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market. Upon the occurrence of any of the events referred
to in the first sentence of this paragraph, you may require us to assemble all
or any part of the Inventory and make it available to you at a place to be
designated by you, which is reasonably convenient to both parties. In addition,
you may peaceably, by your own means or with judicial assistance, enter our or
any other premises and take possession of the Inventory and remove or dispose of
it on our premises and we agree that we will not resist or interfere with any
such action. We hereby expressly waive demand, notice of sale (except as herein
provided), advertisement of sale and redemption before sale. The net proceeds of
any such public or private sale or other disposition as far as needed shall be
applied toward the payment and discharge of any and all of our obligations to
you, together with all interest thereon and all reasonable costs, charges,
expenses and disbursements in connection therewith, including the reasonable
fees of your attorneys, the amount of which is hereby expressly fixed at a sum
which shall be equal to fifteen percent of our then obligations to you,
rendering any surplus remaining to us, we, of course, to continue liable should
there be any deficiency.
This agreement is deemed made in the State of new York and is to be
governed, interpreted and construed in accordance with the laws of the State of
New York. No modification, waiver or discharge of this agreement shall be
binding upon you unless in writing, signed and subscribed by you. If you should
at any time fail to exercise any right or privilege hereunder, the same shall
not constitute a waiver on your part of exercising any right or privilege at any
subsequent time. If any taxes are imposed or if you shall be required to
withhold or pay any tax because of any transactions between us, we agree to
indemnify you and hold you harmless in respect thereto. It is agreed between us
that trial by jury is hereby waived in any action, proceeding or counterclaim
brought by either of us against the other on any matters whatsoever arising out
of or in any way connected with this agreement or our relationship created
hereby and we hereby consent to the jurisdiction of the Supreme Court of the
State of New York for a determination of any dispute as to any such matters and
authorize the service of process on us by registered mail sent to us at our
address hereinbelow set forth.
This agreement shall constitute a security agreement pursuant to the
Uniform Commercial Code and, in addition to any and all of your other rights
hereunder, you shall have all of the rights of a secured party pursuant to the
provisions of the Uniform Commercial Code. We agree to execute a financing
statement and any and all other instruments and documents that may now or
hereafter be provided for by the Uniform Commercial Code or other law applicable
thereto, reflecting the security interests granted to you hereunder. We do
hereby authorize you to file a financing statement without our signature, signed
only by you as secured party, to reflect the security interests granted to you
hereunder.
Very truly yours,
JAZZ PHOTO CORP.
By: [ILLEGIBLE]
-----------
1459 Pinewood Street, Rahway, NJ 07065
<PAGE>
OFFICERS' CERTIFICATE
The undersigned, President and Secretary of JAZZ PHOTO CORP., a
corporation duly organized and validly existing under the laws of the State of
New Jersey, DO HEREBY CERTIFY that the following is a true copy of certain
resolutions duly and unanimously adopted at a meeting of the Board of Directors
and shareholders of said corporation, duly called and held on July 12, 1995, at
which a quorum was present and voting throughout, and which are not in conflict
with the Certificate of Incorporation, By-Laws, rules and regulations of said
corporation, and which resolutions have not been modified or rescinded and are
still in full force and effect:
"WHEREAS, this corporation proposes to enter into a factoring agreement
with Rosenthal & Rosenthal, Inc. ("Rosenthal") pursuant to which this
corporation will sell and assign to Rosenthal all of its receivables (as
defined therein), and will grant to Rosenthal a security interest in, a
continuing lien upon and right of set-off against, and will assign,
transfer, pledge and set over to Rosenthal, all of its accounts, contract
rights, general intangibles and instruments, and certain other personal
property of this corporation (herein collectively referred to as
"collateral"), and the form of such factoring agreement having been
submitted to and duly considered at this meeting, and the execution and
delivery thereof having been deemed to be in the best interest of this
corporation; now, therefore, be it:
"RESOLVED, that any one or more of the officers of this corporation be,
and they each hereby are, authorized, directed and empowered, in the name
and on behalf of this corporation: to enter into, execute and deliver to
Rosenthal a factoring agreement substantially in the form submitted to
this meeting, with such changes as said officer or officers may consider
appropriate, the execution and delivery thereof being deemed conclusive
evidence of this corporation's approval of the terms thereof; from time to
time, to sell and assign to Rosenthal the receivables, and to borrow money
and obtain advances and other financial accommodations from Rosenthal, in
such amounts and upon such terms and conditions as said officer or
officers may consider appropriate, and to grant a security interest in, a
continuing lien upon and right of set-off against, and assign, transfer,
pledge and set over to Rosenthal, the collateral, now existing or
hereafter arising, pursuant to the terms of said factoring agreement, or
otherwise; to execute and deliver one or more promissory notes or other
evidences of indebtedness, financing statements, supplementary agreements,
assignments, schedules, transfers, notices, contracts, subordination
agreements, guarantees, designations, consignments and other instruments
and documents in connection with the factoring agreement, as amended or
supplemented from time to time (including the grant of additional liens
and security interests in such personal property and/or real property of
this corporation as may be requested by Rosenthal pursuant to any such
supplement), containing and upon such terms as said officer or officers
may consider appropriate, the execution and delivery thereof being deemed
conclusive evidence of this corporation's approval of the terms thereof;
to make remittances and payments by checks, drafts or otherwise; to adopt
a facsimile printed or rubber stamp signature for the purpose of
expediting the terms of the factoring agreement; and to execute and
deliver such further documents and to perform such other acts as may be
necessary or desirable to effectuate the foregoing resolution; and all
such action of said officer or officers shall be taken as the action of,
and is hereby authorized, ratified, approved and confirmed by, this
corporation and the board of directors thereof; and it is further
"RESOLVED, that this corporation hereby authorizes and empowers Rosenthal
from time to time to endorse by rubber stamp or otherwise the name of this
corporation on any and all checks, drafts or other orders for the payment
of money or written evidences of debt, which may be made or be in form
payable to this corporation, and which may come into the possession of
Rosenthal and to deposit such items in Rosenthal's account with any other
bank, banker or trust company and further authorizes Rosenthal to deal
absolutely with any such items as the property of Rosenthal and to do and
perform any and all such other acts as may be necessary or proper to
constitute any and all such items the property of Rosenthal without
requiring the signature or signatures of any officer or officers of this
corporation; and it is further
"RESOLVED, that until Rosenthal receives notice in writing by registered
mail of any changes or limitations of authority of any officers of this
corporation, it is authorized to rely upon the authority and power set
forth in these resolutions."
<PAGE>
The undersigned DO FURTHER CERTIFY that the Certificate of Incorporation
and By-Laws of this corporation contain no requirement for shareholder approval
or consent to the execution of the factoring agreement or the consummation of
any of the transactions referred to in the foregoing resolutions.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of
the corporation this July 12, 1995.
______________________________
President
/s/ Jay Stavitsky
------------------------------
Secretary
[Corporate Seal]
<PAGE>
CERTIFICATE AS TO OFFICERS, DIRECTORS, STOCKHOLDERS AND AUTHORIZED SIGNATURES OF
Jazz Photo Corp.
We, the undersigned
Jack Benun, President
Mona Benun, Secretary
of Jazz Photo Corp., a corporation organized and existing under and by virtue of
the laws of the state of New Jersey, having its principal office at 1459
Pinewood Street, Rahway, NJ 07065, do hereby certify as follows:
1. The names and residence addresses of all of the officers of Jazz Photo Corp.
are as follows:
NAME OFFICE RESIDENCE ADDRESS
Jack Benun President 80 Wickapecko Drive, Allenhurst, NJ 07711
Joy Stavitsky Secretary
2. The names and residence addresses of all of the directors of Jazz Photo Corp.
are as follows:
NAME OFFICE RESIDENCE ADDRESS
Jack Benun President 80 Wickapecko Drive, Allenhurst, NJ 07711
Joy Stavitsky
3. The names and residence addresses of the stockholders owning and holding all
the issued and outstanding stock of Jazz Photo Corp. are as follows:
NAME RESIDENCE ADDRESS NO. OF SHARES CLASS OF
SHARES
Mona Benun 80 Wickapecko Drive, Allenhurst, NJ 100% Common
07711
4. That pursuant to the by-laws, resolutions and minutes of Jazz Photo Corp.,
the persons authorized and empowered to make, sign and endorse on behalf of Jazz
Photo Corp., any and all documents, checks, notes, drafts, trade acceptances and
other negotiable papers or instruments, are as follows:
NAME* OFFICE
Jack Benun President
*Indicate whether the above persons may sign alone or jointly
<PAGE>
5. The names of the persons authorized to make, sign and deliver on behalf of
Jazz Photo Corp., schedules of assignments of accounts and/or any other
instruments of assignment to ROSENTHAL & ROSENTHAL, INC., are as follows:
NAME* OFFICE
Jack Benun President
Joy Stabitsky Assistant to President
*Indicate whether the above persons may sign alone or jointly
6. The following are the actual signatures of the officers and other authorized
persons:
Jack Benun /s/ Jack Benun
--------------------------------
Mona Benun ________________________________
Joy Stabitsky /s/ Joy Stavitsky
--------------------------------
IN WITNESS WHEREOF, we have hereunto affixed our signatures as officers of Jazz
Photo Corp. and affixed the seal of Jazz Photo Corp. this July 12, 1995
Corp. Seal /s/ Jack Benun
-------------------------------
Jack Benun, President
/s/ Joy Stavitsky
-------------------------------
Joy Stavitsky - Secretary
<PAGE>
GUARANTEE
New York, New York July 12, 1995
In order to induce Rosenthal & Rosenthal, Inc. (herein called "Rosenthal")
to enter into the foregoing agreement with, and/or to extend financial
accommodations from time to time, in the discretion of Rosenthal, to JAZZ PHOTO
CORP. (herein called "Obligor") and for other good and valuable considerations
received, the undersigned irrevocably and unconditionally guarantees to
Rosenthal payment when due, whether by acceleration or otherwise, of any and all
Obligations of the Obligor to Rosenthal. The term "Obligations" shall mean all
obligations, liabilities and indebtedness of the Obligor to Rosenthal or an
affiliate of Rosenthal, however evidenced, arising under this Agreement, under
any other or supplemental financing provided to the Obligor by Rosenthal or an
affiliate of Rosenthal, or independent hereof or thereof, whether now or
existing or incurred from time to time hereafter and whether before or after
termination hereof, absolute or contingent, joint or several, matured or
unmatured, direct or indirect, primary or secondary, liquidated or unliquidated,
and whether arising directly or acquired from others (whether acquired outright,
by assignment unconditionally or as collateral security from another and
including, without limitation, participations or interest of Rosenthal in
obligations of Obligor to others), and including (without limitation) all of
Rosenthal's charges, commissions, fees, interest, expenses, costs and attorneys'
fees chargeable to Obligor in connection therewith. In addition, the undersigned
agrees to indemnify Rosenthal against any loss, damage or liability because of
an wrongful acts or fraud of the Obligor.
The undersigned waives notice of acceptance of this guarantee and notice of
any liability to which it may apply, and waives presentment, demand for payment,
protest, notice of dishonor or nonpayment of any Obligations, or suit or taking
other action by Rosenthal against, and any other notice to, any party liable
thereon (including the undersigned) and waives any defense, offset or
counterclaim to any liability hereunder. Rosenthal may at any time and from time
to time (whether or not after revocation or termination of this guarantee)
without the consent of, or notice to, the undersigned, without incurring
responsibility to the undersigned, without impairing or releasing the
obligations of the undersigned hereunder, upon or without any terms or
conditions and in whole or in part: (1) change the manner, place or terms of
payment, and/or change or extend the time of payment of, renew or alter, any
Obligation, any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the guarantee herein made shall apply to the
Obligations as so changed, extended, renewed or altered; (2) sell, exchange,
release, surrender, realize upon or otherwise deal with in any manner and in any
order any property by whomsoever at any time pledged or mortgaged to secure, or
howsoever securing, the liabilities hereby guaranteed or any liabilities
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and/or offset thereagainst; (3) exercise or refrain from
exercising any rights against the Obligor or others (including the undersigned)
or otherwise act or refrain from acting; (4) settle or compromise any
Obligation, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Obligor to creditors of the Obligor other
than Rosenthal and the undersigned; and (5) apply any sums by whomsoever paid or
howsoever realized to any Obligation to Rosenthal regardless of what liability
or liabilities of the Obligor remain unpaid.
No invalidity, irregularity or unenforceability of all or any part of the
liabilities hereby guaranteed or of any security therefor shall affect, impair
or be a defense to this guarantee. The liability of the undersigned hereunder is
primary and unconditional and shall not be subject to any offset, defense or
counterclaim of the Obligor. This guarantee is a continuing one and all
liabilities to which it applies or may apply under the terms hereof shall be
conclusively presumed to have been created in reliance hereon. The books and
records of Rosenthal shall be admissible as prima facie evidence of the
Obligations. As to each of the undersigned, this guarantee shall continue until
written notice of revocation signed by such undersigned, or until written notice
of the death of such undersigned shall in each case have been actually received
by Rosenthal, notwithstanding a revocation by, or the death of, or complete or
partial release for any cause of any one or more of the remainder of the
undersigned or of the Obligor, or of any one liable in any manner for the
liabilities hereby guaranteed, or for the liabilities (including those herein)
incurred directly or indirectly in respect thereof or hereof, and
notwithstanding the dissolution, termination or increase, decrease or change in
personnel of any one or more of the undersigned which may be partnerships or
corporations.
No revocation or termination hereof shall affect in any manner rights
arising under this guarantee with respect to (a) Obligations which shall have
been created, contracted, assumed or incurred prior to receipt by Rosenthal of
written notice of such revocation or termination or (b) Obligations which shall
have been created, contracted, assumed or incurred after receipt of such written
notice pursuant to any contract entered into by the Obligor or by Rosenthal for
the benefit of the Obligor prior to receipt by Rosenthal of such notice, or to
protect, preserve or realize upon any security for any Obligations; and the sole
effect of revocation or termination hereof shall be to exclude from this
guarantee liabilities thereafter arising which are unconnected with liabilities
theretofore arising or with transactions theretofore entered into.
Upon the happening of any of the following events: (i) the death or
insolvency of the Obligor or any of the undersigned, or (ii) suspension of
business of the Obligor or any of the undersigned, or (iii) the issuance of any
warrant of attachment against any of the property of the Obligor or any of the
undersigned, or (iv) the making by
<PAGE>
the Obligor or any of the undersigned or any assignment custodian being
appointed for the Obligor or any of the undersigned or for any property of
either of them or (vi) any proceeding being commenced by or against the Obligor
or any of the undersigned under any bankruptcy, reorganization, arrangement of
debt, insolvency, readjustment of debt, receivership, liquidation or dissolution
law or statute - then and in any such event, at any time thereafter, Rosenthal
may, without notice to the Obligor or any of the undersigned, make the
Obligations, whether or not then due, immediately due and payable hereunder as
to any of the undersigned, and Rosenthal shall be entitled to enforce the
obligations of the undersigned hereunder. All sums of money at any time to the
credit of the undersigned with Rosenthal and any of the property of the
undersigned at any time in the possession of Rosenthal may be held by Rosenthal
as security for any and all obligations of the undersigned hereunder,
notwithstanding that any of said money or property may have been deposited,
pledged or delivered by the undersigned for any other, different or specific
purpose. Any and all claims of any nature which the undersigned may now or
hereafter have against the Obligor are hereby subordinated to the full payment
to Rosenthal of the Obligations and are hereby assigned to Rosenthal as
additional collateral security therefor.
In the event Rosenthal takes any action, including retaining attorneys,
for the purpose of effecting collection of the Obligations or of any liabilities
of the undersigned hereunder, or protecting any of Rosenthal's rights hereunder,
the undersigned shall pay all costs and expenses of every kind for protection of
the rights of Rosenthal or for collection of the Obligations or such
liabilities, including reasonable attorneys' fees which the undersigned agrees
to be a sum equal to fifteen percent of the amount then due.
If claim is ever made upon Rosenthal for repayment or recovery of any
amount or amounts received by Rosenthal in payment or on account of any of the
Obligations and Rosenthal pays all or part of said amount by reason of (a) any
judgment, decree or order of any Court or administrative body having
jurisdiction over Rosenthal or any of its property, or (b) any settlement or
compromise of any such claim effected by Rosenthal with any such claimant
(including the Obligor), then and in such event the undersigned agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon the
undersigned, notwithstanding any revocation or release hereof or the
cancellation of any note or other instrument evidencing any of the Obligations,
or any release of any such liability of the Obligor, and the undersigned shall
be and remain liable to Rosenthal hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by Rosenthal. The provisions of this paragraph shall survive, and
continue in effect, notwithstanding any revocation or release hereof, unless
such revocation or release shall specifically refer to this paragraph.
No delay on the part of Rosenthal in exercising any of its options, powers
or rights, or partial or single exercise thereof, shall constitute a waiver
thereof. No waiver of any of its rights hereunder, and no modification or
amendment of this guarantee, shall be deemed to be made by Rosenthal unless the
same shall be in writing, duly signed on behalf of Rosenthal, and each such
waiver, if any, shall apply only with respect to the specific instance involved
and shall in no way impair the rights of Rosenthal or the obligations of the
undersigned to Rosenthal in any other respect or at any other time. The
undersigned shall have no right (whether by contract or by operation of law) of
subrogation, restitution, indemnification, reimbursement or any other or similar
rights of a surety against the Obligor or any of its assets or property or any
security held for any liabilities of the Obligor, and all such rights are hereby
expressly waived.
This guarantee and the rights and obligations of Rosenthal and of the
undersigned hereunder shall be governed and construed in accordance with the
laws of the State of New York; and this guarantee is binding upon the
undersigned, his, her, their or its executors, administrators, successors or
assigns, and shall inure to the benefit of Rosenthal, its successors or assigns.
THE UNDERSIGNED AGREES AND DOES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT AGAINST THE UNDERSIGNED OR ANY MATTERS
WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS GUARANTEE, AND THE
UNDERSIGNED HEREBY CONSENTS TO THE JURISDICTION OF THE SUPREME COURT OF THE
STATE OF NEW YORK FOR A DETERMINATION OF ANY DISPUTE AS TO ANY SUCH MATTERS AND
AUTHORIZES THE SERVICE OF PROCESS ON THE UNDERSIGNED BY REGISTERED MAIL SENT TO
THE UNDERSIGNED AT THE ADDRESS OF THE UNDERSIGNED HEREINBELOW SET FORTH.
Any acknowledgement, new promise, payment of principal or interest or
other act by the Obligor and others, with respect to the Obligations, shall be
deemed to be made as agent of the undersigned for the purposes hereof, and
shall, if the statute of limitations in favor of the undersigned against
Rosenthal shall have commenced to run, toll the running of such statute of
limitations, and if such statute of limitations shall have expired, prevent the
operation of such statute.
The undersigned, if more than one, shall be jointly and severally liable
hereunder and the term "undersigned" wherever used herein shall mean the
undersigned or any one or more of them. Any one signing this guarantee shall be
bound hereby, whether or not any one else signs this guarantee at any time. The
term "Rosenthal" includes any agent of Rosenthal acting for it.
Witness: /s/ [illegible] Signature /s/ Jack Benun L.S.
--------------- ----------------------------------------
Name: Jack Benun
Address: 80 Witkatetko Drive, Allenhurst, NJ 07711
Soc. Sec. No.: ###-##-####
<PAGE>
STATE OF New York COUNTY OF New York
On this 19 day of July, 1995, before me personally came Jack Benun, to me
known and known to me to be the individual(s) described in, and who
executed the foregoing instrument, and acknowledged to me that (t)he(y)
executed the same.
/s/ [ILLEGIBLE]
- -------------------------- IRWIN PEARL
NOTARY PUBLIC, State of New York
No. 31-4603194
Qualified in New York County
Commission Expires 2/28/97
<PAGE>
AGREEMENT OF SUBORDINATION AND ASSIGNMENT
In order to induce ROSENTHAL & ROSENTHAL, INC., a New York corporation
(hereinafter called "Lender"), its successors or assigns, from time to time to
make such advances, loans, discounts or purchase of accounts, assumption of
credit risks in respect to sales of goods or services, or other extensions of
credit, as it may deem advisable, directly or indirectly, to or for the account
of Jazz Photo Corp., a New Jersey corporation having a principal place of
business at 1459 Pinewood Street, Rahway, NJ 07065, its successors or assigns
(hereinafter called "Debtor"), or to others upon Debtor's obligations, or to
grant to or for the account of Debtor such renewals, extensions, forbearances,
releases of collateral or other relinquishments of legal rights as Lender may
deem advisable, and in consideration of advances, loans, discounts, extensions
of credit or other financial accommodations, due or to become due, whether
heretofore or hereafter made to Debtor and for other valuable consideration,
receipt of which is hereby duly acknowledged, Vanessa Benun (hereinafter called
"Creditor"), and who, if two or more in number, shall be jointly and severally
bound hereunder, hereby agrees that all claims and demands and all interest
accrued or that may hereafter accrue thereon which Creditor now has or may
hereafter have or acquire against Debtor are not to be payable, and that no
payment on account thereof, nor any security therefor, shall be received,
accepted or retained by Creditor unless and until Debtor has paid and satisfied
in full all its obligations to Lender of every kind and description, whether
direct or indirect, absolute or contingent, due or not due, secured or
unsecured, original, renewed or extended, now in existence or hereafter
incurred, and whether contracted by Debtor alone or jointly and/or severally
with another to others; and Debtor agrees not to make payment or to give any
security to Creditor except in conformity herewith. Creditor waives any and all
notice of the acceptance of this subordination or of the creation, modification,
renewal or extension or accrual of any obligations of Debtor to Lender, present
or future, or of the reliance of Lender upon this agreement. Creditor hereby
consents that, without notice to or further assent by Creditor, the liability of
Debtor or of any other party for or upon the obligations of Debtor to Lender may
from time to time, in whole or in part, be renewed, extended, modified,
prematured, compromised or released by Lender, as it may deem advisable, and
that any collateral, or lien or liens for sad obligations or any of them, may
from time to time, in whole or in part, be exchanged, sold, surrendered or
released by Lender, as it may deem advisable, all without impairing, abridging,
affecting or releasing the subordination contained in this agreement.
Creditor does hereby transfer and assign to Lender as collateral security
for any and all said obligations of Debtor to Lender, all of the said claims or
demands of Creditor against Debtor and all interest accrued or what may
hereafter accrue thereon, with the full and irrevocable right on the part of
Lender, in its own name or in the name of Creditor, to collect and enforce said
claims by suit, proof of debt in bankruptcy, or other liquidation proceedings or
any reorganization or arrangement, or otherwise and to vote the full amount of
said claims and demands in any such proceedings, reorganization or arrangement
for or against any proposal or resolution, for a trustee or trustees or for a
committee of creditors or for the acceptance or rejection of any proposed
arrangement, plan or reorganization, wage earners' plan, composition, settlement
or extension. Should any payment or distribution or security or proceeds thereof
be received by Creditor for or on account of any of said claims or demands,
prior to the satisfaction of all said obligations of Debtor to Lender, Creditor
will forthwith assign, endorse and deliver same to Lender, in precisely the form
received (except for Creditor's endorsement where necessary), for application on
account of Debtor's obligations to Lender, and until so delivered, same shall be
held in trust by Creditor as the property of Lender; in the event of the failure
of Creditor to endorse or assign any security or instrument for the payment of
money, so received by Creditor or payable to Creditor's order, Lender or any
officer or employee thereof is hereby irrevocably constituted and appointed
attorney-in-fact for Creditor, with full power to make any such endorsement or
assignment and with full power of substitution.
Creditor represents and warrants to Lender that Creditor is solvent and has
granted no security interest in and has made no prior transfer or assignment of
its claims or demands against Debtor; Creditor further covenants and agrees that
Creditor will grant no security interest in or transfer of (except to Lender)
its claims or demands no existing or hereafter arising against Debtor unless and
until the obligations of Debtor to Lender have been paid in full. Creditor and
Debtor represent to Lender that Debtor now owes Creditor the principal sum of
$175,000.00, without counterclaim, defense or offset. Creditor hereby agrees to
endorse to the order of Lender and deliver to Lender any note or other
instrument, which now or hereafter evidences any or all of its claims or demands
against Debtor, or, at the option of Lender, to mark prominently each such note
or instrument with a legend, referring to this agreement, in form and substance
satisfactory to Lender. Debtor and Creditor each agree, upon request of Lender,
to execute such further documents and
<PAGE>
-2-
instruments, including without limitation, additional notes or negotiable
instruments, assignments, security agreements and financing statements under the
Uniform Commercial Code, as Lender may require. Lender may also file financing
statements signed only by the Lender and the costs of filing shall be payable by
Debtor or Creditor, as the case may be.
Debtor hereby agrees that it will render to Lender upon demand from time
to time a statement of the account of Creditor with Debtor; that it will give
and Lender shall have access from time to time to its books in order that Lender
may make full and free examination of the state of the accounts of Creditor with
Debtor (with the right to make copies thereof) and that it will duly comply with
and perform each and every of the terms of this agreement on its part required
to be performed. Debtor and Creditor agree that their books and records will
appropriately show that Creditor's claims are subject to this agreement.
Creditor and Debtor waive a trial by jury and a right to interpose any
counterclaim or offset of any nature or description in any litigation arising
out of or relating to Creditor's claims or this subordination. In the event
Lender shall retain or engage an attorney or attorneys to collect or enforce or
protect its interests with respect to this agreement or any claim or demand
of Creditor against Debtor, all of the costs and expenses of such collection,
enforcement or protection, including reasonable attorneys' fees shall be payable
by each Creditor or Debtor against whom such collection, enforcement or
protection is sought.
Creditor and Debtor agree that, if after the satisfaction of all of said
obligations, Debtor thereafter becomes liable to Lender on account of any new
obligations, this agreement shall thereupon become immediately effective with
respect to any claims then in existence or thereafter created, without the
necessity of any further act, agreement or writing, the intent being that this
be a continuing agreement of subordination and assignment. However, should
Creditor have received any payment or security on account of said claims at any
time after the satisfaction by Debtor of all of said obligations and before the
incurring of new obligations, Creditor will notify Lender in writing of the
receipt thereof. In the event that Creditor fails to notify Lender, and new
obligations are thereafter created, Creditor agrees that if a default occurs
with respect to the payment or performance of any of the terms of such new
obligations, Creditor will immediately pay to Lender an amount equivalent to any
such payment or the value of such security received. Creditor agrees that any
credit now or hereafter extended to Debtor by Lender shall be in its sole
discretion and shall be deemed to have been extended in consideration of and in
reliance upon this agreement.
In the event of a breach by either Debtor or Creditor in the performance
of any of the terms of this agreement, all of the said obligations of Debtor to
Lender shall, any other agreement to the contrary notwithstanding and without
notice or demand, become immediately due and payable, at Lender's option.
No waiver shall be deemed to be made by lender of any of its rights
hereunder unless same shall be writing and each waiver, if any, shall be a
waiver only with respect to the specific instance involved and shall in no way
impair Lender's rights and/or the obligations of Creditor to it in any other
respect or at any other time, nor shall same establish a course of conduct. This
agreement may not be modified or amended without the prior written consent of
Lender.
Each Creditor or Debtor not a resident of the State of New York or
qualified to do business in New York, hereby irrevocably consents to the
jurisdiction of the Courts of the State of New York and of any Federal Court
located in such State in connection with any action or proceeding arising out of
or relating to this agreement or any claim or demand of Creditor against Debtor.
In any such litigation such Creditor or Debtor, as the case may be, waives
personal service of any summons, complaint or other process and agrees that the
service thereof may be made by certified or registered mail directed to such
party at the last known address appearing on the records of Lender. Within 30
days after such mailing, the party so served shall appear or answer to such
summons, complaint or other process.
<PAGE>
-3-
Should the party so served fail to appear or answer within said 30-day period,
such party shall be deemed in default and judgment may be entered by Lender
against such party for the amount as demanded in any summons, complaint or other
process so served.
This agreement shall be binding upon the undersigned and the legal
representatives, successors and assigns of the undersigned and shall be governed
by and construed in accordance with the Laws of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has caused these
presents to be properly executed this 28th day of June, 1996.
JAZZ PHOTO CORP.
(Debtor)
By: /s/
--------------------
VANESSA BENUN
By MONA BENUN - Custodian -
/s/ Mona Benun
- ------------------------
(Creditor)
STATE OF NEW JERSEY
COUNTY OF MONMOUTH
On this 30 day of June, 1997, before me personally appeared Mona
Benun - Custodian - for Vanessa Benun, to me known and known to me to be the
individual described in and who executed the foregoing instrument, and (s)he
duly acknowledged that (s)he executed the same.
/s/ Irwin Pearl
- ------------------------
Notary Public
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 30 day of June, 1997, before me personally appeared Jack
Benun, to me known, who being by me duly sworn, did depose and say that (s)he
resides at 80 Wickapecko Drive, Allenhurst, NJ 07711, and that (s)he is the
President of Jazz Photo Corp., the corporation described in and which executed
the foregoing instrument; that (s)he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by the order of the Board of Directors of said corporation, and that
(s)he signed his/her name thereto by like order.
/s/ Irwin Pearl
- ------------------------
Notary Public
<PAGE>
(Exhibit 10.14)
[Letterhead of Hongkong Bank]
Ref: CORPORATE BANKING CENTRE ESD - TEAM B
CONFIDENTIAL
Jazz Photo (HK) Ltd
Room 617 6/F Fortune Commercial Building
No 362 Sha Taui Road
Tsuen Wan
New Territories
Attn: Ms. Jessie Szeto 25 March 1997
Dear Madam
BANKING FACILITIES
A/C NO. 162-131239-001
With reference to our recent discussion, we are pleased to confirm our agreement
to granting the following banking facility to your company which will be made
available on the specific terms and conditions outlined herein and upon the
satisfactory completion of the security detailed below. This facility is subject
to review at any time and, in any event by 21 March 1998, and also subject to
our overriding right of withdrawal and repayment on demand, including the right
to call for cash cover on demand for prospective and contingent liabilities.
Limit
OBN Advance HKD6,000,000.-
Advance against export bills under local DC opened by Walmart, negotiation of
which is restricted to other banks (OBN).
Interest on OBN Advance will be charged on a daily basis at 1/2% over our best
lending rate, (currently 8-1/2% per annum, but subject to fluctuation at our
discretion).
Accrual of Interest and Other Sums
Please note that interest and other sums expressed to be chargeable or payable
on a periodic basis will nonetheless accrue from day to day and amounts so
accrued may be demanded at any time.
As security for the foregoing facility, we require to hold a Joint & Several
Guarantee for HKD6,000,000 - from Mr. Jack C. Benun and Ms. Szeto Suk Yee,
Jessie (already in hand).
Please note that arrangement fee of HKD15,000 - (i.e. 1/4% on facility limit)
will be charged to the debit of your current account upon receipt of your
acceptance to this facility.
Page _______ of _________
<PAGE>
[Logo]
CORPORATE BANKING CENTRE ESD - TEAM B
PRIVATE & CONFIDENTIAL
Jazz Photo (HK) Ltd
25 March 1997
-2-
- --------------------------------------------------------------------------------
Please arrange for the authorized signatories of your company, in accordance
with the terms of the mandate given to the bank, to sign and return to us the
duplicate copy of this letter to signify your understanding and acceptance of
the terms and conditions under which this facility is granted.
This facility will remain open for acceptance until the close of business on 16
April 1997 and if not accepted by that date will be deemed to have lapsed.
We are pleased to be of assistance.
Yours faithfully
/s/ [Illegible] M A Wong
[Illegible] M A Wong
Corporate Relationship Manager
VL/rk
<PAGE>
To: The Manager
The Hongkong and Shanghai Banking Corporation Limited
Hong Kong
JOINT AND SEVERAL GUARANTEE BY INDIVIDUALS OR PARTNERS IN A FIRM (Limited Amount
- - Under Seal)
1. Definitions
"Bank" means The Hongkong and Shanghai Banking Corporation Limited at its
office specified in the Schedule and its successors and assigns;
"Banking Facilities" means such facilities as the Bank may make or
continue to make available to the Customer or to any other person at the
request of the Customer;
"Customer" means the person whose name and address are specified in the
Schedule;
"Default Interest" means interest at such rate as the Bank may specify,
compounded monthly if not paid on the dates specified by the Bank;
"Exchange Rate" means the rate for converting one currency into another
currency which the Bank determines to be prevailing in the relevant
foreign exchange market at the relevant time, such determination to be
conclusive and binding on the Guarantor.
"Guaranteed Moneys" means (i) all moneys in any currency owing by the
Customer to the Bank at any time, actually or contingently, in any
capacity, alone or jointly with any other person, (ii) interest on such
moneys (both before and after any demand or judgment), to the date on
which the Bank receives payment, at the rates payable by the Customer or
which would have been payable but for any date on which the Bank receives
payment, at the rates payable by the Customer or which would have been
payable but for any circumstance which restricts payment and (iii)
expenses of the Bank in enforcing this Guarantee on a full indemnity
basis;
"Guarantor" means each person whose name and address are specified in the
Schedule or, if the name and address of a firm are specified in the
Schedule, means each of the present and future partners of the firm and,
in any case, means any executor, personal representative or lawful
successor of such person;
"Maximum Liability" means the sum, if any, specified in the Schedule plus
Default Interest on that sum and expenses of the Bank in enforcing this
Guarantee on a full indemnity basis; where a liability for Guaranteed
Moneys is incurred in a currency different from the currency in which the
Maximum Liability is stated and the equivalent of that liability in the
currency in which the Maximum Liability is stated, calculated at the
Exchange Rate, has increased since it was incurred, that increase shall be
added to the Maximum Liability;
"Person" includes an individual, firm, company, corporation and an
unincorporated body of persons; and
"Process Agent" means the person, if any, whose name and Hong Kong address
are specified in the Schedule.
2. Guarantee
2.01 In consideration of the Banking Facilities, the Guarantor guarantees
to pay the Guaranteed Moneys to the Bank on demand.
2.02 The liability of the Guarantor shall not exceed the Maximum
Liability.
2.03 The Guarantor shall pay Default Interest (to the extent that it is
not paid by the Customer) on the Guaranteed Moneys from the date of
demand by the Bank on the Guarantor until the Bank receives payment
of the whole of the Guaranteed Moneys (both before and after any
demand or judgment or any circumstance which restricts payment by
the Customer).
2.04 A certificate of balance signed by any duly authorised officer of
the Bank shall be conclusive evidence against the Guarantor of the
amount of the Guaranteed Moneys owing at any time.
2.05 The Bank shall be entitled to retain this Guarantee and any security
it has in respect of the Guaranteed Moneys for such period as the
Bank may certify to the Guarantor to be appropriate in order to
protect the interests of the Bank in respect of the Guaranteed
Moneys.
3. Joint and Several Liability
3.01 The liability and obligations of each Guarantor are joint and
several.
3.02 Each Guarantor shall be bound even though any other Guarantor or any
other person intended to be bound by this Guarantee is not.
3.03 The Bank shall be entitled to deal separately with a Guarantor on
any matter, including the discharge of the liability of that
Guarantor to the extent without affecting the liability of any other
Guarantor.
3.04 No Guarantor shall be entitled to the rights or remedies of a surety
as regards the liability or obligations of another Guarantor.
4. Continuing and Additional Security
4.01 This Guarantee is continuing security and shall secure the whole of
the Guaranteed Moneys until one calendar month after receipt by the
Bank of notice in writing by each Guarantor to terminate it.
Nevertheless and despite the giving of such notice, this Guarantee
shall continue to apply to the Guaranteed Moneys in respect of which
the Customer is or becomes actually or contingently liable up to
such termination and the Guarantor guarantees to pay such Guaranteed
Moneys to the Bank on demand whether that demand is made before at
the time of or after such termination.
4.02 This Guarantee is in addition to, shall not be affected by and may be
enforced despite the existence of any other guarantee or security
held by the Bank.
5. Customer's Accounts
The Bank may, at any time and despite the termination of this Guarantee,
continue any existing account and open any new account in the name of the
Customer and no subsequent transactions, receipts or payments involving
such new accounts shall affect the liability of the Guarantor.
6. Payments
6.01 Payments by the Guarantor shall be made to the Bank as specified by
the Bank without any set-off, counterclaim, withholding or condition
of any kind except that, if the Guarantor is compelled by law to make
such withholding, the sum payable the Guarantor shall be increased
so that the amount actually received by the Bank is the amount it
would have received if there had been no withholding.
6.02 Payment by the Guarantor to the Bank shall be in the currency of the
relevant liability or, if the Bank so agrees in writing, in a
different currency, in which case the conversion to that different
currency shall be made at the Exchange Rate.
-1-
<PAGE>
6.03 No payment [illegible] Bank under this Guarantee pursuant to any
judgement [illegible] order or otherwise shall discharge the
obligation of the Guarantor [illegible] respect of which it was made
unless and until payment [illegible] full has been received in the
currency in which it is payable under this Guarantee and, to the
extent that the amount of any such payment shall, on actual
conversion into such currency, at the Exchange Rate, fall short of
the amount of the obligation, expressed in that currency, the
Guarantor shall be liable for the shortfall.
6.04 Any moneys paid to the Bank in respect of the Guaranteed Moneys may
be applied in or towards satisfaction of the same or placed to the
credit of such account as the Bank may determine with a view to
preserving its rights to prove for the whole of the Guaranteed
Moneys.
6.05 If any moneys paid to the Bank in respect of the Guaranteed Moneys
are required to be repaid by virtue of any law relating to
insolvency, bankruptcy or liquidation or for any other reason, the
Bank shall be entitled to enforce this Guarantee as if such moneys
had not been paid.
7. Set-off
The Bank may, at any time and without notice, apply any credit balance to
which the Guarantor is entitled on any account with the Bank in or towards
satisfaction of the Guaranteed Moneys. For this purpose, the Bank is
authorised to purchase, at the Exchange Rate, such other currencies as may
be necessary to effect such application with the moneys standing to the
credit of such account.
8. Lien
The Bank is authorised to exercise a lien over all property of the
Guarantor coming into the possession or control of the Bank, for custody or
any other reason and whether or not in the ordinary course of banking
business, with power for the Bank to sell such property to satisfy the
Guaranteed Moneys.
9. Guarantor as Principal Debtor
The liability of the Guarantor under this Guarantee shall not be
discharged or otherwise affected by reason of the Bank entering into any
agreement or arrangement with the Customer or any other person or by
reason of any legal limitation, disability or incapacity or any other act,
omission or circumstance which, but for this provision, would discharge
the Guarantor to any extent. Any Guaranteed Moneys which may not be
recoverable from the Customer for any such reason shall be recoverable by
the Bank from the Guarantor as principal debtor by way of indemnity, on
demand, together with Default Interest thereon in accordance with Clause
2.03.
10. Guarantor as Trustee
10.01 The Guarantor shall not, until the whole of the Guaranteed Moneys
have been received by the Bank, exercise its rights of subrogation,
indemnity, set-off or counterclaim against the Customer or its
rights to participate in any security the Bank has in respect of the
Guaranteed Moneys or, unless required by the Bank to do so, to prove
in the bankruptcy or liquidation of the Customer. The Guarantor
shall hold any amount recovered, as a result of the exercise of any
such rights, on trust for the Bank and shall pay the same to the
Bank immediately on receipt.
10.02 The Guarantor has not taken any security from the Customer and
agrees not to do so until the Bank has received the whole of the
Guaranteed Moneys. Any security taken by the Guarantor in breach of
this provision shall be held in trust for the Bank as security for
the Guaranteed Moneys and all moneys at any time received in respect
thereof shall be paid to the Bank immediately on receipt.
11. No Waiver
No act or omission by the Bank pursuant to this Guarantee shall affect its
rights, powers and remedies hereunder or any further or other exercise of
such rights, powers or remedies.
12. Assignment
The Guarantor may not assign or transfer any rights or obligations of the
Guarantor hereunder. The Bank may assign any of its rights hereunder to a
person in whose favour it has made an assignment of all or any of the
Banking Facilities.
13. Communications
13.01 Any notice, demand or other communication under this Guarantee shall
be in writing addressed to the Guarantor at the last address
registered with the Bank and addressed to the Bank at its office
specified in the Schedule or such other address at the Bank may
notify to the Guarantor for this purpose and may be delivered
personally, by leaving it at such address, by post, facsimile
transmission or telex and shall be deemed to have been delivered to
the Guarantor at the time of personal delivery or on leaving it at
such address or on the second day following the day of posting or on
the day of despatch, if sent by facsimile transmission or telex, and
to the Bank on the day of actual receipt.
13.02 Any notice, demand or other communication shall be effective on
the Bank only if given by each Guarantor or the surviving Guarantor
and on the Guarantor if given by the Bank to any Guarantor.
14. Severability
Each of the provisions of this Guarantee is severable and distinct from
the others and, if one or more of such provisions is or becomes illegal,
invalid or unenforceable, the remaining provisions shall not be affected
in any way.
15. Governing Law and Jurisdiction
15.01 This Guarantee is governed by and shall be construed in accordance
with the laws of Hong Kong.
15.02 The Guarantor submits to the non-exclusive jurisdiction of the Hong
Kong Courts but this Guarantee may be enforced in the Courts of any
competent jurisdiction.
16. Governing Version
This Guarantee is executed in an English version and a Chinese version.
The English version is the governing version and shall prevail whenever
there is any discrepancy between the English version and the Chinese
version.
-2-
<PAGE>
17. Process Agent
If a Process Agent is specified in the Schedule, service of any legal
process on the Process Agent shall constitute service on the Guarantor.
18. Execution
18.01 This Guarantee may be entered into on separate counterparts which,
together, shall constitute a single instrument.
18.02 This Guarantee has been entered into by the Guarantor under seal on
________________, 19_______.
Schedule
Bank's Office 15/F Hennessy Centre 500 Hennessy Office, Causeway Bay, Hong Kong.
Customer Fordteam Ltd of ______________________________________________________
_______________________________________________________________________________
Guarantor Jessie Szeto of _____________________________________________________
_______________________________________________________________________________
Guarantor Jack Benun of _______________________________________________________
_______________________________________________________________________________
Specified Sum in Respect of Maximum Liability HKD6,000,000. - >5,000
Process Agent _______________________________________________________ of_______
____________________________________________________________________, Hong Kong
Executed under Seal ) Executed under Seal )
by the Guarantor in ) by the Guarantor in )
the presence of ) the presence of )
/s/ Kitty Wong /s/ Jeff Burkard
- ------------------------------------ ---------------------------------
Witness Signature Witness Signature
Name Kitty Wong Name Jeff Burkard
Office Fordteam Limited Office Jazz Photo Corp.
Identification Secretary Identification Manager
-3-
<PAGE>
Exhibit 11
JAZZ PHOTO CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
June 21, 1995
June 21, 1995 Six Months (Inception)
(Inception) Ended Through
Through December 31, December 31,
June 30, 1996 1996 1995
-------------- ------------- ---------------
<S> <C> <C> <C>
Primary
Income (loss) applicable to common stock ($799,000) 667,000 ($260,000)
----------- -----------
----------- -----------
Proforma executive compensation (190,000)
----------
Proforma net income $477,000
----------
----------
Shares
Weighted average number of common
shares outstanding, and for the
six months ended December 31, 1996,
as adjusted to give effect to executive
compensation on a pro forma basis(1) 2,200,000 2,200,000 2,200,000
Assuming exercise of options and
warrants reduced by the number of shares
which could have been purchased
with the proceeds from their exercise 149,000 149,000 149,000
----------- ---------- -----------
Weighted average number of common
shares outstanding as adjusted 2,349,000 2,349,000 2,349,000
----------- ---------- -----------
----------- ---------- -----------
Earnings per common share ($0.34) $0.20 ($0.11)
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
(1) Gives retroactive effect to a 4399 to 1 stock split effected as a
dividend. See Note B(10) of the notes to the consolidated financial
statements.
<PAGE>
Exhibit 21
List of Subsidiaries:
(i) Jazz Photo Canada Corp.
(ii) Jazz Photo (Hong Kong)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement of our report
dated March 26, 1997 with Respect to Note K[2] and K[5] April 3, 1997, relating
to the consolidated financial statements of Jazz Photo Corp. and subsidiaries
and to the reference to our firm under the captions "Summary Financial
Information", "Selected Consolidated Historical Financial Data" and "Experts" in
the Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
April 4, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JAZZ PHOTO CORP. AS AT DECEMBER 31, 1995 AND JUNE 30,
1996 AND FOR THEIR RESPECTIVE PERIODS THEN ENDED AND THE CONSOLIDATED FINANCIAL
STATEMENTS OF JAZZ PHOTO CORP. AND SUBSIDIARY AS AT DECEMBER 31, 1996 AND FOR
THE SIX MONTHS THEN ENDED.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> OTHER 6-MOS OTHER
<FISCAL-YEAR-END> JUN-30-1996 DEC-31-1996 JUN-30-1996
<PERIOD-START> JUN-21-1995 JUL-01-1996 JUN-21-1995
<PERIOD-END> JUN-30-1996 DEC-31-1996 DEC-31-1995
<CASH> 10,000 171,000 0
<SECURITIES> 0 0 0
<RECEIVABLES> 105,000 178,000 0
<ALLOWANCES> 5,000 6,000 0
<INVENTORY> 833,000 836,000 0
<CURRENT-ASSETS> 1,003,000 1,453,000 0
<PP&E> 124,000 186,000 0
<DEPRECIATION> 12,000 28,000 0
<TOTAL-ASSETS> 1,115,000 1,611,000 0
<CURRENT-LIABILITIES> 1,034,000 946,000 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 22,000 22,000 0
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,115,000 1,611,000 0
<SALES> 1,166,000 7,619,000 332,000
<TOTAL-REVENUES> 1,166,000 7,619,000 332,000
<CGS> 976,000 5,835,000 315,000
<TOTAL-COSTS> 976,000 5,835,000 315,000
<OTHER-EXPENSES> 825,000 998,000 196,000
<LOSS-PROVISION> 5,000 1,000 4,000
<INTEREST-EXPENSE> 111,000 87,000 42,000
<INCOME-PRETAX> (799,000) 725,000 (260,000)
<INCOME-TAX> 0 40,000 0
<INCOME-CONTINUING> (799,000) 685,000 (260,000)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (799,000) 667,000 (260,000)
<EPS-PRIMARY> (.34) .20 (.11)
<EPS-DILUTED> 0 0 0
</TABLE>
<PAGE>
Exhibit 99
CONSENT OF PERSON NAMED AS DIRECTOR
The undersigned has consented to the inclusion in this Registration
Statement on Form S-1 of his name as a person who has consented to act as a
director of Jazz Photo Corp. upon the completion of the offering made by the
prospectus forming a part of this Registration Statement. The undersigned also
consents to the references to him under the caption "Management" in the
Prospectus.
/s/ Elie Housman
------------------------
Elie Housman
New York, New York
- -------------------
(Place)
April 2, 1997
