<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1998.
REGISTRATION NO. 333-48701
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3089 11-3423157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
320 BROAD HOLLOW ROAD
FARMINGDALE, NEW YORK 11735
(516) 752-1950
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
ANDREW FRANZONE, CHIEF EXECUTIVE OFFICER
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
320 BROAD HOLLOW ROAD
FARMINGDALE, NEW YORK 11735
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
CARL SELDIN KOERNER, ESQ. ROBERT H. COHEN, ESQ.
GUIDO A. PANZERA, ESQ. PHILIP MAGRI, ESQ.
KOERNER SILBERBERG & WEINER, LLP MORRISON COHEN SINGER & WEINSTEIN, LLP
112 MADISON AVENUE 750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10022
TELEPHONE: (212) 689-4400 TELEPHONE:(212) 735-8600
FACSIMILE: (212) 689-3077 FACSIMILE:(212) 735-8708
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
AMOUNT TO OFFERING PRICE OFFERING
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE PRICE(3)
<S> <C> <C> <C>
Common Stock, par value $.001 per share............................... 1,437,500(1) 4.50 $6,468,750
Redeemable Common Stock Purchase Warrants, each to purchase one share
of Common Stock....................................................... 1,437,500(2) .10 $143,750
Common Stock, par value $.001 per share, issuable upon exercise of the
Warrants.............................................................. 1,437,500 5.00 $7,187,500
Underwriter's Warrants................................................ 125,000 (4) (4)
Common Stock, par value $.001 per share, issuable upon exercise of the
Underwriter's Warrants................................................ 125,000 5.63 $703,750
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. 125,000 .13 $16,250
Common Stock, par value $.001 per share, issuable upon exercise of the
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. 125,000 5.00 $625,000
Total............................................................. $15,145,000
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value $.001 per share............................... $1,909
Redeemable Common Stock Purchase Warrants, each to purchase one share
of Common Stock....................................................... $43
Common Stock, par value $.001 per share, issuable upon exercise of the
Warrants.............................................................. $2,121
Underwriter's Warrants................................................ (4)
Common Stock, par value $.001 per share, issuable upon exercise of the
Underwriter's Warrants................................................ $208
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. $5
Common Stock, par value $.001 per share, issuable upon exercise of the
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. $185
Total............................................................. $4,471
</TABLE>
(1) Includes 187,500 shares of Common Stock which the Underwriter has the option
to purchase solely to cover over-allotments, if any.
(2) Includes 187,500 Warrants which the Underwriter has the option to purchase
solely to cover over-allotments, if any.
(3) Estimated solely for the purpose of calculating the registration fee.
(4) Pursuant to Rule 457(g), no additional registration fee is required on these
securities.
------------------------
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of offer to buy nor shall there be any sale of these securities in
any State in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED JUNE 4, 1998
PROSPECTUS
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------------------------
This Prospectus relates to an offering (the 'Offering') by International
Plastic Technologies, Inc., a Delaware corporation (the 'Company'), of 1,250,000
shares of common stock of the Company, par value $.001 per share (the 'Common
Stock'), and 1,250,000 Redeemable Common Stock Purchase Warrants (the
'Warrants') (collectively, the 'Securities'). The shares of Common Stock and the
Warrants may be purchased separately. Each Warrant entitles the registered
holder thereof to purchase one share of Common Stock at a price of $5.00,
subject to adjustment under certain circumstances, for a five-year period
commencing 12 months from the date of this Prospectus. The Warrants are
redeemable by the Company at any time, commencing 12 months from the date of the
Prospectus, upon notice of not less than 30 days, at a price of $.10 per
Warrant, provided that the average closing bid quotation of the Common Stock as
reported on the Nasdaq SmallCap Market ('Nasdaq SmallCap') or the Boston Stock
Exchange ('BSE'), if traded thereon, or if not traded thereon, the average
closing sale price if listed on a national or regional securities exchange, for
any 20 trading days within a period of 30 consecutive trading days ending on the
15th day prior to the day on which the Company gives notice equals or exceeds
150% of the then current Warrant exercise price, subject to the right of the
holder to exercise such Warrants prior to redemption. See 'Description of
Securities.'
Prior to the Offering, there has been no public market for the Common Stock
or Warrants and there can be no assurance that any such market will develop, or
if developed, be sustained. It is anticipated that the Common Stock and Warrants
will be quoted on Nasdaq SmallCap under the symbols 'IPTX' and 'IPTXW,'
respectively, and on the BSE as 'IPT' and 'IPTW,' respectively . The respective
offering prices of the Common Stock and Warrants, and the exercise price of the
Warrants, were determined pursuant to negotiations between the Company and
Network 1 Financial Securities, Inc. (the 'Underwriter') and do not necessarily
relate to the Company's book value or any other established criteria of value.
For a discussion of the factors considered in determining the Offering prices,
see 'Underwriting.'
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS
WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE 'RISK
FACTORS' COMMENCING ON PAGE 8.
------------------------
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.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share......................................... $4.50 $.45 $4.05
Per Warrant....................................... $.10 $.01 $.09
Total(3).......................................... $5,750,000 $575,000 $5,175,000
</TABLE>
(1) In addition, the Company has agreed to pay to the Underwriter a 3%
nonaccountable expense allowance and to sell to the Underwriter, for nominal
consideration, warrants to purchase up to 125,000 shares of Common Stock
and/or up to 125,000 Warrants. The Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See 'Underwriting.'
(2) Before deducting expenses, estimated at $1,350,000, payable by the Company,
including the Underwriter's nonaccountable expense allowance.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 187,500 additional
shares of Common Stock and/or 187,500 additional Warrants on the same terms
and conditions as set forth above, solely for the purpose of covering
over-allotments, if any. If such option is exercised in full, the Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $6,612,500, $661,250 and $5,951,250, respectively.
------------------------
The Common Stock and Warrants are being offered, subject to prior sale,
when, as and if delivered and accepted by the Underwriter and subject to the
approval of certain legal matters by counsel and to certain other conditions.
The Underwriter reserves the right to withdraw, cancel or modify the Offering
and to reject any order in whole or in part. It is expected that delivery of
certificates representing the Common Stock and Warrants contained therein, will
be made against payment therefor at the offices of Network 1 Financial
Securities, Inc. on or about , 1998.
NETWORK 1 FINANCIAL SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
The inside front cover shows three photographs with accompanying
descriptions. A photograph in the upper right corner of the page shows two
models of the Ultratherm(Registered), one standing up straight and the other
laying down. Above the photo is the heading: 'DURALOGIC TECHNOLOGIES, INC. a
wholly-owned subsidiary of International Plastic Technologies, Inc.' To the left
of the photo is the following description:
'ULTRATHERM(Registered) Hot/Cold Massager
The Ultratherm(Registered) is a portable massaging system which works
on the principle of providing heat and cold therapy. This proprietary
hand-held unit offers massage capabilities for the relief of discomfort
associated with sports and occupational injuries. Ultratherm(Registered)
weighs 21 ounces, measures eight inches long and maintains temperatures of
42degreesF--115degreesF. Its ergonomically-shaped die-cast aluminum body
contains a rechargeable battery that lasts for approximately one hour. Once
placed against the body, the contour fitting thermal dome concentrates and
directs the heat (or cold) and massage vibrations into the affected areas
underlying the soft tissue.
The Ultratherm(Registered), patented and currently being sold through
specialty catalogs and stores, won the grand prize in Hammacher Schlemmer's
annual Search for Invention in 1992 and was awarded Editors' Choice with a
four star rating by Golf Magazine in 1996. The Ultratherm(Registered) is
currently under small-scale manufacturing and the Company's goal is to
implement full-scale manufacturing by the end of 1998.'
The other two photographs appear on the bottom half of the page. Each of
the photographs show prototype models of the Pull Pack(Trademark). The
photograph on the far left shows two hands opening the prototype Pull
Pack(Trademark) packaging. The accompanying photograph shows two hands removing
a Compact Disc from the Pull Pack(Trademark) packaging system. Above the
photographs is the heading 'COMPACT DISC PACKAGING CORP. a wholly-owned
subsidiary of International Plastic Technologies, Inc.' To the right of the
photographs is the caption, 'Convenient and reliable, the Pull Pack(Trademark)
offers a simple and effective solution to problems associated with conventional
disc packaging.' Below the photographs is the following description:
'The Pull Pack(Trademark) is a redesigned 'Jewel Box,' the packaging
used currently for Compact Discs, CD ROMs and Digital Video Discs ('DVD')
and won the International Design Magazine Award for Packaging in 1993. The
Pull Pack(Trademark) is a prototype in the developmental stage which the
Company plans, with no assurance, to have manufactured. See 'Business.'
The patented Pull Pack(Trademark) employs a drawer-like mechanism,
avoiding the problems associated with Disc packaging that is currently
available, involving fragile hinges, difficulty in opening and the removal
of Discs and descriptive literature.'
At the bottom of the page, the following appears:
'INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
320 Broad Hollow Road, Farmingdale, NY 11735
1.800.752.1680 FAX 516.752.1971'
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
(IF ANY) MAY ENGAGE IN PASSIVE MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK
AND WARRANTS ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE 'UNDERWRITING.'
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this prospectus (the
'Prospectus'). References to the 'Company' include International Plastic
Technologies, Inc., a Delaware corporation, and its wholly-owned subsidiaries,
Electronic Hardware Corp., a New York corporation ('EHC'), Compact Disc
Packaging Corp., a Delaware corporation ('CDP'), and Duralogic Technologies,
Inc., a New York corporation ('DTI'), unless otherwise indicated. Unless the
context otherwise requires, this Prospectus assumes (i) the reorganization of
the Company effective immediately prior to the date of this Prospectus (the
'Reorganization') described more fully in 'Certain Transactions,' (ii) that the
Underwriter's over-allotment option will not be exercised, (iii) that the
125,000 shares of Common Stock and 125,000 Warrants issuable upon the exercise
of the warrant granted to the Underwriter in connection with this Offering will
not be outstanding ('Underwriter's Warrants') and (iv) that the Redeemable
Common Stock Purchase Warrants ('Warrants') will not be exercised, unless
otherwise indicated. This Prospectus contains forward-looking statements
involving risk and uncertainties. The Company's actual results may differ
significantly from the results discussed in such forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed in 'Risk Factors.'
THE COMPANY
The Company, through its principal subsidiary, EHC, has over 28 years of
experience in the design, marketing and manufacture of injection molded plastic
components and assemblies, including consumer, industrial and military knobs and
custom and mechanical assemblies, including Micro Verniers, push or pull-to-turn
clutch knobs and detent knobs. EHC also produces hardware items, including shaft
locks, mounting brackets, test jack covers, cabinet bumpers and captive screws.
The Company believes that EHC's long-term success is due to the average 29-year
experience of its management team, strategic acquisitions of complementary
companies, products and product lines and its ability to adapt new technologies
and advanced manufacturing concepts to produce high-quality products at
competitive prices.
GROWTH STRATEGY
The Company intends to expand its operations through (i) the acquisition
and development of injection molded plastic products and assemblies manufactured
in the United States having niche markets, (ii) the redesigning of such products
and assemblies, if necessary, to improve their function and appearance and (iii)
the manufacturing of such products and assemblies in the People's Republic of
China ('China') at lower prices and improved profit margins. Through a
consultant who is also an independent director of the Company (the
'Consultant'), the Company has established direct contact with manufacturers in
China and has initiated pilot overseas manufacturing projects in China of
small-scale production runs of the Ultratherm(Registered) and separate projects
through an affiliated company, Allen Field Co., Inc. ('AFC'). See 'Risk
Factors--Risks Relating to Manufacturing in China.'
While small businesses comparable in size to the Company often encounter
major difficulties in securing manufacturing projects in China due to
prohibitive broker commissions and agency fees incurred both domestically and
abroad, which, based upon the Company's experience, could account for up to 25%
of the entire manufacturing project, the Company, through the Consultant, has
established direct contact with certain manufacturers in China, allowing the
Company to avoid such commissions and fees and realize the benefit from lower
costs of raw materials and labor. For example, two of EHC's principal raw
materials at this time, AcrylonitirleButadiene Styrene ('ABS') and
polycarbonate, cost up to 50% less in China and the cost of labor for factory
workers in China was approximately $.33 per hour for the year ended December 27,
1997. Based on its assessment of pilot manufacturing projects in China through
AFC, the Company believes that it can reduce its overall domestic manufacturing
costs, including shipping and tariffs, by more than 25%. See 'Risk Factors--
Risks Relating to Manufacturing in China' and 'Certain Transactions.'
3
<PAGE>
PRODUCTS
Control Knobs and Assemblies
The Company, through its wholly-owned subsidiary EHC, manufactures a full
line of instrument control knobs, handles, value-added custom molding, dials and
similar devices for consumer, industrial and military electronics equipment.
EHC's knobs are used for precise setting of switches, on/off switches, volume
controls and critical setting of instrumentation switches. EHC manufactures many
of the knobs based on the customers' exacting specifications as well as its
standard line. Customers of EHC order the knobs by specifying particular
descriptions and features, including the shaft diameter, outer diameter, overall
size, height, color, illumination, dials and markings, such as lines, dots or
numbers.
The Pull Pack(Trademark)
The Company, through its wholly-owned subsidiary, CDP, has entered into a
five-year exclusive international licensing agreement to manufacture, market,
sell and sub-license the Pull Pack(Trademark), a proprietary Disc packaging
system. The Pull Pack(Trademark) is a redesigned 'Jewel Box,' the packaging used
currently for Compact Discs, CD ROMs and Digital Video Discs ('DVD'), and won
the International Design Magazine Award for Packaging in 1993. The Pull
Pack(Trademark) implements a drawer-like mechanism, avoiding the problems
associated with currently available Disc packaging involving fragile hinges,
difficulty in opening and the removal of Discs and descriptive literature. See
'Business--Patents, Trademarks, Licenses and Royalty Rights.'
The Company is currently negotiating with offshore manufacturers in China
to produce the Pull Pack(Trademark) and plans, with no assurance, to market the
product as a specialty packaging system to a targeted niche market, including CD
ROM, special production, retail replacement packaging and rental and
institutional markets such as video stores, lending libraries and technical
research facilities. For the year ended December 28, 1996, the market for Jewel
Boxes sold in the music industry in the United States was approximately
$82,000,000 and the Company believes that the target niche market for the Pull
Pack(Trademark) is approximately $50,000,000. See 'Risk Factors--Developmental
Stage Products.'
The Ultratherm(Registered)
The Company, through its wholly-owned subsidiary, DTI, has entered into an
exclusive international license agreement to manufacture, market and sell the
Ultratherm(Registered), a proprietary portable hand-held massager implementing
alternating hot and cold therapy and massage capabilities for the relief of
discomfort associated with sports and occupational injuries. The
Ultratherm(Registered) weighs 21 ounces, measures eight inches long and
maintains temperatures ranging from 42degreesF to 115degreesF for approximately
one hour on a rechargeable battery contained within its ergometrically-shaped
die-cast aluminum body. Once placed against the body, the contour fitting
thermal dome concentrates and directs the heat or cold and massage vibrations
into the affected areas underlying the soft tissue. See 'Business--Patents,
Trademarks, Licenses and Royalty Rights.'
The Ultratherm(Registered) is currently being sold through specialty
catalogs and stores, including Brookstone. The Ultratherm(Registered) won the
grand prize in Hammacher Schlemmer's annual Search for Invention in March 1992
and was awarded Editors Choice with a four star rating by Golf Magazine in June
1996. The Ultratherm(Registered) has been historically manufactured by the
Company in the United States and retails at approximately $200 per unit. A
manufacturer in China has commenced small-scale manufacturing of the
Ultratherm(Registered) at reduced costs and the Company believes that such
reduced costs will be passed on to consumers. The Company anticipates full-scale
manufacturing of the Ultratherm(Registered) by the end of 1998. See 'Risk
Factors--Developmental Stage Products.'
The Company was formed in 1970 as EHC, a New York corporation, and will be
reorganized immediately prior to the effective date of the Registration
Statement of which this Prospectus is a part (the 'Effective Date') as a
Delaware holding company for its three wholly-owned subsidiaries, EHC, CDP and
DTI. The Company maintains its principal executive offices at 320 Broad Hollow
Road, Farmingdale, New York 11735. The Company's telephone number is
(516)752-1950 and its internet address is http://www.ehcknobs.com. See 'Certain
Transactions.'
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED................... 1,250,000 shares of Common Stock and 1,250,000 Warrants to purchase one
share of Common Stock at an exercise price of $5.00. The shares of Common
Stock and the Warrants may be purchased separately. See 'Risk
Factors--Possible Redemption of Warrants and Effect on Common Stock' and
'Description of Securities.'
COMMON STOCK TO BE OUTSTANDING AFTER
THE OFFERING(1).................... 3,195,000
WARRANTS TO BE OUTSTANDING AFTER THE
OFFERING(2)........................ 1,250,000
TERMS OF THE PUBLIC WARRANTS......... Each Warrant is exercisable for a five-year period commencing 12 months
from the date of this Prospectus and entitles the holder thereof to
purchase one share of Common Stock at an exercise price of $5.00 per
share, subject to adjustment in certain circumstances. The Warrants are
redeemable by the Company at any time commencing 12 months after the date
of this Prospectus, at a price of $.10 per Warrant, upon not less than 30
days prior written notice to the registered holders of the Warrants,
provided that the average closing bid quotations of the Common Stock as
reported on Nasdaq or BSE, if traded thereon, or if not traded thereon,
the average closing sale price if listed on a national or regional
securities exchange equals or exceeds 150% of the Offering price per share
of Common Stock for any 20 trading days within a period of 30 consecutive
trading days ending on the 15th day prior to the day on which the Company
gives notice of redemption. See 'Description of Securities-- Warrants.'
USE OF PROCEEDS...................... The Company intends to use the net proceeds of the Offering for product
development, working capital and general corporate purposes and potential
acquisitions. See 'Use of Proceeds.'
RISK FACTORS......................... The Securities offered hereby are speculative and involve a high degree of
risk and immediate substantial dilution and should not be purchased by
investors who cannot afford the loss of their entire investment. See 'Risk
Factors' and 'Dilution.'
PROPOSED NASDAQ SMALLCAP MARKET
SYMBOLS(3)......................... Common Stock: IPTX
Warrants: IPTXW
PROPOSED BOSTON STOCK EXCHANGE
SYMBOLS(3)......................... Common Stock: IPT
Warrants: IPTW
</TABLE>
- ------------------
(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) 187,500 shares of Common Stock issuable
upon exercise of the Underwriter's over-allotment option; (iii) 187,500
shares of Common Stock issuable upon exercise of the Warrants underlying the
Underwriter's over-allotment option; (iv) 125,000 shares of Common Stock
reserved for issuance upon exercise of the Underwriter's Warrants; (v)
125,000 shares of Common Stock issuable upon exercise of the Warrants
underlying the Underwriter's Warrants and (vi) 300,000 shares of Common
Stock or options which may be granted pursuant to the Company's Stock Option
and Grant Plan. See 'Management--Stock Option and Grant Plan,' 'Description
of Securities' and 'Underwriting.'
(2) Does not include (i) 125,000 Warrants issuable upon exercise of the
Underwriter's Warrants and (ii) 187,500 Warrants issuable upon exercise of
the Underwriter's over-allotment option.
(3) The Nasdaq SmallCap Market and Boston Stock Exchange trading symbols do not
imply that a liquid and active market will be developed or sustained for the
Common Stock or Warrants upon completion of the Offering.
5
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
The summary financial information as of December 27, 1997 and for each of
the years in the two years in the period ended December 27, 1997 has been
abstracted from the included financial statements of the Company included
elsewhere herein (audited, with the exception of the pro-forma information). The
summary financial information as of March 28, 1998 and for the three months
ended March 28, 1998 and March 29, 1997 have been derived from the Company's
unaudited financial statements. In the opinion of management, these interim
financial statements have been prepared on the same basis as the Company's
audited financial statements and include all adjustments necessary for the fair
presentation of the Company's financial position and results of operations.
These interim results are not necessarily indicative of results that can be
expected for the year ended December 26, 1998. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Consolidated
Financial Statements.'
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO-FORMA(1) PRO-FORMA(1)
----------------------- --------------------------------- ----------------------- ---------------
THREE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED YEAR ENDED
----------------------- --------------------------------- ----------------------- ---------------
MARCH 28 MARCH 29 DECEMBER 28 DECEMBER 27 MARCH 28 MARCH 29 DECEMBER 28
1998 1997 1997 1996 1998 1997 1997
---------- ---------- --------------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales.......... $1,437,525 $1,525,061 $ 6,054,747 $ 5,398,041 $1,437,535 $1,525,061 $ 6,054,747
Cost of Sales...... 901,632 1,060,588 3,831,599 3,668,420 901,632 1,060,588 3,831,599
Net Income Before
Pro-forma Income
Taxes(2)......... 48,038 101,556 245,255 64,045 32,787 91,446 155,625
Pro-forma Income
Taxes............ 19,000 40,000 98,000 26,000 19,000 40,000 98,000
Pro-forma Net
Income
(Loss)(2)........ 29,038 61,556 147,355 38,045 13,787 51,446 57,625
Pro-forma Net
Income (Loss) Per
Share(2)......... 0.02 0.04 0.10 0.03 0.01 0.03 0.03
Number of Shares... 1,500,000 1,500,000 1,500,000 1,500,000 1,945,000 1,945,000 1,945,000
<CAPTION>
DECEMBER 27
1996
---------------
<S> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales.......... $ 5,398,041
Cost of Sales...... 3,668,420
Net Income Before
Pro-forma Income
Taxes(2)......... 19,543
Pro-forma Income
Taxes............ 26,000
Pro-forma Net
Income
(Loss)(2)........ (6,457)
Pro-forma Net
Income (Loss) Per
Share(2)......... --
Number of Shares... 1,945,000
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 27, 1997 MARCH 28, 1998
----------------- --------------------------------------------
ACTUAL ACTUAL PRO-FORMA(1) AS ADJUSTED(3)
----------------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Current Assets...................................... $ 2,172,248 $2,077,905 $1,978,350 $6,378,350
Total Assets........................................ 2,907,820 2,934,264 2,834,709 7,234,709
Current Liabilities................................. 1,447,192 1,505,504 1,505,504 1,505,504
Long Term Debt...................................... 771,244 706,925 855,086 855,086
Stockholders' Equity................................ 450,844 498,882 251,166 4,651,166
</TABLE>
- ------------------
(1) Reflects an anticipated $100,000 stockholder dividend subsequent to March
31, 1998 and the proposed acquisition of CDP by the Company.
(2) The pro forma provisions for income taxes have been included to show, for
comparative purposes, the Company's results of operations for the three
month periods ended March 28, 1998 and March 29, 1997 and for the years
ended December 28, 1997 and December 27, 1996, as if the Company had been
subject to Federal income tax as a C corporation under the Internal Revenue
Code of 1986, as amended (the 'Code'). For the years ended December 28, 1997
and December 27, 1996 and for the period beginning December 29, 1997 up to
the Effective Date of this Offering, the Company had been treated for
federal income tax purposes as a closely-held corporation under Subchapter S
of the Code. Upon the Effective Date, the Company's
(Footnotes continued on next page)
6
<PAGE>
(Footnotes continued from previous page)
S corporation election will be terminated and thereafter the Company will be
taxed as a C Corporation under the Code. The Company has agreed to
distribute, through a dividend to its existing shareholders, 38% of the
earnings of the Company for the period from December 29, 1997 to the
Effective Date, which amounts approximate the amounts such shareholders
would be expected to pay personally for income taxes based on such earnings.
Although it is impossible to determine the exact amounts of the
distributions at this time, based on the expected financial results for the
first six months of 1998, the Company estimates that it will distribute
approximately $25,000 to the stockholders in proportion to their
stockholdings. To the extent the Company has additional income from June 30,
1998 through the Effective Date, said amounts will increase. The extent of
such additional liabilities cannot be ascertained at this time. The pro
forma stockholders equity at March 28, 1998 has been reduced by the amount
of an estimated $100,000 dividend subsequent to March 28, 1998, which
includes the aforementioned $25,000 distribution and $75,000 representing
the balance of taxes owed by the stockholders for the year ended December
27, 1997.
(3) Adjusted to reflect the sale of 1,250,000 shares of Common Stock and
1,250,000 Warrants offered hereby and use of proceeds thereof. Assumes no
exercise of the Underwriters over-allotment option.
7
<PAGE>
RISK FACTORS
The purchase of the Securities is speculative and involves a high degree of
risk including, but not necessarily limited to, the Risk Factors described
below. The Securities should not be purchased by investors who cannot afford the
loss of their entire investment. Prospective investors should carefully review
and consider the following risks as well as the other information contained in
this Prospectus.
RISKS RELATING TO MANUFACTURING IN CHINA
Dependence on Single Consultant. The Company relies on the Consultant, who
is also an independent director of the Company, to serve as its agent in
connection with its dealings with manufacturers in China. There can be no
assurance that the Consultant will continue working with the Company in the
Consultant's present capacity. The Company has an agreement with the
Consultant's company, B.C. China Business, Inc., whereby the Consultant is to
provide such consulting services until March 1, 2008. The Consultant is entitled
to receive $50 per hour plus 1.5% of the net cost of products manufactured in
China up to $5,000,000 per year and 1% of net costs exceeding $5,000,000. Such
fee arrangement is subject to review after the first year of the agreement by
the Company's Board of Directors. The Consultant shall also be entitled to
shares of Common Stock and options to purchase Common Stock pursuant to the
Company's Stock Option and Grant Plan. Various factors may sever the
non-exclusive consultancy agreement between the Consultant and the Company,
including termination by either party for cause or otherwise, the death or
incapacity of the Consultant or the overseas manufacturers' unwillingness to
work with the Consultant on current terms, if at all. In addition, there can be
no assurance that the remuneration of the Consultant and related costs will not
become prohibitive in the future. In the event of the termination of the
Company's consulting agreement with the Consultant, there can be no assurance
that the Company will be able to find a comparable consultant, if any, or be
able to establish direct manufacturing relationships in China. Such loss or
inability to find a new consultant would have a material adverse effect on the
financial prospects and international operations of the Company. See 'Certain
Transactions' and 'Management--Stock Option and Grant Plan.'
Internal Political and Other Risks. The Company intends to manufacture a
significant number of products in China, including the Ultratherm(Registered)
and Pull Pack(Trademark), if possible, and other products which have yet to be
determined. As a result, the Company's operations and assets are subject to
significant political, economic, legal and other uncertainties. Changes in
policies by the Chinese government resulting in changes in laws, regulations, or
the interpretation thereof, confiscatory taxation, restrictions on imports and
exports and sources of supply, currency devaluations or the expropriation of
private enterprise could materially adversely affect the Company. Under its
current leadership, the Chinese government has been pursuing economic reform
policies, including the encouragement of private economic activity and greater
economic decentralization. There can be no assurance, however, that the Chinese
government will continue to pursue such policies, that such policies will be
successful if pursued, that such policies will not be significantly altered from
time to time or that business operations in China would not become subject to
the risk of nationalization, which could result in the total loss of
investments. Economic development may be limited as well by the imposition of
austerity measures intended to reduce inflation, the inadequate development of
an infrastructure and the potential unavailability of adequate power and water
supplies, transportation, satisfactory roads, communications, raw materials and
parts. If for any reason the Company is unable to establish its proposed
manufacturing projects in China, the Company's profitability could be impaired
substantially, its competitiveness and market position could be jeopardized
materially and there can be no assurance that the Company could continue its
operations.
Uncertain Legal System and Application of Laws. The legal system of China
relating to foreign outsourcing is both new and continually evolving, and
currently there can be no certainty as to the application of its laws and
regulations in particular instances. China does not have a comprehensive system
of laws. Enforcement of existing laws or agreements may be sporadic and
implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate laws exist in China, it may not be possible to obtain swift and
equitable enforcement of such laws.
Lack of United States Jurisdiction. There is no international treaty
governing nor is there an acknowledgment of recognition regarding enforcement of
judgments or jurisdiction between the United States
8
<PAGE>
and China. Due to such lack of United States' jurisdiction in China, the Company
might not be able to bring legal actions or enforce judgments against
manufacturers or other business entities situated in China. In the event of a
dispute with a manufacturer or other business entity in China, the Company could
be precluded from relief, including damages and equitable remedies, which could
have a material adverse effect on the Company's business and operations.
Inflation and China's Rapid Economic Growth. China's economy has been
growing rapidly, creating problems such as inflation. The Chinese government has
imposed measures attempting to check inflation but to date, these methods have
not been effective. There could be an adverse impact on the Company's business
if widespread social or political unrest results from the economic climate.
Dependence on China Factories. Many of the Company's newly acquired or
developed products will be manufactured at factories located in China.
Firefighting and disaster relief or assistance in some parts of China are
primitive by Western standards. The Company does not maintain insurance for its
products manufactured in Chinese factory buildings. Any material damage to, or
the loss of, any of the Company's manufacturers in China due to fire, severe
weather, flood, or other act of God or cause, could have a material adverse
effect on the Company's financial condition, business and prospects. The Company
does not maintain any business interruption insurance.
Possible Changes and Uncertainties in Economic Policies. As part of its
economic reform, China has designated certain areas, including areas where the
Company intends to maintain certain of its manufacturing relationships, as
Special Economic Zones. Foreign enterprises in these areas benefit from greater
economic autonomy and more favorable tax treatment than enterprises in other
parts of China. Changes in the policies or laws governing Special Economic Zones
could have a material adverse effect on the Company.
Recent Turbulent Relations with the United States; Entry into the World
Trade Organization. The United States has in the past considered revocation of
China's most favored nation ('MFN') trade status, which provides China with the
trading privileges available generally to trading partners of the United States,
and the United States and China have recently been involved in controversy over
the protection of intellectual property rights that threatened a trade war
between the countries. In 1996, President Clinton extended China's MFN status
and the United States and China reached an agreement that averted a trade war.
However, there can be no assurance that future controversies will not arise that
again threaten the status quo involving trade between the United States and
China, or that the United States will not revoke or refuse to extend China's MFN
status. In either of such eventualities, the businesses of the Company could be
adversely affected. In addition, while the United States has announced a change
in policy that may make it easier for China to join the World Trade Organization
(the 'WTO'), the successor to the General Agreement on Tariffs and Trade, if
China does not join the WTO, the Company and its manufacturers located in China
may not benefit from the lower tariffs and other privileges enjoyed by
competitors located in countries which are members of the world trade system
and, as a result, the Company's business could be adversely affected.
International Business Risks. The Company intends to increase revenue
through an international manufacturing strategy. The Company's operations will
be subject to the wide range of general business risks associated with
international operations, including unexpected changes in legal and regulatory
requirements; changes in tariffs, exchange rates and other barriers; political
and economic instability; inability to repatriate net income from foreign
markets; difficulty in protecting the Company's intellectual property; and
potentially adverse tax consequences. Additionally, the Company has had
relatively few pilot overseas manufacturing projects. Such inexperience combined
with various other international manufacturing risks could cause the Company's
attempted international growth strategy to fail, causing a material adverse
affect to the operations of the Company. See 'Business.'
FOREIGN CURRENCY AND FOREIGN EXCHANGE REGULATION
The Company intends to manufacture a significant number of products in
China, including the Ultratherm(Registered) and Pull Pack(Trademark), if
possible, and other products which have yet to be determined. The Company may be
required to accomplish such transactions through the use of foreign currencies,
directly or indirectly. The Company does not currently engage in currency
exchange rate hedging transactions. To the extent, however, that the Company may
engage in any such hedging transactions in the future, there can be no
assurance that any currency hedging
9
<PAGE>
policies implemented by the Company in the future will be successful. As a
result, fluctuations in exchange rates of the U.S. dollar against foreign
currencies could adversely affect the Company's results of operations.
RISKS RELATING TO THE USE OF FOREIGN SUPPLIERS
The Company intends to manufacture certain products overseas. Such overseas
manufacturers will be dependent upon foreign suppliers. The Company will not
have contractual agreements with suppliers and the overseas manufacturers may
not have contractual agreements with such suppliers. Prices for and supply of
those products may be adversely affected by changing economic conditions
internationally. The Company may also be subject to other risks associated with
its international relationships, including tariff regulations and requirements
for export licenses, unexpected changes in regulatory requirements, potentially
adverse tax consequences, economic and political instability, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. In addition, the laws of certain countries may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States. There can be no assurance that such factors will not
have a material adverse effect on the Company's future sales or licenses and,
consequently, on the Company's business, prospects, results of operations or
financial condition as a whole. See 'Business.'
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be largely dependent on the personal
efforts of Andrew Franzone, Chief Executive Officer and President, David L.
Kassel, Chairman, Harry Goodman, Vice President, and other key personnel.
Although the Company has entered into 10-year employment agreements with Messrs.
Franzone, Kassel and Goodman, each dated as of March 15, 1998, such employment
agreements are terminable by the employee at any time, subject only to
noncompetition provisions. All other key personnel are 'at-will' employees. The
employment of each such key employee may be terminated by the individual officer
or the Company at any time, for any reason, if at all. While the Company
maintains 'key man' life insurance in the amount of $200,000 and is applying for
an additional $300,000 on the life of Mr. Franzone, the loss of the services of
Messrs. Franzone, Kassel, Goodman or certain other key employees could have a
material adverse effect on the Company's business and prospects. The success of
the Company is also dependent upon its ability to hire and retain qualified
operational, financial, technical, marketing, sales and other personnel. There
can be no assurance that the Company will be able to hire or retain such
necessary personnel. See 'Risk Factors-- Dependence on Single Consultant,'
'Management--Employment Agreements' and 'Certain Transactions.'
DEPENDENCE ON UNION EMPLOYEES
Of the Company's 105 employees, 45 employees are factory workers and
factory supervisors represented in a collective bargaining agreement by Local
531, International Brotherhood of Teamsters, AFL-CIO. The current collective
bargaining agreement expired on May 9, 1998 and was extended until June 9, 1998.
While the Company has never experienced a work stoppage, there can be no
assurance that a work stoppage will not result in the future. The collective
bargaining agreement regulates various employment issues between the Company and
the union employees, including pay, overtime, working conditions, vacations and
benefits. No assurance can be given that the Company will continue to be in
compliance with the collective bargaining agreement or that it will negotiate
successfully extensions to the collective bargaining agreement. In the event
conflicts with the union arise or the Company fails to negotiate an extension to
the current collective bargaining agreement or future extensions, the Company
could incur higher ongoing labor costs and could experience a significant
disruption of its operations in the event of a strike or other work stoppage,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
BROAD UNSPECIFIED DISCRETION OF MANAGEMENT IN APPLICATION OF PROCEEDS OF THE
OFFERING
Approximately 30.7% of the net proceeds of the Offering will not be
allocated for a specific use, but rather for working capital (19.3%) and future
potential acquisitions (11.4%). In addition, management may from time to time
reallocate funds among the uses discussed in 'Use of Proceeds' or to new uses if
it believes such reallocation to be in the Company's best interests.
Accordingly, management of the Company will have broad discretion in allocating
the Offering proceeds. See 'Use of Proceeds.'
10
<PAGE>
CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, the officers, directors and existing
stockholders of the Company will beneficially own approximately 59.5% of the
Company's outstanding Common Stock (56.2% if the Underwriter's over-allotment
option is exercised in full). While no individual will be a beneficial owner of
a majority of the outstanding shares of Common Stock of the Company, such
persons collectively may be able to effectively control the decisions on matters
including election of the Company's directors, increasing the authorized capital
stock, dissolution, merger or sale of the assets of the Company and generally
may be able to direct the affairs of the Company. This concentration of
ownership may also have the effect of delaying, deferring or preventing a change
in control of the Company and making certain transactions more difficult or
impossible absent the support of such stockholders, including proxy contests,
mergers involving the Company, tender offers, open-market purchase programs or
other purchases of Common Stock that could give public, minority stockholders of
the Company the opportunity to realize a premium over the then-prevailing market
price for shares of Common Stock. See 'Principal Stockholders.'
OFFERING PROCEEDS TO BENEFIT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company intends to distribute an estimated aggregate amount of $100,000
to its three principal stockholders and executive officers, Andrew Franzone,
David Kassel and Harry Goodman, which shall be taken from the proceeds of the
Offering, in the form of cash for federal and state taxes incurred by such
individuals for the year ended December 27, 1997 and the six months ended June
30, 1998 due to the Company's Subchapter S corporation status. Additionally, the
Company has various bank credit facilities which are personally guaranteed by
Messrs. Franzone, Kassel and Goodman. The Company has received a letter
agreement from Republic National Bank of New York to release such personal
guarantees upon the successful completion of the Offering and is negotiating to
establish a new credit facility following the Offering. The Long Island
Development Corporation will not release the personal guarantees of Messrs.
Franzone, Kassel and Goodman. The estates of Messrs. Franzone, Kassel and
Goodman are also each entitled, to the extent that the Company receives proceeds
from insurance on the lives of the deceased, to redeem up to 250,000 shares of
the Company for $500,000 and may sell the remaining shares pursuant to Rule 144
under the Securities Act. Therefore, such officers, directors and principal
stockholders may have various interests differing from those of the investors of
the Offering. See 'Certain Transactions,' 'Dividend Policy,' 'Use of Proceeds'
and 'Underwriting.'
RELATED PARTY TRANSACTIONS
Certain officers, directors and affiliates of the Company have engaged in
business transactions with the Company which, by nature, could not have been the
result of arms'-length negotiations between independent parties, thereby
providing benefit to certain officers, directors and affiliates of the Company,
without providing the same benefits, if any, to the Company or its stockholders.
Notwithstanding, the Company believes that the terms of these transactions were
as favorable to the Company as those that could have been obtained from
unaffiliated parties under similar circumstances at the time. However, all
future transactions between the Company and its officers, directors and
affiliates must be approved by a majority of disinterested, independent members
of the board of directors of the Company and will be on terms no less favorable
than could be obtained from unaffiliated third parties. In the event such
transactions are not approved by such disinterested directors, thereby
precluding the Company from entering into such transactions, and the Company is
unable to enter into any transactions with unaffiliated third parties on equal
or more favorable terms, the operations of the Company may be adversely
affected. See 'Certain Relationships and Related Transactions' and 'Notes to
Consolidated Financial Statements.'
RISKS RELATING TO GROWTH THROUGH UNSPECIFIED ACQUISITIONS
An element of the Company's strategy for the future is expansion through
the acquisition of companies having complementary businesses capable of
utilizing or enhancing the Company's existing capabilities and resources or
expanding the Company's existing product lines. The Company expects to allocate
approximately $500,000, or 11.4%, of the Offering Proceeds to such acquisitions.
As a result, the Company will evaluate potential acquisition opportunities, some
of which may be material in size or scope. Pursuant to the Certificate of
Incorporation and By-laws of the Company, the directors have the discretion to
effect any acquisition made in
11
<PAGE>
good faith, thereby precluding the Company's stockholders from voting on such
matters. Acquisitions generally involve a number of special risks, including (i)
the time associated with identifying and evaluating acquisition candidates, (ii)
the diversion of management's attention to the integration of the operations and
personnel of the acquired companies, (iii) the incorporation of acquired or
licensed products or services into the Company's current products and services,
(iv) possible adverse short-term effects on the Company's operating results, (v)
the inability to maintain uniform standards, controls, procedures and policies,
(vi) the impairment of relationships between employees and customers as a result
of change of management, (vii) the realization of acquired intangible assets and
(viii) the loss of key employees of the acquired companies. Acquired operations
typically operate independent marketing, customer support, billing systems and
other functions. Any acquisition by the Company could result in difficulties in
the integration and consolidation of customer bases or operations. Pending such
integration and consolidation, it would be necessary for the Company to maintain
separate billing systems and other functions of the acquired operation, which
could cause inefficiencies and significant operational complexity and expense
and increase the risk of billing delays and financial reporting difficulties.
Additionally, in connection with an acquisition, the Company could experience
rates of customer attrition that would be significantly higher than the rate of
customer attrition that it ordinarily experiences. There can be no assurance
that the Company would be successful in overcoming these risks or any other
problems encountered with any future acquisitions, investments, strategic
alliances or related efforts. The Company may issue equity securities and other
forms of consideration in connection with future acquisitions, which could cause
dilution to investors purchasing Common Stock of the Company. There can be no
assurance that the Company will be able to identify additional suitable
acquisition candidates, that it will be able to consummate or finance any such
acquisitions on favorable terms, if at all, or that it will be able to integrate
any such acquisitions successfully into its operations. See 'Use of Proceeds,'
'Business' and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
DIFFICULTIES IN INTEGRATING CDP INTO THE COMPANY
The Company recently entered into an agreement to acquire CDP, a company
with a five-year exclusive international licensing agreement to manufacture,
market, sell and sublicense the Pull Pack(Trademark),a proprietary Disc
packaging system. The Company has no experience in Disc packaging and such
industry may involve risks and uncertainties which are unknown to the Company
and which could have a material adverse effect on the Company's financial
condition and results of operations. In addition, the Company faces various
difficulties in integrating CDP into the Company's present business, including
diversion of management's attention, increased burdens on the Company's
management and financial controls, increased marketing demands and possible
adverse effects to the Company's operating results. As a result, the integration
of CDP into the Company could have a material adverse effect on the Company's
results of operations and financial performance. See 'Business.'
DEVELOPMENTAL STAGE PRODUCT; NO ASSURANCE OF MARKET ACCEPTANCE
One of the Company's wholly-owned subsidiaries, CDP, intends to market and
manufacture a developmental stage product, the Pull Pack(Trademark). Although
the Company has commenced market-study surveys, the Company has not commenced
marketing activities or generated revenues from the sale of the Pull
Pack(Trademark). The Company's product candidates will require additional
development, marketing and investment prior to commercialization. The Company
may also enter into agreements with investors and entrepreneurs, and may be
dependent upon those individuals and their subsequent success in performing
their responsibilities. In addition, the Company's product is subject to the
risks of failure inherent in the development of products based on innovative
technologies. Accordingly, there can be no assurance that the Company's research
and development efforts will be successful, that the Company's product will be
developed successfully, that the sale of the product will generate revenue or
that others will not develop competitive or superior products. As a result of
the early stage of development of the product, the Company cannot predict with
certainty when it will be able to market the product profitably, if at all. The
Company's failure to develop the Pull Pack(Trademark) and other commercially
viable products could have a material adverse effect on the Company's business,
operating results and financial condition. See 'Business.'
12
<PAGE>
LACK OF PROFITS OF THE COMPANY'S WHOLLY-OWNED SUBSIDIARY, DTI; INITIAL
MANUFACTURING PHASE OF THE ULTRATHERM(REGISTERED)
One of the Company's wholly-owned subsidiaries, DTI, is in the beginning
stages of manufacturing the Ultratherm(Registered) in China. The
Ultratherm(Registered) will require additional marketing and investment prior to
full-scale manufacturing of the product. The Ultratherm(Registered) is subject
to the risk of failure inherent in products in their initial development phase.
Accordingly, there can be no assurance that the Company's efforts concerning the
marketing and manufacturing of the Ultratherm(Registered) will be successful,
that the Ultratherm(Registered) will generate revenue or that other
newly-developed products will not be competitive or superior to the
Ultratherm(Registered). The Company's failure to successfully manufacture and
market the Ultratherm(Registered) could have a material adverse effect on the
Company's business, operating results and financial condition. See 'Business'
and 'Risk Factors--Risks Relating to Manufacturing in China.'
RISKS RELATING TO LICENSING AGREEMENTS
The Company, through its wholly-owned subsidiary, CDP, has entered into an
exclusive worldwide license agreement with Inch, Inc. dated as of March 1, 1998
whereby the Company has obtained the right and license to manufacture, use, sell
and sublicense a Disc packaging system. CDP holds the exclusive license for a
minimum of five years and a maximum of the life of the patent. The Company
applied for a new trademark under the name 'Pull Pack(Trademark)' in March 1998.
The agreement generally requires the Company to pay royalties on sales of
products developed from the licensed technologies and fees on revenues from
sublicensees, where applicable. The agreement also requires that CDP obtain an
unspecified $1,000,000 capital investment by February 28, 2000, which provision
shall be satisfied from the proceeds of this Offering, and provides that Inch,
Inc. will act as a consultant to CDP for the design and manufacture of the Pull
Pack(Trademark) at certain hourly rates based on the number of units sold.
Should the Company default on its obligations to Inch, Inc. under the license
agreement, its license could terminate or become non-exclusive and could have a
material adverse effect on the Company's operations and prospects. See
'Business--Patents, Trademarks, Licenses and Royalty Rights.'
The Company, through DTI, entered into an exclusive license agreement with
Dr. Richard Deutsch dated as of February 1, 1998 for exclusive worldwide
licensing rights to the Ultratherm,(Registered) a proprietary hot and cold
massager. DTI must make certain payments, including $100,000 immediately after
the Effective Date and various royalty payments each year thereafter. Should DTI
default in its obligations to Dr. Deutsch under the license agreement, its
license could terminate or become non-exclusive and could have a material
adverse effect on the Company's operations and prospects. See
'Business--Patents, Trademarks, Licenses and Royalty Rights.'
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY INFORMATION
The Company's ability to effectively compete may in part depend on its
success in protecting its proprietary technology in the United States and
abroad. The Company holds five patents and has filed two patent applications
with the United States Patent and Trademark Office (the 'PTO'). There can be no
assurance that the PTO or any foreign jurisdiction will grant the Company's
patent applications or that the Company will obtain any patents or other
protection for which application for patent protection has been made. No
assurance can be given that patents issued to or licensed by the Company will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide any competitive advantage or that the Company will have
the resources to pursue any litigation against any party the Company believes to
be an infringer. The Company will also rely on trade secrets, know-how and
continuing technological advancement in seeking to achieve a competitive
position. No assurance can be given that the Company will be able to protect its
rights to its unpatented trade secrets or that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets. See 'Business--Patents,
Trademarks, Licenses and Royalty Rights.'
In addition to protecting its proprietary technology and trade secrets, the
Company may be required to obtain additional licenses to patents or other
proprietary rights from third parties. No assurance can be given that any
additional licenses required under any patents or proprietary rights would be
made available on acceptable terms, if at all. If the Company does not obtain
required licenses, it could encounter delays in product development
13
<PAGE>
while it attempts to design around blocking patents, or it could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed.
The Company could also incur substantial costs in defending any patent
infringement suits or in asserting any patent rights, including those granted by
third parties. The PTO could institute interference proceedings against the
Company in connection with one or more of the Company's patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The PTO or others could also institute reexamination
proceedings with the PTO against the Company in connection with one or more of
the Company's patents or patent applications and such proceedings could result
in an adverse decision as to the validity or scope of any patents that the
Company may obtain or have the right to use.
RISKS RELATING TO PROPOSED EXPANSION
The Company intends to use the proceeds of the Offering to seek to expand
its current level of operations through acquisitions of companies, products and
product lines and international manufacturing. Successful expansion of the
Company's operations will be dependent, among other things, on the Company's
ability to achieve significant market acceptance for its new products, enter
into satisfactory marketing arrangements, secure adequate sources of supply on a
timely basis and on commercially reasonable terms, if at all, and successfully
manage growth, including monitoring operations, controlling costs and
maintaining effective quality controls. Failure of the Company to expand
successfully could have a material adverse effect on its business. See
'Business.'
DEPENDENCE UPON SUPPLIERS AND RAW MATERIALS
The Company does not have any oral or written contracts or agreements with
suppliers of its raw materials. In the event that a relationship with a supplier
upon which the Company depends is terminated, there can be no guarantee that the
Company would be able to locate other satisfactory suppliers, or even if other
suppliers could be located, that the Company would be able to establish
commercial relationships with any such suppliers on favorable terms, if at all.
If the Company is unable to establish commercial relationships with other
suppliers, it may be required to suspend or curtail some of its current services
and product lines. In addition, the Company's principal raw materials are
currently readily available, but there can be no guarantee that a general
shortage of such raw materials will not occur. Such a shortage could also
suspend or curtail some of the Company's services. In the event the Company
cannot secure such raw materials or any other raw materials on reasonable
commercial terms, it may have to go to other sources and may not be able to
secure similar quality or prices. Any suspension or curtailment of raw materials
could have a material adverse effect on the Company. See 'Business.'
DEPENDENCE UPON DISTRIBUTORS
Approximately 20% of the products manufactured by EHC, one of the Company's
wholly-owned subsidiaries, are sold through distributors. The Company does not
have any oral or written contracts or agreements with any of its distributors.
In the event that a relationship with a distributor upon which the Company
depends is terminated, there can be no guarantee that the Company would be able
to locate other satisfactory distributors, or even if other distributors could
be located, that the Company would be able to establish commercial relationships
with any such distributors on favorable terms, if at all. In such case, the
Company would be forced to distribute 100% of its manufactured products on its
own, which may force the Company to suspend or curtail some of its product lines
or hire additional workforce to handle such additional distribution, which in
either event could have a material adverse effect on the Company's results of
operations. See 'Business--Distribution Methods.'
GOVERNMENT REGULATION OF TECHNOLOGY
Expansion into foreign markets may require the Company to comply with
certain regulatory requirements of the U.S. or foreign governments. The
technology contained in the Company's products may be subject to U.S. export
controls. There can be no assurance that such export controls, either in their
current form or as may be subsequently enacted, will not delay introduction of
new products or limit the Company's ability to distribute products outside of
the U.S. Further, various countries may regulate the import of certain
technologies contained
14
<PAGE>
in the Company's products. Any such export or import restrictions, future
legislation or regulation or government enforcement could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, the Company must qualify certain of its products on
government-regulated Qualified Product Lists in order to sell such products to
the U.S. Military. Failure to qualify products on such lists would have adverse
effects on the Company's ability to sell products to the U.S. Military. Any such
export or import restrictions, new legislation or regulation or government
enforcement of existing regulations could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, if at all,
and failure to comply could have a material adverse effect on the Company. See
'Business--Government Approval.'
LEGAL RESTRICTIONS ON SALES OF SHARES UNDERLYING THE WARRANTS
The Warrants are not exercisable unless, at the time of the exercise, the
Company has an effective Registration Statement covering the shares of Common
Stock issuable upon exercise of the Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Warrants. Although the
Company has agreed to maintain the effectiveness of the Registration Statement
of which this Prospectus is a part, covering the shares of Common Stock issuable
upon the exercise of the Warrants effective for the term of the Warrants, the
Company's failure to do so would deprive the Warrants of any value. See
'Description of Securities--Warrants.'
The Common Stock and Warrants may be purchased separately. Purchasers may
buy Warrants in the aftermarket in, or may move to, jurisdictions in which the
shares underlying the Warrants are not so registered or qualified during the
period that the Warrants are exercisable. In this event, the Company would be
unable to issue shares to those persons desiring to exercise their Warrants, and
holders of Warrants would have no choice but to attempt to sell the Warrants in
a jurisdiction where such sale is permissible or allow them to expire
unexercised. See 'Description of Securities--Warrants.'
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SMALLCAP OR BSE
Upon approval, the Securities will be listed on Nasdaq SmallCap and BSE.
There can be no assurance, however, that the Company will satisfy the
maintenance criteria for continued listing on either Nasdaq SmallCap or BSE. In
order to remain quoted on Nasdaq SmallCap, under recently amended maintenance
criteria, a company must have net tangible assets (total assets, excluding
goodwill, minus total liabilities) of $2 million (or alternatively, net income
of $500,000 in two of the three most recent fiscal years, or a market
capitalization of $35 million). In addition, continued inclusion requires that
the listed security have a minimum bid price of $1.00 per share, public float
(shares not held directly or indirectly by any officer or director or any person
who is the beneficial owner of more than 10% of the total outstanding shares) of
at least 500,000 shares and the market value of such shares be at least
$4,000,000. There must also be 300 registered holders of the Common Stock.
The Securities will also be listed on the BSE, if approved. There can be no
assurance that the Company will satisfy the criteria for continued listing. In
order to remain quoted on BSE, a company must have total assets of $1,000,000,
public float of 150,000 shares with a market value of $500,000, 250 beneficial
holders and Stockholders' Equity of $500,000.
If the Company is unable to satisfy Nasdaq SmallCap's or BSE's listing
standards, its securities may be delisted from Nasdaq SmallCap or BSE. In such
event, trading, if any, in the Securities would thereafter be conducted in the
over-the-counter market on the so-called 'pink sheets' or the NASD's 'Electronic
Bulletin Board.' As a consequence of such delisting, an investor could find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Securities. Consequently, the liquidity of the Securities could be
impaired, not only in the number of securities which could be bought and sold,
but also through delays in the timing of transactions, reduction in security
analyst and news media coverage of the Company and lower prices for the
Securities than might otherwise be attained.
15
<PAGE>
'PENNY STOCK' RESTRICTIONS
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a 'penny stock.' Regulations of the Securities
and Exchange Commission (the 'Commission') define a 'penny stock' to be any
non-Nasdaq equity security that has a market price (as therein defined) of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered underwriter and current quotations
for the securities. Finally, monthly statements are required to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Securities if such Securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or meet certain
minimum net tangible assets or average revenue criteria. However, there can be
no assurance that the Securities will qualify for exemption from these
restrictions. In any event, even if the Securities are exempt from such
restrictions, the Company would remain subject to Section 15(b)(6) of the
Securities Exchange Act of 1934 , as amended (the 'Exchange Act'), which gives
the Commission the authority to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of a penny stock from associating
with a broker-dealer or participating in a distribution of a penny stock, if the
Commission finds that such a restriction would be in the public interest. If the
Securities were subject to the rules on penny stocks, the market liquidity for
the Securities could be severely adversely affected. See 'Risk Factors--Possible
Delisting of Securities from Nasdaq SmallCap or BSE.'
RISKS OF LOW-PRICED STOCK
If the Securities are delisted from Nasdaq SmallCap or BSE, they will
become subject to Rule 15g-9 under the Exchange Act, which imposes additional
sales practice requirements on broker-dealers selling such securities to persons
other than established customers and 'accredited investors' (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses, for the last two years). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Securities and may
adversely affect the ability of purchasers in the Offering to sell in the
secondary market any of the Securities acquired hereby. See 'Risk
Factors--Possible Delisting of Securities from Nasdaq SmallCap or BSE.'
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Securities.
Accordingly, there can be no assurance that an active trading market will
develop or, if developed, be sustained subsequent to the Offering.
ARBITRARY DETERMINATION OF OFFERING PRICE
The Offering price of the Securities and the exercise price and terms of
the Warrants have been determined arbitrarily by negotiations between the
Company and the Underwriter. Factors considered in such negotiations, in
addition to prevailing market conditions, included the history and prospects for
the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors deemed relevant. Therefore, the Offering price of the Common Stock
and the exercise price and terms of the Warrants do not necessarily bear any
relationship to established valuation criteria and may not be indicative of
prices that may prevail at any time or from time to time in the public market
for the Common Stock. See 'Underwriting.'
POSSIBLE REDEMPTION OF WARRANTS AND EFFECT ON COMMON STOCK
The Warrants are redeemable by the Company at any time commencing 12 months
from the date of this Prospectus, for $.10 per Warrant upon 30 days prior
written notice, provided that the average closing price or bid price of the
Common Stock as reported on Nasdaq SmallCap or BSE, if traded thereon, or if not
traded thereon,
16
<PAGE>
the average closing sale price if listed on a national or regional securities
exchange has been in excess of 150% of the then current Warrant exercise price
for any 20 trading days within the 30 consecutive trading days ending on the
15th day prior to notice of redemption. Redemption of the Warrants by the
Company could force the holders to (i) exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for the holders to do
so, (ii) sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants or (iii) accept the redemption price, which
is likely to be substantially less than the market value of the Warrants at the
time of redemption. In the event of the exercise of a substantial number of
Warrants within a reasonably short period of time after the right to exercise
commences, the resulting increase in the amount of Common Stock of the Company
in the trading market could substantially affect the market price of the Common
Stock. See 'Description of Securities--Warrants.'
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market generally has experienced and is likely in the future to
experience significant price and volume fluctuations which could adversely
affect the market price of the Common Stock without regard to the significant
fluctuations in response to variations in quarterly operating results,
shortfalls in sales or earnings below analyst estimates, stock market conditions
and other factors. There can be no assurance that the market price of the
Securities will not experience significant fluctuations or decline below the
Offering price.
LACK OF DIVIDENDS
The Company has not paid any dividends, except distributions by EHC as a
Subchapter S corporation, and does not contemplate paying dividends in the
foreseeable future. It is currently anticipated that earnings, if any, will be
retained by the Company to finance the development and expansion of the
Company's business. See 'Dividend Policy.'
ANTITAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation authorizes the Board of
Directors to determine the rights, preferences, privileges and restrictions of
unissued series of preferred stock, $.001 par value per share (the 'Preferred
Stock'), and to fix the number of shares of any series of Preferred Stock and
the designation of any such series, without any vote or action by the Company's
stockholders. Thus, the Board of Directors can authorize and issue up to
1,000,000 shares of Preferred Stock with voting or conversion rights that could
adversely affect the voting or other rights of holders of the Company's Common
Stock. In addition, the issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change of control of the Company, since the
terms of the Preferred Stock that might be issued could potentially prohibit the
Company's consummation of any merger, reorganization, sale of substantially all
of its assets, liquidation or other extraordinary corporate transaction without
the approval of the holders of the outstanding shares of the Common Stock. The
Company, however, has no intention of adopting a stockholder rights plan
('poison pill') in the foreseeable future. See 'Description of
Securities--Preferred Stock.'
IMMEDIATE AND SUBSTANTIAL DILUTION
The Offering will result in an immediate and substantial dilution of $3.04
(67.6%) per share between the Offering price and the pro forma net tangible book
value per share of Common Stock. See 'Dilution.'
UNDERWRITER'S INFLUENCE ON THE COMPANY
Upon consummation of the Offering, the Underwriter has been granted, for a
period of five years, the right to designate one individual to serve on the
Board of Directors of the Company. If the Underwriter were to exercise such
right, it could be deemed under certain circumstances to be in a position to
assert influence over the Company. See 'Underwriting.'
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon the consummation of the Offering, the Company will have 3,195,000
shares of Common Stock outstanding (3,382,500 shares if the Underwriter's
over-allotment option is exercised in full and assuming no exercise of Warrants
or the Underwriter's Warrants). Of these shares, the 1,250,000 shares sold in
the Offering (1,437,500 shares if the Underwriter's over-allotment option is
exercised in full) will be freely tradeable. The
17
<PAGE>
remaining 1,945,000 shares are deemed to be 'restricted securities,' as that
term is defined under Rule 144 ('Rule 144') promulgated under the Securities Act
of 1933, as amended (the 'Securities Act'), in that such shares were issued and
sold by the Company in private transactions not involving a public offering and
are not covered currently by an effective registration. Except for an aggregate
of 1,945,000 shares of Common Stock beneficially owned by the officers,
directors and principal stockholders of the Company subject to 'lock-up'
agreements between such persons and the Underwriter, whereby such persons agree
not to directly or indirectly, sell, offer, pledge, contract to sell,
hypothecate, grant any option to purchase or otherwise dispose for a period of
two years, subject to certain exceptions, such shares are subject to the resale
restrictions of Rule 144 and will become so eligible at various times. In
addition, the Company has granted the Underwriter demand and piggyback
registration rights with respect to the securities issuable upon exercise of the
Underwriter's Warrants. See 'Shares Eligible for Future Sale.'
Under Rule 144, a stockholder who has beneficially owned restricted shares
for at least one year (including persons who may be deemed to be 'affiliates' of
the Company under Rule 144) may sell within any three month period a number of
shares that does not exceed the greater of: (i) 1% of the then outstanding
shares of a particular class of the Company's Common Stock as reported on its
10-Q filing, or (ii) the average weekly volume on Nasdaq during the four
calendar weeks preceding such sale and may only sell such shares through
unsolicited brokers' transactions. A stockholder who is not deemed to have been
an 'affiliate' of the Company for at least 90 days and who has beneficially
owned his shares for at least two years would be entitled to sell such shares
under Rule 144 without regard to the volume limitations described above.
Prior to the Offering, there has been no public market for the Company's
Securities. Sales of substantial amounts of shares of the Company's Common
Stock, pursuant to Rule 144 or otherwise, could have a depressive effect on the
market price of the Securities, and consequently make it more difficult for the
Company to raise capital through the sale of equity securities in the future at
a time and price which the Company deems appropriate. See 'Shares Eligible for
Future Sale.'
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware
contains provisions entitling directors and officers of the Company to
indemnification from judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, as the result of an action or proceeding in
which they may be involved by reason of being or having been a director or
officer of the Company provided said officers or directors acted in good faith.
The Company's Certificate of Incorporation contains provisions indemnifying
officers and directors of the Company to the fullest extent permitted by
Delaware law. These provisions provide, among other things, that a director of
the Company shall not be liable either to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. These provisions
may limit the ability of the Company's stockholders to collect any monetary
liability damages owed to them by an officer or director of the Company.
RELATIONSHIP OF UNDERWRITER TO TRADING
The Underwriter may act as a broker or dealer with respect to the purchase
or sale of the Securities in the over-the-counter market where each is expected
to trade. The Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the market price of the Securities in accordance with Rule 103
of Regulation M, pursuant to which such persons may bid for or purchase
securities for the purpose of stabilizing their market prices. The Underwriter
also has the right to act as the Company's exclusive agent in connection with
any future solicitation of Warrant holders to exercise their Warrants. Unless
granted an exemption by the Commission from Rule 10b-6 under the Exchange Act,
the Underwriter will be prohibited from engaging in any market-making activities
or solicited brokerage activities with regard to the Company's Securities during
a period beginning five business days prior to the commencement of any such
solicitation and ending on the later of the termination of such solicitation
activity of the termination (by waiver or otherwise) of any right the
Underwriter may have to receive a fee for the exercise of the Warrants following
such solicitation. As a result, the Underwriter and soliciting broker/dealers
may be unable to continue to make a market in the Company's securities during
certain periods while the exercise of the Warrants is being solicited. Such a
limitation could impair the liquidity and market price of the Securities.
18
<PAGE>
USE OF PROCEEDS
Assuming the sale of the Securities offered hereby, the net proceeds to the
Company, after deducting estimated underwriting discounts and commissions and
expenses payable by the Company in connection with the Offering, are estimated
to be approximately $4,400,000 (approximately $5,200,000 if the Underwriter's
over-allotment option is exercised in full). The Company expects to use such
proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT % OF NET
INTENDED APPLICATION OF NET PROCEEDS OF NET PROCEEDS PROCEEDS
- ---------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Inventory Purchases and Staffing(1)....................... $1,215,000 27.6%
Potential Acquisitions.................................... $ 500,000 11.4%
Tooling(2)................................................ $ 485,000 11.0%
Sales and Marketing(3).................................... $ 455,000 10.3%
Facilities and Equipment(4)............................... $ 412,000 9.4%
Research and Development.................................. $ 382,000 8.7%
Dividends to Existing Stockholders(5)..................... $ 100,000 2.3%
Working Capital........................................... $ 851,000 19.3%
------------------ ------
Total................................................ $4,400,000 100.0%
------------------ ------
</TABLE>
- ------------------
(1) Includes the hiring of nine additional engineering and procurement personnel
and additional inventory manufactured in China.
(2) Consists of molds, castings and dies for the products under development.
(3) This amount will be used for trade journal advertisements, mailings, sales
literature and public relations.
(4) Includes engineering, computer and mold-making programs, improved
communications equipment and additional warehouse and office space within
the Company's existing facility.
(5) This amount approximates the amount of income taxes existing stockholders
would have to pay personally based upon earnings for the year ended December
27, 1997 and the six months ended June 30, 1998. To the extent that the
Company has additional earnings from June 30, 1998 to the Effective Date,
this amount would be increased by 38% of such additional earnings. See
'Dividend Policy.'
In the event that the Company's plans change or its assumptions change or
prove to be inaccurate or if the proceeds of the Offering prove insufficient to
fund operations (due to unanticipated expenses or difficulties or otherwise),
the Company may find it necessary or advisable to reallocate some of the
proceeds within the above-described categories or to use portions thereof for
other purposes or may be required to seek additional financing or curtail its
operations. Future events, including changes in economic or industry conditions
or the Company's planned operations, may require the Company to reallocate
proceeds among the various intended uses if it is determined at a later date
that an increase in any expenditures or reallocation of proceeds is necessary or
desirable. Any such determination would be based on, among other things, whether
and to what extent revenue from sales is sufficient to offset operating expenses
and the capital requirements associated with expanding its operations.
The Company may, if and when the opportunity arises, use a portion of the
proceeds of the Offering, possibly including a portion of the proceeds allocated
to working capital, together with the issuance of debt or equity securities, to
acquire rights to products or to acquire existing companies in businesses the
Company believes are compatible with its business. Any decision to make such an
acquisition will be based upon a variety of factors, including, among others,
the purchase price and other financial terms of the transaction, the business
prospects and competitive position of, and technology or products provided by,
the acquisition candidate and the extent to which any technology or business
would enhance the Company's prospects. Potential acquisition candidates may
include companies with products that are compatible with the Company's products,
or that the Company believes would provide the Company with additional
distribution channels. As of the date of this Prospectus, the Company has no
agreements, understandings or arrangements with respect to any such acquisition
and is not in the process of reviewing specific acquisition opportunities or
engaged in negotiations with any potential acquisition candidates. There can be
no assurance that the Company will be able to successfully consummate any
acquisition or successfully integrate any acquired business into its operations.
Investors in the Offering will not have an opportunity to evaluate the specific
merits or risks of any acquisition.
Proceeds not immediately required for the purposes set forth above will be
invested in short-term, investment-grade, interest-bearing securities.
19
<PAGE>
DIVIDEND POLICY
The Company intends for the foreseeable future to retain future earnings,
if any, to provide funds for the development and expansion of the Company's
operations. Except as discussed below, any payment of dividends after the
completion of the Offering, as determined at the discretion of the Board of
Directors, will be dependent upon the financial condition, capital requirements
and earnings of the Company, and other factors the Board of Directors may deem
relevant.
From its inception until immediately prior to the date of this Prospectus,
EHC has been treated as a closely-held corporation under Subchapter S of the
Code and, therefore, did not pay federal or state income taxes on amounts earned
during such periods. EHC distributed dividends to its stockholders for the years
ended December 30, 1995 and December 28, 1996 in the aggregate amounts of
$207,243 and $133,379, respectively. The Company will distribute $75,000 to its
stockholders for the balance of taxes owed for the year ended December 27, 1997
from the proceeds of this Offering. EHC has agreed to distribute, through a
dividend to its existing stockholders upon the Effective Date of the Offering, a
minimum of 38% of the earnings of EHC from December 28, 1997 until the Effective
Date, which amount approximates the amount such stockholders would be expected
to pay personally for income taxes based on such earnings. Although it is
impossible to determine the exact amounts of the distributions at this time,
based on the Company's projections of the financial results for the six months
ended June 1998, the Company estimates that as of June 30, 1998, such
distribution will be approximately $25,000 to such stockholders in proportion to
their respective holdings. To the extent EHC has additional income for June 30,
1998 through the date of this Prospectus, the amount of such distribution will
increase. The extent of such additional liabilities, if any, cannot be
ascertained at this time. See 'Use of Proceeds.'
20
<PAGE>
DILUTION
At March 28, 1998, the pro forma net tangible book value of the Company
after giving effect to the acquisition of CDP and an anticipated $100,000
stockholder dividend subsequent to March 31, 1998 was $251,166, or $0.13 per
share of Common Stock, based on 1,945,000 shares of Common Stock outstanding.
The net tangible book value per share represents the amount of the Company's
total assets less total liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the receipt of the net proceeds
(estimated to be approximately $4,400,000) from the sale of 1,250,000 shares of
Common Stock offered hereby at an assumed Offering price of $4.50 per share and
1,250,000 Warrants at $.10 per Warrant, the pro forma net tangible book value of
the Company at December 27, 1997 would be $4,651,166 or $1.46 per share of
Common Stock. This would result in dilution to the public investors (i.e., the
difference between the estimated Offering price per share of Common Stock and
the net tangible book value thereof after giving effect to the Offering) of
approximately $3.04 per share, or 67.6% of the Offering price per share. The
following table illustrates the per share dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON STOCK
------------
<S> <C> <C>
Assumed Offering price (1)........................................................ $ 4.50
Net tangible book value at March 28, 1998....................................... $0.13
Increase in net tangible book value attributable to new investors............... 1.33
-----
Pro forma net tangible book value after the Offering.............................. 1.46
------
Pro forma dilution of net tangible book value to the new investors................ $ 3.04
------
------
</TABLE>
- ------------------
(1) Offering price before deduction of estimated expenses of the Offering and
underwriting discounts and exclusive of the purchase price of $.10 per
Warrant.
The following table summarizes as of March 28, 1998, the number and
percentage of shares of Common Stock purchased from the Company, the percentage
and amount of total consideration paid and the average price per share paid by
existing stockholders and by new investors pursuant to the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 1,945,000 60.9 $ 319,441 5.4 $0.16
New investors........................................ 1,250,000 39.1 5,625,000 94.6 $4.50
--------- ------- ---------- -------
Total......................................... 3,195,000 100% $5,944,441 100%
--------- ------- ---------- -------
</TABLE>
The above table assumes no exercise of the Underwriter's over-allotment
option. If the Underwriter's over-allotment option is exercised in full, the new
investors will have paid $6,468,750 for 1,437,500 shares of Common Stock,
representing approximately 95.3% of the total consideration, for 42.5% of the
total number of shares of Common Stock outstanding.
21
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect (a) the issuance and sale of the 1,250,000 shares of Common
Stock and 1,250,000 Warrants offered hereby; (b) the anticipated acquisition of
CDP; and (c) receipt of the net proceeds therefrom, after deducting underwriting
discounts and commissions and estimated offering expenses. This table should be
read in conjunction with the Company's consolidated financial statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
<S> <C> <C> <C>
Notes payable......................................................... $1,861,698 $2,009,859 $2,009,859
---------- ------------ --------------
Stockholders' Equity:
Common Stock, $.001 par value, 10,000,000 shares authorized,
1,945,000 issued and outstanding, actual; 10,000,000 shares
authorized, 3,195,000 issued and outstanding, as adjusted(1)..... 1,500 1,945 3,195
Additional paid-in capital.......................................... 317,941 421,937 4,820,687
Retained earnings................................................... 179,441 (172,716) (172,716)
---------- ------------ --------------
Total stockholders' equity....................................... 498,882 251,166 4,651,166
---------- ------------ --------------
Total capitalization............................................. $2,360,580 $2,261,025 $6,661,025
---------- ------------ --------------
---------- ------------ --------------
</TABLE>
- ------------------
(1) Reflects the proposed merger of the Company and CDP and an anticipated
stockholder dividend of $100,000 subsequent to March 31, 1998.
(2) Assumes no exercise of the (i) Warrants; (ii) Underwriter's over-allotment
option; and (iii) Underwriter's Warrants.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed for the purpose of developing or acquiring
domestically manufactured injection molded plastic products or assemblies,
redesigning the products to improve function and appearance and, by using its
relationships with vendors in China, to manufacture the products offshore in
order to deliver them at lower prices and improved profit margins. EHC, the
Company's principal subsidiary, has over 28 years of experience in the design,
marketing and manufacture of injection molded plastic components used in
industrial, consumer and military products. The Company believes that its
long-term experience in the manufacture and assembly of injection molded plastic
components, coupled with direct access to manufacturing facilities in China,
will enable the Company to provide improved products at lower prices with
improved profit margins.
RESULTS OF OPERATIONS
For the three months ended March 28, 1998 compared to the three months
ended March 29, 1997:
NET SALES
Net sales decreased $87,526, or 6%, to $1,437,535 for the three months
ended March 28, 1998 from $1,525,061 for the three months ended March 29, 1997.
This decrease was attributable to the redesigning of a key customer's product
and generally slower bookings. The customer has redesigned its product and
placed new tooling and production orders for delivery in the third quarter of
1998.
GROSS PROFITS
The Company realized an overall gross profit margin percentage for the
three months ended March 28, 1998 of 37% which represents an increase from the
30% experienced during the three months ended March 29, 1997. This increase can
be attributed to the continuous effort to improve manufacturing process, quality
and purchasing controls.
Improved manufacturing processes, including the use of cellular
manufacturing, 'Just-in-Time' systems and the Kanban method of inventory
control, which allows representatives of each department stage of the
manufacture process to directly reorder inventory and factors of production,
continue to reduce the cost of manufacturing. Products are being produced in
small lots with short lead times. Small lot production in the manufacturing
cells combined with operator training, statistical process control and certified
suppliers has continued the overall improvement in the Company's gross profit.
Continued improvement has also come from the new purchasing software that is
linked to the Company's inventory control system.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $125,402, or 40%, to
$438,519 for the three months ended March 28, 1998 from $313,117 for the three
months ended March 29, 1997. Such increase can be attributed to increases in
expenses associated with the development of the Ultratherm(Registered),
consulting fees, accounting fees and freight and shipping supplies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements,
capital expenditures and principal and interest payments. Historically, the
Company's primary source of liquidity has been cash flow generated internally
from operations, supplemented by bank borrowings and long term equipment
financing. The Company's cash decreased to $253,186 on March 28, 1998 from
$351,740 on December 27, 1997. Cash flow provided by operating activities was
$51,425 for the three months ended March 28, 1998 on net income of $48,038. The
decrease in accounts receivable and increases in accounts payable were the
result of the decrease in volume of business.
Cash used in investing activities for the three months ended March 28, 1998
and March 29, 1997 was $73,167 and $114,419, respectively, which consisted of
cash for purchase of tooling, molds and machinery and equipment. As of the date
of this Prospectus, the Company does not plan on any material commitments for
capital expenditures.
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Net cash used in financing activities for the three months ended March 28,
1998 was $76,812. Cash of $40,000 was provided from borrowings on available
credit lines, which was offset by principal payments on loans of $116,812.
EHC has settled one of its legal proceedings for a nominal amount. The
Company will vigorously defend the remaining proceeding. The Company does not
believe that the outcome of this action will have a material adverse effect on
the Company's financial position or overall trends in results of operations. See
'Business--Legal Proceedings.'
RESULTS OF OPERATIONS
For the year ended December 27, 1997 compared to the year ended December
28, 1996:
NET SALES
Net sales increased $656,706, or 12%, to $6,054,747 for the year ended
December 27, 1997 from $5,398,041 for the year ended December 28, 1996. This
increase was attributable to changes in marketing and increased expenditures for
advertising, new catalogs, web sites and database marketing. The Company
restructured its marketing budget to implement a trade publication advertising
campaign taking advantage of new catalogs and mailing literature developed
within the last two years. Such advertising material includes trade
publications, catalogs, post cards, faxback mailers and an Internet web site.
Funds for the new advertising campaign were derived from the reorganization of
the Company's field sales force. The Company believes that it has found
progressive ways of selling its products without incurring the overhead costs
associated with a large field sales force.
For example, through the use of the Company's new contact management
software and database marketing techniques, the Company systematically
identifies and maintains information concerning existing and potential
customers, including names of engineers and purchasing agents and the Company's
sales history with such entities, enabling the Company to efficiently highlight
its manufacturing capabilities. Through this process, the Company believes that
it is generating additional business from existing customers who are not aware
of its complete capabilities, while also attracting new customers.
The Company's on-time deliveries (97%) and excellent quality (less than 1%
rejection) were also factors in the increased sales volume. A substantial
portion of the Company's business comes from large established customers who
certify their suppliers based on delivery performance and quality rating. The
Company believes that improvements in these areas have helped with repeat
business. A substantial portion of the Company's sales are made to large
publicly owned customers, generally on an open account basis.
GROSS PROFITS
The Company realized an overall gross margin percentage for the year ended
December 27, 1997 of 37% which represents an increase from the 32% experienced
during the year ended December 28, 1996. This increase can be attributed to
improved manufacturing processes, quality and purchasing controls, as well as
price increases on certain products.
Improved manufacturing processes, including the use of cellular
manufacturing, 'Just-in-Time' systems and the Kanban method of inventory
control, which allows representatives of each departmental stage of the
manufacturing process to directly reorder inventory and factors of production,
have contributed to the reduced cost of manufacturing. Products are being
produced in small lots with short lead times, allowing the Company to carry less
inventory and produce the desired quantity of products at a faster rate than in
the Company's prior history. Small lot production in the manufacturing cells
combined with operator training, statistical process control and certified
suppliers has led to an overall improvement in the Company's gross profit.
Additional improvements have come from new purchasing software that is linked to
the inventory control system. See 'Business--The Company.'
The Company recently performed market research to determine which product
prices could be increased. The result was that prices on product lines requiring
many operations and having limited competition were increased to meet the
Company's targeted revenues. At the same time, standard products, such as the
Mil-spec line and the regent series, were adjusted to cover increased material
and labor costs.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased $298,455, or 20%, to
$1,770,893 for the year ended December 27, 1997 from $1,472,438 for the year
ended December 28, 1996. Such increase can be attributed to increases in
consulting, advertising and officers' compensation. In addition, there were
approximately $101,000 of expenses incurred for the development of the
Ultratherm(Registered).
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements,
capital expenditures and principal and interest payments on debt. Historically,
the Company's primary source of liquidity has been cash flow generated
internally from operations, supplemented by bank borrowings and long-term
equipment financing. The Company's cash increased to $351,740 on December 27,
1997 from $67,910 at December 28, 1996. Cash flow provided by operating
activities was $424,244 for the year ended December 27, 1997 on net income of
$245,355. Increases in inventory were a result of an increase in production
levels to meet anticipated sales. The increases in accounts receivable and
accounts payable were the result of the increase in volume of business.
Cash used in investing activities for the years ended December 27, 1997 and
December 28, 1996 was $190,089 and $122,944, respectively, which consisted of
cash for purchase of tooling, molds and machinery and equipment. As of the date
of this Prospectus, the Company does not plan on any material commitments for
capital expenditures.
Net cash used in financing activities for the year ended December 27, 1997
was $196,000. Cash of $357,000 was provided from borrowings on available credit
lines, which was offset by $348,000 principal repayment on loans, $133,000 in
distributions to shareholders and $71,000 in payments to officers and affiliated
companies. For the year ended December 28, 1996, cash that was provided by
financing activities was primarily due to a new financing facility with Republic
National Bank. Cash used in financing activities for the year ended December 28,
1996 was due to the Company's repayment of a financing facility with Citibank
with the funds received from Republic National Bank and repayment of various
long-term equipment loans. The Company currently has no plans or agreements to
seek loan financing. The Company may choose to seek additional financing to
provide additional working capital for expansion at some time in the future.
Such financing may include further bank financing or long-term equipment loans.
See 'Certain Transactions--Credit Facilities.'
The Company believes that the proceeds of the Offering combined with its
cash balances and cash generated from operations will satisfy the Company's
working capital, business development and capital expenditures for at least the
next 12 months. The Company may require additional sources of liquidity to fund
future growth, including additional equity offerings or debt financings. The
Company routinely evaluates potential acquisitions of businesses, products and
technologies that complement its business. As of the date of this Prospectus,
the Company has no agreements with respect to such transactions. Increased costs
or expenses, acquisition prospects and opportunities for growth or expansion may
increase the demand for working capital, necessitating additional capital
infusions.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('SFAS No. 123'), which prescribes a method of accounting for
stock-based compensation that determines compensation expenses based on fair
market value measured at grant date. SFAS No. 123 gives companies that grant
stock options or other equity instruments to employees, the option of either
adopting the new rules or continuing current accounting; however, disclosure
would be required of the pro forma amounts as if the new rules had been adopted.
SFAS No. 123 is effective for transactions entered into in fiscal years that
begin after December 15, 1995.
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
'Reporting Comprehensive Income' ('SFAS 130'), which establishes standards for
reporting and display of comprehensive income and its components, and Statement
No. 131, 'Disclosures about Segments of an Enterprise and Related Information'
('SFAS 131'), which establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosure about
products and services, geographic areas and major customers. SFAS No. 130 and
No. 131 are effective for years beginning after December 15, 1997.
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BUSINESS
THE COMPANY
The Company, through its principal subsidiary, EHC, has over 28 years of
experience in the design, marketing and manufacture of injection molded plastic
components and assemblies, including consumer, industrial and military knobs and
custom and mechanical assemblies, including Micro Verniers, push or pull-to-turn
clutch knobs and detent knobs. EHC also produces hardware items, including shaft
locks, mounting brackets, test jack covers, cabinet bumpers and captive screws.
The Company believes that EHC's long-term success is due to the average 29-year
experience of its management team, strategic acquisitions of complementary
companies, products and product lines and its ability to adapt new technologies
and advanced manufacturing concepts to produce high-quality products at
competitive prices.
The management team at EHC is comprised of molding, mechanical, industrial
and design engineers, enabling EHC to provide early and total involvement with
customers in the design and development of products. The Company believes that
such concurrent engineering results in reduced costs and shorter lead times
while improving quality. The technical staff at EHC has improved efficiency by
64% since 1995, due in large part to the use of Computer Aided Design
technology, cellular manufacturing and the Kanban manufacturing system. Computer
Aided Design technology utilizes computer generated graphic models during the
prototype phase and aids in optimal method planning for manufacturing. The
Kanban manufacturing system is a method of inventory control which allows
representatives of each departmental stage of the manufacturing process to
directly reorder inventory, as needed, thereby reducing overhead costs
associated with material control functions. EHC's products and technical
strengths are promoted by an aggressive, customer-focused internal sales force.
EHC meets a full range of its clients' needs by maintaining early and total
involvement, from the design and development to the ultimate manufacture and
packaging of the product. When a custom-made product is initially requested,
experienced EHC application engineers assist the customer during the concept
design stage, which the Company considers critical to the success of the
manufacturing process. During this stage, EHC application engineers draw upon
the Company's experience, expertise and technological innovation to assist
clients in reducing costs, meet accelerated market schedules and ensure high
quality workmanship.
Once EHC has successfully assisted the client in creating an efficient
design, such design is converted into a model. EHC currently has a relationship
with a local university whereby EHC utilizes such university's Computer Assisted
Manufacturing three dimensional computer graphics database, which is compatible
with EHC's system, to generate a drawing used to manufacture tooling, a Computer
Aided Design ('CAD'). The CAD is then used in conjunction with a Rapid Prototype
Machine to produce a design model for aesthetic evaluations.
The Company incorporates many other technological innovations and advanced
manufacturing practices to consolidate the Company's workplace. Through such
innovations, the Company is able to achieve state-of-the-art quality control
procedures and consistently produce high quality products. For the fiscal year
ended December 27, 1997, 97% of EHC's manufacturing projects were delivered on
time and less than 1% of its products were returned due to unsatisfactory
quality.
The Company is currently having its facility certified for International
Quality Standard ('ISO') 9001, a manufacturing certification required by
European companies and looked upon favorably throughout the world. ISO 9001
requires the Company to meet certain stringent requirements established in
Europe to ensure that the facility's manufacturing processes, equipment and
associated quality control systems will satisfy specific customer requirements.
The Company believes that obtaining ISO 9001 certification will benefit the
Company in the plastic manufacturing market, both nationally and
internationally.
The Company's factory is divided into manufacturing cells, which the
Company believes accounts for a more efficient workplace and improved quality.
Each cell is responsible for a complete manufacturing process, from machining to
assembly and from indicia marking to the ultimate packaging of the product. The
cells are operated by teams of cross-trained employees knowledgeable of both the
product and the manufacturing process. The cell teams meet regularly to solve
problems and develop more efficient manufacturing methods. The
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Company believes that this consolidated manufacturing approach results in high
quality, on-time delivery, competitive pricing and a loyal customer base.
Additionally, the Company believes that it has created a cost-effective
workplace by decreasing inventory costs. The Company's 'pull' (also known as
'JIT,' which stands for Just-in-Time) system is designed to introduce raw
materials and components at the time necessary to fulfill customer orders. This
system eliminates costs associated with the storage and handling of large
amounts of inventory. The Company believes that it also accounts for a more
timely rate of delivery. The 'pull' system depends on long-term relationships
with suppliers. The Company believes that due to its strong relationships with
suppliers and its well-trained workforce, the system will continue to provide
efficient and prompt delivery.
The Company offers secondary operations on its molded products. Services
such as hand painting, pad printing, hot stamping and engraving are provided at
a customer's request. These marking systems can be used on most materials and
varying contours. The Company believes that these extra manufacturing services
allow for greater flexibility and increased customer satisfaction.
The Company was originally formed in 1970 as EHC, a New York corporation,
and will be reorganized immediately prior to the Effective Date as a Delaware
holding company for its three wholly-owned subsidiaries, EHC, CDP and DTI. As
part of the Reorganization, the stockholders of each of the subsidiaries will
exchange the following percentage ownership in the respective subsidiaries for
the percentage of shares of the Company: David Kassel will exchange 33% of EHC
and 90% of CDP for 46.3% of the Company; Andrew Franzone will exchange 33% of
EHC for 25.7% of the Company; Harry Goodman will exchange 33% of EHC for 25.7%
of the Company; and David Cowan will exchange 10% of CDP for 2.3% of the
Company.
GROWTH STRATEGY
The Company intends to expand its operations through (i) the acquisition
and development of injection molded plastic products and assemblies manufactured
in the United States having niche markets, (ii) the redesigning of such products
and assemblies, if necessary, to improve their function and appearance and (iii)
the manufacturing of such products and assemblies in China at lower prices and
improved profit margins. Through a Consultant who is also an independent
director of the Company, the Company has established direct contact with
manufacturers in China and has initiated pilot overseas manufacturing projects
in China of small-scale production runs of the Ultratherm(Registered) and
separate projects through an affiliated company, AFC. See 'Risk Factors--Risks
Relating to Manufacturing in China.'
While small businesses comparable in size to the Company often encounter
major difficulties in securing manufacturing projects in China due to
prohibitive broker commissions and agency fees incurred both domestically and
abroad, which, based upon the Company's experience could account for up to 25%
of the entire manufacturing project, the Company, through the Consultant, has
established direct contact with certain manufacturers in China, allowing the
Company to avoid such commissions and fees and realize the benefit from lower
costs of raw materials and labor. For example, EHC's principal raw materials at
this time, ABS and polycarbonate, cost up to 50% less in China and the cost of
labor for factory workers in China was approximately $.33 per hour for the year
ended December 27, 1997. Based on its assessment of pilot manufacturing projects
in China through AFC, the Company believes that it can reduce its overall
domestic manufacturing costs, including shipping and tariffs, by more than 25%.
See 'Risk Factors--Risks Relating to Manufacturing in China' and 'Certain
Transactions.'
PRODUCTS
Control Knobs and Assemblies
The Company, through its wholly-owned subsidiary EHC, manufactures a full
line of instrument control knobs, handles, value-added custom molding, dials and
similar devices for consumer, industrial and military electronics equipment.
EHC's knobs are used for precise setting of switches, on/off switches, volume
controls and critical setting of instrumentation switches. EHC manufactures many
of the knobs to order based on the customers' exacting specifications as well as
its standard line. Customers of EHC order the knobs by specifying particular
descriptions and features, including the shaft diameter, outer diameter, overall
size, height, color,
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illumination, dials and markings, such as lines, dots or numbers. EHC also has a
standard product line of consumer industrial and military knobs available for
sale through catalogs.
Overall, the number of different types of knobs EHC has manufactured in its
history is in the order of tens of thousands. Some knobs are manufactured with
mechanical devices built into the knob. For example, one of the Company's
locking knobs turns freely and sets upon depression, resisting shock, vibration
or accidental movement. A clutch knob is one that continues to turn even after
the device has reached a pre-set limit so that the pressure of the turning knob
does not damage the equipment. Most knobs are resin-based and injection molded.
Some knobs are painted and some are delivered 'as molded.' Certain knobs are
made with aluminum inlays, caps, dials or skirts and may have fittings of
screws, bushings, springs or set screws.
The knobs and assemblies can be sold in lots of as few as one knob or as
large as 500,000 units or more. EHC requires a $150 per order minimum charge.
Knob prices to the customer range from as low as $.09 per unit to as much as
$150 per unit.
The Pull Pack(Trademark)
The Company, through its wholly-owned subsidiary, CDP, has entered into an
exclusive international licensing agreement to manufacture, market, sell and
sub-license the Pull Pack(Trademark), a proprietary Disc packaging system. The
Pull Pack(Trademark) is a redesigned 'Jewel Box,' the packaging used currently
for Compact Discs, CD ROMs and DVD, and won the International Design Magazine
Award for Packaging in 1993. The Pull Pack(Trademark) implements a drawer-like
mechanism, avoiding the problems associated with currently available Disc
packaging involving fragile hinges, difficulty in opening and the removal of
Discs and descriptive literature. The drawer carries the Disc, and a tray above
the drawer holds the descriptive booklet. When the drawer is opened, the tray is
pushed forward one-half inch beyond the outer housing, providing the user with
the option of removing the Disc or the booklet or both. The drawer also holds an
inlay card, which provides the graphics for the spine and the bottom of the
package. See 'Business--Patents, Trademarks, Licenses and Royalty Rights.'
While no contracts or agreements are in place, the Company is currently
negotiating with manufacturers in China to produce the Pull Pack(Trademark) and
plans, with no assurance, to market the product as a specialty packaging system
to a targeted niche market, including CD ROM, special production, retail
replacement packaging and rental and institutional markets such as video stores,
lending libraries and technical research facilities. The Pull Pack(Trademark)
won the International Design Magazine Award for Packaging in 1993. For the year
ended 1996, the market for Jewel Boxes sold in the music industry in the United
States was approximately $82,000,000 and the Company believes that the target
niche market for the Pull Pack(Trademark) is approximately $50,000,000. See
'Risk Factors--Developmental Stage Product,' and 'Risk Factors--Risks Relating
to Manufacturing in China.'
The Company believes that the Pull Pack(Trademark) is well positioned to be
sold in specialty niche markets. The Company believes that the Pull
Pack(Trademark) receives favorable reviews because it complements what has made
the Compact Disc the preferred format in both the entertainment and educational
industries, ease of use and durability.
The Company intentionally relies upon current technologies and materials
used for the Pull Pack(Trademark) so that it can be interchangeable with current
Jewel Boxes. The Pull Pack(Trademark) is exactly the same size as the standard
Jewel Box and is made from the same clear plastic. It also uses the same graphic
inserts as Jewel Boxes, a booklet and inlay card, which allows Compact Disc
distributors to use Jewel Boxes or the Pull Pack(Trademark) interchangeably
without requiring special graphics to be printed. The Company believes that this
complete compatibility will also allow the Pull Pack(Trademark) to be sold
directly to consumers who want to replace their broken Jewel Boxes with a more
durable and convenient package.
The Company anticipates that a pre-production model of the Pull
Pack(Trademark) will be ready in May 1998 for market research and small
production runs. Once the Company has determined that the product is ready for
production, it will commence manufacturing. However, due to the early stage of
development of the product, there are currently no contracts or agreements with
potential suppliers, distributors, manufacturers or customers concerning
production of the Pull Pack(Trademark). The Company will initially target market
opportunities such as replacement packaging, CD ROM packaging, rental and
institutional markets, such as video stores, lending libraries and technical
research facilities, special production markets and newly developed discs. As
consumers
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become familiar with the Pull Pack(Trademark), the Company intends to sell
directly to the OEMs, who are the original content providers in both the music
and CD ROM industries.
Replacement Market. The Company will target several key distribution
avenues in the replacement market, including mass merchandisers, office supply,
computer and music chains. The Company believes that it is important to sell the
Pull Pack(Trademark) in all of the above channels, and not just in music stores.
The Company estimates that approximately 100 million replacement units are sold
per year at an average price of $0.15 per unit, or an aggregate of $15,000,000.
Computer stores and music retailers sell replacement Jewel Boxes so that
consumers can replace broken packages. Compact Discs distributed in paperboard
sleeves also fuel the replacement market as consumers replace such packaging
with Jewel Boxes. The Company believes that individual retail chains sell
approximately 30,000 replacement packages per month. Chain stores, office supply
stores, computer chains, mail order companies and music stores all sell
replacement Jewel Boxes, usually in packs of three, five or ten.
CD Rom Market. CD ROMs are frequently housed in Jewel Box packaging. CD
ROM volume in the United States is estimated to have reached 278 million units
in 1995. Computer and CD ROM use continues to increase, as consumer retail store
purchases supplement software sold with computers by OEMs.
Industrial Market. Many businesses prepare demonstration or promotional
discs for music, software, and product promotion, including such retailer
catalogs as L.L. Bean, Williams-Sonoma and Tiffany. Although those Compact Discs
or CD ROMs which are distributed free of charge are not included in statistical
data bases, the Company estimates that approximately 20 million of these units
were distributed in the year ended December 27, 1997. Consequently, the Company
believes that the market available for the Pull Pack(Trademark) is statistically
understated.
Special Production Market. Special packaging is frequently created to meet
the demands of major recording artists or provide a uniquely distinctive package
for special promotions. Such packaging is assembled by hand because automated
insertion machines cannot accommodate non-standard packaging. The Company
believes it has the ability to provide such packaging at reasonable costs. The
Company estimates that approximately five to ten million units are packaged in
this manner each year.
Newly Developed Discs. The Company believes that new disc formats that
have recently reached the market or are expected to do so in the near future
will also expand market opportunities. These formats include the Photo Compact
Disc and the DVD, both of which can be packaged using a variation of the Pull
Pack(Trademark) concept. DVDs are the same size as the compact discs now in use,
but will be sold in packages two inches larger than a Jewel Box to fit into
current retail video racks. The Company believes that the laser packaging may
provide an opportunity for the Pull Pack(Trademark) to become the package of
choice. Other entertainment formats--Digital Compact Cassettes and Digital Audio
Tape--are also available and can be packaged using a variation of the Pull
Pack(Trademark) concept.
OEM Market. The OEM market is the largest user of Compact Disc packaging.
The Company estimates that OEMs used approximately one billion units in the
United States for the year ended December 27, 1997. Once the Pull
Pack(Trademark) has become visible in the replacement market, the Company
believes that it is likely to be requested by consumers for new title releases.
The Company will attempt to capitalize on this demand by marketing directly to
the OEM market. The six major OEMs for music are: Warner/Elektra/Atlantic, Sony,
PolyGram, Capitol/EMI, MCA and BMG. These OEMs generally have their Jewel Boxes
manufactured by outside sources. Jewel Boxes are delivered partially assembled,
and the OEM uses automated equipment to insert the Discs and graphic components
and to shrink wrap the packages. If sales volume in the OEM market exceeds the
Company's ability to increase production, the Company will consider licensing
the right to produce the Pull Pack(Trademark) to the OEM or its supplier.
The Company also plans to introduce a more durable version of the Pull
Pack(Trademark) which will utilize the same tooling as the standard Pull
Pack(Trademark), but will be made out of a tough, clear plastic called zylar.
These zylar packages will be marketed to rental and institutional markets such
as video stores, lending libraries and technical research facilities, so that
the Company will have access to different market segments simply by substituting
one raw material for another.
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The Ultratherm(Registered)
The Company, through its wholly-owned subsidiary, DTI, has entered into an
exclusive worldwide license agreement for the life of the patent, dated as of
February 1, 1998, to manufacture, market and sell the Ultratherm(Registered), a
proprietary portable hand-held massager implementing alternating hot and cold
therapy and massage for the relief of discomfort associated with sports and
occupational injuries. The Ultratherm(Registered) weighs 21 ounces, measures
eight inches long and maintains temperatures ranging from 42degreesF to
115degreesF for approximately one hour on a rechargeable battery contained
within its ergometrically-shaped die-cast aluminum body. Once placed against the
body, the contour fitting thermal dome concentrates and directs the heat or cold
and massage vibrations into the affected areas underlying the soft tissue. See
'Business--Patents, Trademarks, Licenses and Royalty Rights.'
The Ultratherm(Registered) is currently being sold through specialty
catalogs and stores, including Brookstone. The Company does not currently have
any contracts or agreements with retailers, suppliers or distributors. The
Ultratherm(Registered) won the grand prize in Hammacher Schlemmer's annual
Search for Invention in March, 1992 and was Editors Choice with a four star
rating by Golf Magazine in June 1996. The Ultratherm(Registered) has been
manufactured historically by the Company in the United States and retails at
approximately $200 per unit. A manufacturer in China has commenced small-scale
manufacturing of the Ultratherm(Registered) at reduced costs and the Company
believes that such reduced costs will be passed on to consumers. The Company
anticipates full-scale manufacturing of the Ultratherm(Registered) at such
reduced costs by the end of 1998. See 'Risk Factors--Developmental Stage
Products.'
COMPETITION
Knob and Assembly Manufacturing/Injection Molding
The Company believes that its segment of the plastic injection molding
industry is highly fragmented and that no one participant is dominant in the
industry. The Company believes that the most important competitive factor in
this industry is investment in tooling, as the high cost of tooling relative to
the low revenue of individual products is a barrier to entry in this market. The
Company currently owns approximately 1,500 tools, which gives it the ability to
manufacture over 10,000 products and assemblies. Other key competitive factors
in this industry include quality of products, depth of industry knowledge, a
sizable customer base, ability to provide products on a timely basis, level of
experience, breadth of products and services offered, responsiveness to customer
requests and ability to produce a wide variety of projects in a timely manner
and at a competitive price.
The Company believes that its main competitors in the control knobs and
components segment of the injection molding industry are the following: Rogan
Corporation, which produces instrument and consumer knobs; Philips Plastic
Manufacturing Corporation, which produces consumer knobs; Davies Molding
Company, which produces instrument knobs; and Aerospace Knob Company, which
produces military avionic knobs. With its range of consumer, instrument and
military knobs, EHC strives to provide the broadest and most extensive line of
knobs and assemblies in order to maintain an advantage over its competitors.
Pull Pack(Trademark)
The Company believes that the primary competition for the Pull
Pack(Trademark) is the current Jewel Box manufactured by Atlanta Precision
Molding, Auriga and International Packaging Corp. Other companies have developed
alternative Compact Disc packaging, but the Company believes that none have
proved to be a challenge at this time because production costs are prohibitive
or the designs have not been accepted by the general public or OEMs. Three of
these packages are the Laserfile, from Laserfile Inc., the Utmost Rotary CD
Case, from Co-Joint Corp. and the Alpha Pak, from Alpha Enterprise, Inc.
Ultratherm(Registered)
The Ultratherm(Registered) competes with the entire massager market,
including those massagers with only massage capability or only heat and massage
capability. The Company believes that the Ultratherm(Registered) is unique in
this market as it is the only massager which provides both heat and cold,
combined with massaging capabilities. See 'Risk Factors--Unrealized Profits from
the Ultratherm(Registered).'
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SUPPLIERS AND RAW MATERIALS
EHC's principal raw materials consist of Lexan (polycarbonate), nylon, ABS
and polypropylene. Such materials are generally available commodities sold to
the injection molding industry by a variety of suppliers. The Company does not
have any oral or written contracts or agreements with such suppliers. While a
shortage of a particular supplier would not affect the Company, a general
shortage of raw materials could adversely impact the Company. The Company has
never experienced a shortage in raw materials and does not anticipate any
shortages to occur in the reasonably foreseeable future, however, there can be
no assurance that there will not be a shortage of raw materials. See 'Risk
Factors--Dependence Upon Suppliers and Raw Materials.'
As the Company begins to contract for the manufacturing of products in
China, including the Pull Pack(Trademark) and the Ultratherm(Registered), the
Chinese manufacturers will arrange for all raw materials from local suppliers.
While the Company believes that there will be no shortage of such materials
overseas and that prices will remain comparatively low, there can be no
assurance that no shortages will occur. In addition, the Company is subject to
the risk of political or economic dislocation which could affect the
availability or cost of raw materials. The Company anticipates that the raw
materials used for the Pull Pack(Trademark) will consist of either crystal
styrene, general purpose styrene, polypropylene or zylar. The principal raw
materials used for the Ultratherm(Registered) are die-cast aluminum and
electronic components.
DISTRIBUTION METHODS
EHC sells its products solely to industrial customers either directly or
through major distributors. EHC never sells directly to retail consumers.
Approximately 20% of EHC's products are principally sold through the following
distributors: Newark Electronics, Allied Electronics, Inc., Bisco Industries,
Inc., Alatec Electronics, Inc. and Peerless Electronics, Inc. The Company does
not have oral or written contracts or agreements with such distributors. The
Ultratherm(Registered) is sold directly to retail outlets without the use of
distributors.
GOVERNMENT APPROVAL
The Company is subject to certain regulations in connection with its sale
of products to the U.S. Military. In order to sell many of its products to the
U.S. Military, a product must be listed on one of the Qualified Product Lists
('QPL'). Certain of the Company's products have been approved for inclusion on
QPLs, so that they may be sold to the U.S. Military. The Company's products have
been listed on the QPLs each year since 1970. Should the Company lose such QPL
approval, it would lose its ability to sell products to the U.S. Military.
Expansion into foreign markets may require the Company to comply with additional
regulatory requirements. Various countries may regulate the import of the
Company's products. Any such export or import restrictions, new legislation or
regulation or government enforcement of existing regulations could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
comply with additional applicable laws and regulations without excessive cost or
business interruption and failure to comply could have a material adverse effect
on the Company. See 'Risk Factors--Government Regulation of Technology.'
RESEARCH AND DEVELOPMENT
The Company believes that its commitment to research and development has
distinguished the Company among its competitors. The Company estimates that it
may spend approximately $225,000 on research and development in 1998, including
expenditures on new knob designs, Ultratherm(Registered) and Pull
Pack(Trademark) development, computer aided design technology and engineering
feasibility studies on potential new product lines. The Company, through EHC,
spent approximately $150,000 in 1997 on both new tooling for new knob designs
and the Ultratherm(Registered), and $75,000 in 1996 on new tooling for new knob
designs. The Company, through CDP, has spent approximately $46,000 for research
and development on the Pull Pack(Trademark) since 1995. The Company has secured
various federal government and New York State monies for product development,
including a $150,000 federal assistance/match funds grant. The Company's
customers do not bear research and development costs, as all research and
development is funded solely by the Company, some of which is through federal or
state funding.
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<PAGE>
PATENTS, TRADEMARKS, LICENSES AND ROYALTY RIGHTS
The Company, through its wholly-owned subsidiary, CDP, entered into a
minimum five-year license agreement dated as of March 1, 1998 with Inch, Inc.,
to obtain the exclusive worldwide licensing rights to make, use, sell and
sublicense the Pull Pack(Trademark). In consideration of the exclusive license,
the Company agreed to pay Inch, Inc. royalties of (i) 2% of the annual gross
sales of Pull Pack(Trademark) less any returns, credits and allowances; (ii) 25%
of any royalties or fees from sublicensees; and (iii) a $30,000 reimbursement
payment for expenses incurred in obtaining a patent. The Company is entitled to
exclusive license rights of Pull Pack(Trademark) for a minimum of five years and
a maximum of the United States life of the patent, which expires in 2012. If
royalties paid to Inch, Inc. do not equal or exceed a minimum total of $30,000
from February 1, 1999 to February 1, 2000, $40,000 for the next 12 month period
and $50,000 for each 12 month period thereafter, or if CDP does not obtain a
cash capital investment of $1,000,000 by February 28, 2000, Inch, Inc. shall
have the right to terminate the exclusive license agreement upon 30 days'
notice. The Company intends to obtain the $1,000,000 necessary for the cash
capital investment through the proceeds of this Offering. In the event that the
exclusive license is terminated, CDP shall continue to hold a non-exclusive
license at the above referenced royalty rate. Inch, Inc. has also agreed to
provide consulting services to CDP at the rate of $50 per hour prior to the sale
of 10,000 units and $110 per hour after the sale of 10,000 units. CDP has agreed
to indemnify and hold harmless Inch, Inc. against all damages and liabilities
arising out of the manufacture of the Pull Pack(Trademark).
DTI entered into an agreement dated as of February 1, 1998 with Dr. Richard
Deutsch for exclusive worldwide licensing rights for the life of the patent to
the Ultratherm(Registered). Under this agreement, DTI is to receive all rights,
title and interest in all tooling, schematics, drawings and customer lists
relating to the Ultratherm(Registered) and an assignment of the registered
trademark in consideration for $100,000 payable immediately following the
Effective Date and waiving any financial obligations of Dr. Deutsch to the
Company, which the Company estimates to be approximately $20,000. From February
1, 1998 until the Effective Date, Dr. Deutsch will receive reimbursement for
tooling expenses in the amount of $1,200 per week. After the Effective Date, Dr.
Deutsch will receive royalties in the following amounts: (a) for the first year,
the greater of (i) 5% of gross sales per month less any returns, credits,
discounts (exclusive of promotions), allowances and shipping expenses, or (ii)
$75,000 per year and (b) for each year thereafter, the greater of (i) 5% of net
sales per month or (ii) $50,000 per year. The exclusivity of this agreement may
be lost if royalty payments are not made in a timely fashion to Dr. Deutsch. EHC
will receive a limited right to the patent covering the Ultratherm(Registered),
as the original patent covers more products than just the
Ultratherm(Registered). EHC has agreed to maintain liability insurance and
indemnify Dr. Deutsch from and against all claims and liabilities in connection
with the Ultratherm(Registered) and the agreement.
In 1995, Pull Pack(Trademark) was issued Patent No. 5,383,544, which
expires in January 2012. The Ultratherm(Registered) was issued Patent No.
5,097,828 as a Thermoelectric Therapy Device on March 24, 1992, and Patent No.
5,209,227 as a Thermoelectric Therapy Device and Moisturizing Device on May 11,
1993. Patent No. 5,097,828 expires in March 2009 and Patent No. 5,209,227
expires in May 2010.
The Company's wholly-owned subsidiary, EHC, has applied for patents on a
spring locking release apparatus and a tactile detent knob.
Ultratherm(Registered) is a registered trademark under United States
Registration No. 1,949,930 and shall be assigned to the Company upon payment of
$100,000 immediately after the Effective Date. The trademark was issued on
January 23, 1996 to Dr. Deutsch. The trademark registration may be renewed for
as long as the mark is used.
The Company may apply for additional patents relating to other aspects of
its production. There can be no assurance as to the degree of protection which
existing or future patents, if any, may afford the Company, or that competitors
will not develop similar or superior methods or products outside the protection
of any patent issued to the Company. See 'Risk Factors--Risks Relating to
Licensing Agreements' and 'Risk Factors--Uncertainty Regarding Patents and
Proprietary Information.'
32
<PAGE>
EMPLOYEES
As of February 1, 1998, the Company had a total of 105 employees. 33 of
these employees work on a part-time basis. 45 of the Company's employees are
represented in collective bargaining agreements by Local 531, International
Brotherhood of Teamsters, AFL-CIO. 15 employees work in Sales and Administration
while 90 employees are factory workers.
The Company believes it has a satisfactory relationship with its unionized
labor and has never experienced a work stoppage. The current collective
bargaining agreement expired on May 9, 1998 and was extended until June 9, 1998.
The Company is currently negotiating to renew such agreement and believes the
agreement will be successfully renewed. Union employees are covered by the Sick
& Welfare Fund, Local 531, to which the Company contributes a specified amount
each year.
PROPERTY
The Company operates from an approximately 20,000 square foot facility
located in Farmingdale, New York. The facility is owned and operated by K&G
Realty Associates, a partnership owned by David L. Kassel, the Company's
Chairman, and Harry Goodman, the Company's Vice President. The mortgage on the
facility is guaranteed by EHC. The Company's lease, currently under a 10-year
extension, expires in December 2005. The annual rent is currently $138,000 per
year, and provides for annual adjustments equal to the greater of the increase
in the Consumer Price Index or 5%. Pursuant to a rider to the lease agreement
dated as of March 1, 1998, EHC shall pay as additional rent, any and all real
property taxes for the demised premises in excess of $26,000 per annum. The
Company believes that the property is suitable for its presently foreseen use.
See 'Certain Transactions.'
LEGAL PROCEEDINGS
On or about August 14, 1997, a non-officer former employee of the Company
filed a complaint against EHC with the Division seeking damages for failure to
properly handle alleged sexual harassment by another non-officer employee. On or
about December 18, 1997, the Company received an Order from the Division
dismissing the complaint because the matter is presently being litigated in
federal court. The Company received a complaint filed in the United States
District Court for the Eastern District of New York on or about February 12,
1998. The Company filed a motion to dismiss the complaint on March 16, 1998. The
Company will vigorously defend this action and believes it has a meritorious
defense. The Company does not believe that the outcome will have a material
adverse effect on the Company's financial position or overall trends in results
of operation.
The Company is not aware of any other legal proceedings to which it is a
party.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the executive
officers, directors and significant employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ---- -----------------------------------------------------
<S> <C> <C>
Andrew Franzone...................................... 61 Chief Executive Officer and President, Director
David L. Kassel...................................... 63 Chairman of the Board of Directors
Harry Goodman........................................ 72 Vice President and Secretary, Director
Steven Sgammato...................................... 38 Chief Financial Officer
Frank Pellegrino..................................... 52 Vice President of Engineering
Bao-Wen Chen......................................... 30 Director
Carl Seldin Koerner.................................. 49 Director
Mitchell Solomon..................................... 39 Director
</TABLE>
Andrew Franzone has served as President of EHC since 1987. Mr. Franzone has
also served as president of AFC since 1984. Mr. Franzone served as Chairman of
the Board of Directors and President of Ackerman Bodnar Corp., a manufacturer of
interior aircraft lighting, from 1974 through 1983.
David L. Kassel founded EHC in 1970. Mr. Kassel has served as Chairman of
EHC since 1975 and President of CDP since 1995. From 1983 until 1995, he was
Chairman of the Board of Directors of American Safety Closure Corp., a company
engaged in the manufacturing of bottle caps. Mr. Kassel has been the Chairman
and principal stockholder of AFC since 1984. Mr. Kassel has been the Chairman of
Memory Protection Devices, Inc., a company engaged in the manufacturing of
devices for the protection of computer memory, since 1987. Mr. Kassel has been a
partner in K&G Realty Associates, a privately-held real estate company, since
1978.
Harry Goodman served as Vice President of EHC since 1986. Mr. Goodman
served as President of EHC from 1976 to 1986 and began working as an officer of
EHC in 1970. Mr. Goodman has been a partner at K&G Realty Associates since 1978.
Mr. Goodman has served as an officer of AFC since 1984. Mr. Goodman has served
as an officer of Memory Protection Devices, Inc. since 1987.
Steven Sgammato has served as Chief Financial Officer of EHC since 1987.
Mr. Sgammato served as a manager in accounting for Gimbel's Corp. from 1982 to
1986, and a manager in accounting of Conran's Habitat from 1986 to 1987. Mr.
Sgammato earned an MBA in Management from Dowling College, located in Oakdale,
New York, in 1997.
Frank Pellegrino has served as the Vice President of Engineering of EHC
since 1974.
Bao-Wen Chen joined the Company in 1998 as an independent director. Ms.
Chen currently serves as the president of B.C. China Business Consulting, Inc.,
a partner of China Trade Limited and Secretary General of the U.S.-China
Economics and Trade Promotion Council. In 1995, Ms. Chen formed B.C. China
Business Consulting, Inc., a provider of advisory and consulting services to
clients engaging in transactions between U.S. and Chinese companies, and
currently serves as its president. In January 1998, Ms. Chen became a partner of
China Trade Limited, a company comprised of U.S. businessmen, international
attorneys and U.S. resident Chinese nationals formed to assist clients in
representation and trade, sales and distribution and strategic service in
transactions between U.S. and Chinese companies. Since 1992, Ms. Chen has served
as General Secretary of the U.S.-China Economics and Trade Promotion Council, a
non-profit government trade organization providing a forum to promote economic
exchange and trade between Chinese and U.S. companies. See 'Certain
Transactions.'
Carl Seldin Koerner, Esq. joined the Company in 1998 as an independent
director. Mr. Koerner is a managing partner in the law firm of Koerner
Silberberg & Weiner, LLP, counsel to the Company since 1986. Mr. Koerner has
served as a principal of Koerner Kronenfeld Partners, LLC, a conceptual capital
development company, since 1996 and has served on the board of directors of ASI
Solutions Incorporated (NASDAQ: ASIS), a human resources outsourcing firm, since
1997. See 'Interest of Named Experts and Counsel' and 'Legal Matters.'
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<PAGE>
Mitchell Solomon joined the Company in 1998 as an independent director. Mr.
Solomon has served as President and director of Eby Electro Inc., a privately
held corporation, since 1993 and serves as President and director of Aspro
Technology Inc. and ECAM Technology Inc., both privately held corporations.
BOARD COMMITTEES
The Board of Directors of the Company has established a compensation
committee (the 'Compensation Committee') and an audit committee (the 'Audit
Committee'). The Compensation Committee, which will consist of David L. Kassel
and two independent directors, Bao-Wen Chen and Mitchell Solomon, determines the
salaries and bonuses of the Company's executive officers. The Compensation
Committee also administers the Company's 1998 Stock Option and Grant Plan. Mr.
Kassel, Ms. Chen and Mr. Solomon will serve as members of the Audit Committee.
The Audit Committee recommends the appointment of auditors and oversees the
accounting and audit functions of the Company.
DIRECTOR COMPENSATION
Directors receive a fee of $300 per month for serving on the Board of
Directors and reimbursement of reasonable expenses incurred in attending
meetings. All directors hold office until the next annual meeting of the
stockholders and the election and qualification of their successors. Executive
officers are elected by the Board of Directors annually and serve at the
discretion of the Board.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company to the Company's Chief Executive Officer and the Company's other
executive officer whose compensation exceeded $100,000 for the fiscal year ended
December 27, 1997. No other officer received cash compensation in excess of
$100,000 in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FOR YEAR ENDED
DECEMBER 27, 1997
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ---------------------------------------------------------------------------- ----------- ----- ------------
<S> <C> <C> <C>
Andrew Franzone
Chief Executive Officer and President..................................... $ 96,585 $ 0 $ 7,800
David L. Kassel
Chairman of the Board..................................................... $ 226,588(1) $ 0 $ 10,400
</TABLE>
- ------------------
(1) Includes $150,000 in consideration for consulting services provided by Mr.
Kassel to the Company, which payment was postponed in return for a note due
January 1, 1999. See 'Certain Transactions.'
EMPLOYMENT AGREEMENTS
The Company entered into executive employment agreements as of March 15,
1998 with Andrew Franzone, David L. Kassel and Harry Goodman, each an
'Executive.' The term of each of the employment agreements lasts until March 2,
2008 (the 'Term'). The annual base salaries of Messrs. Franzone, Kassel and
Goodman under their employment agreements are $125,000, $100,000 and $100,000,
respectively, with annual salary adjustments equal to the greater of 5% or an
increase equal to the Consumer Price Index. Each Executive is entitled to fringe
benefits and an annual bonus to be determined by the Compensation Committee of
the Board of Directors. Each Executive can be terminated for cause (as defined
in the employment agreements) with all future compensation ceasing. If the
Executive dies during the Term or is unable to competently and continuously
perform the duties assigned to him because of ill health or other disability (as
defined in the employment agreements), the Executive or the Executive's estate
or beneficiaries shall be entitled to full compensation for three years
following the date thereof. If the Executive is terminated without cause, the
Executive shall be entitled to full compensation for the remainder of the Term.
If the Executive resigns, his compensation ceases as
35
<PAGE>
of the date of his resignation. During the period of employment and for a period
of two years thereafter, the Executives are prohibited from competing with the
Company; provided, however, that the Executives may provide services to other
noncompeting businesses. In order for a restrictive covenant to be enforceable
under applicable state law, the covenant must be limited in terms of scope and
duration. While the Company believes that the covenants in the employment
contracts are enforceable, there can be no assurance that a court will declare
them to be enforceable under particular circumstances.
CASH GAIN SHARING PROGRAM
The Company's wholly-owned subsidiary, EHC, has a Cash Gain Sharing Program
(the 'Program'), which entitles all full-time, non-union employees (including
supervisory union employees) and other key EHC employees (excluding officers),
as determined by the Company, to extra compensation based on the cash profits of
EHC. The distributions are based on a schedule of Company objectives determined
each year by the Company. If positive cash flow averages less than $2,000 per
week in a quarter, the Company will not make any distributions. The Company
considers a full-time employee to work at least 30 hours per week. Employees
must complete a 90-day probationary period before they are eligible to
participate in the Program. For the year ended December 27, 1997, the Company
distributed $87,000 pursuant to the Program.
STOCK OPTION AND GRANT PLAN
The Stock Option and Grant Plan (the 'Grant Plan') was adopted by the
Company's Board of Directors as of March 17, 1998 and approved by its
stockholders as of March 17, 1998. Officers, directors, employees, consultants
and key persons of the Company are eligible to participate in the Grant Plan.
The Grant Plan is designed to provide employees and such other individuals with
a performance incentive, a direct stake in the Company's future welfare and an
incentive to remain with the Company. The Company believes that the Grant Plan
will encourage qualified persons to seek employment with the Company.
The Grant Plan provides for grants of an aggregate of 300,000 shares of
Common Stock or options to purchase shares of Common Stock intended to qualify
as incentive stock options ('Incentive Options'), under Section 422 of the Code
as well as options that do not so qualify ('Non-Qualified Options'). The
Incentive Options shall be granted only to employees or employee-directors of
the Company. Such Incentive Options shall be exercisable for shares of Common
Stock at an exercise price no less than the fair market value of the shares of
Common Stock on the date of grant and are not exercisable after the tenth
anniversary of the date of grant. Notwithstanding the foregoing, pursuant to
Section 422 of the Code, optionees who beneficially own in excess of 10% of the
Company's voting stock are not entitled to receive Incentive Options unless the
exercise price of such options is no less than 110% of the fair market value of
the Common Stock on the date of grant and such options are not exercisable more
than five years from the date of grant. Additionally, to the extent that the
aggregate fair market value of the Common Stock with respect to which the
Incentive Options are exercisable for the first time during any calendar year
exceeds $100,000, the options attributable to the excess over $100,000 shall be
treated as Nonqualified Options under the Code. Non-Qualified Options shall be
exercisable for shares of Common Stock at an exercise price of no less than 85%
of the fair market value of the Common Stock on the date of grant and are not
exercisable after the tenth anniversary of the date of grant.
The Grant Plan provides that it will be administered by the Compensation
Committee. The Compensation Committee determines which officers, directors,
employees, consultants and key persons shall receive shares or options, whether
the individual shall receive shares or options and if options, the terms and
conditions of the options, including the exercise price of each option, the term
of each option, the number of shares of Common Stock to be covered by each
option and any performance objectives or vesting standards applicable to each
option. Subject to the requirements of the Code, the Compensation Committee will
also designate whether the options granted shall be Incentive Options or
Non-Qualified Options. Pursuant to an agreement between the Company and the
Underwriter, no grants of options or shares which are not covered under the
Grant Plan can be made for 24 months after the Effective Date, without the
approval of the Underwriter. The Company intends to register all or a portion of
the shares under the Grant Plan with the Securities and Exchange Commission
within three months after the Offering. See 'Underwriting.'
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<PAGE>
401(K) PLAN
The Company sponsors, through EHC and an affiliated company, AFC, a 401(k)
Plan (the 'Plan') available for all non-union employees and union supervisors
who have attained the age of 21 and have completed three months of service with
the Company. The Plan was adopted effective August 1, 1993 and was amended
effective August 1, 1997. Under the Plan's qualified cash or deferred
arrangement, a participant may, under an arrangement with the Company, elect to
contribute 1% to 15% of his or her annual compensation to the Plan on behalf of
the participant, in lieu of the participant's current receipt of such
compensation. In addition to the employee's contribution, the Company may, but
need not, make discretionary contributions to the Plan in such amounts as it
determines. As of the date of this Prospectus, the Company has not contributed
to the Plan. A participant's contributions made under the qualified cash or
deferred arrangement are 100% vested at all times. Discretionary contributions
become vested thereafter at the rate of 20% for each additional full year of
service, until 100% vested. Benefits are payable upon a participant's
termination of employment for any reason, in the form of one lump sum payment or
in installments extending over a fixed period of years, depending upon the
employee's election.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of the
Prospectus, based upon 1,945,000 shares of Common Stock outstanding and as
adjusted to reflect the sale of 1,250,000 shares of Common Stock by the Company,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person or a group of persons known by the Company to be the owner of more than
5% of the outstanding shares of Common Stock, (ii) each director, (iii) each
executive officer named in the Summary Compensation Table under the caption
'Management,' and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
AMOUNT AND SHARES OWNED
NATURE OF -------------------------
BENEFICIAL PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) OFFERING OFFERING(3)
- -------------------------------------------------------------------------- ------------ -------- -----------
<S> <C> <C> <C>
David L. Kassel........................................................... 900,000 46.3% 28.2%
Andrew Franzone........................................................... 500,000 25.7% 15.6%
Harry Goodman............................................................. 500,000 25.7% 15.6%
All Directors and Officers as a Group..................................... 1,900,000 97.7% 59.5%
</TABLE>
- ------------------
(1) Unless otherwise indicated, the address of each individual is c/o the
Company, 320 Broad Hollow Road, Farmingdale, New York 11735.
(2) For purposes of the above table, a person or group of persons is deemed to
have 'beneficial ownership' of any shares that such person or group has the
right to acquire within 60 days after such date; and for purposes of
computing the percentage of outstanding shares held by each person or group
on a given date, such shares are deemed to be outstanding, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
Beneficial ownership is determined in accordance with Rule 13d-3 under the
Exchange Act and is generally determined by voting power or investment power
with respect to securities. Except as indicated by footnote, and subject to
community property laws where applicable, the Company believes that the
persons 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.
(3) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) 187,500 shares of Common Stock reserved
for issuance upon exercise of the Underwriter's over-allotment option; (iii)
187,500 shares of Common Stock issuable upon exercise of the Warrants
underlying the Underwriter's over-allotment option; (iv) 125,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants; (v) 125,000 shares of Common Stock issuable upon exercise of the
Warrants underlying the Underwriter's Warrants and (vi) 300,000 shares of
Common Stock or options which may be granted pursuant to the Company's Stock
Option and Grant Plan.
38
<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION
The Company was founded in 1970 as EHC, a New York corporation, and will be
reorganized immediately prior to the Effective Date as a Delaware holding
company with three wholly-owned subsidiaries, EHC, CDP and DTI (the
'Reorganization'). As part of the Reorganization, the Company acquired, solely
in exchange for 1,945,000 shares of Common Stock of the Company, all of the
outstanding capital stock of EHC (three shares) and CDP (500 shares). The value
and number of shares to be issued to former holders of the outstanding capital
stock of CDP and EHC was determined by negotiations between the Company and
Andrew Franzone, David L. Kassel, Harry Goodman, Robert Gillings and David
Cowan. Mr. Gillings subsequently transferred his shares of CDP to David L.
Kassel in an arms' length transaction dated May 29, 1998 in return for a
nonrecourse promissory note from Mr. Kassel in favor of Mr. Gillings in the
principal amount of $450,000 bearing interest at the rate of 6% per annum,
payable in full on August 1, 2000 or earlier as provided in such promissory
note. The Reorganization exchange is an arm's-length transaction acceptable to
each of the parties based upon such negotiations. The amount of shares to be
issued is based on a ratio of shares held in CDP and EHC to a percentage of
shares of the Company. The Company also acquired in March 1998 all of the
outstanding capital stock of DTI (200 shares) for $1,000.
LEASES
EHC leases its facility in Farmingdale, New York from K&G Realty Associates
('K&G'), a partnership owned by David L. Kassel and Harry Goodman, both officers
and directors of the Company. The lease agreement has been extended until
December 31, 2005. The annual rent is currently $138,000, with increases equal
to the greater of the increase in the Consumer Price Index or 5%. The mortgage
agreement between Long Island Commercial Bank and K&G dated November 28, 1995 is
a 15 year self-liquidating adjustable mortgage currently bearing 9 1/2% interest
in the original principal amount of $610,000. The mortgage is guaranteed by EHC.
By agreement dated November 28, 1995, K&G has assigned all rents due from EHC to
the Long Island Commercial Bank. The Company believes that the terms and
consideration of this lease are no less favorable to the Company than a lease
from a third party.
EHC subleases 400 square feet of its facilities to Memory Protection
Devices, Inc. ('MPD') for $250 per month. Two officers of the Company, David L.
Kassel and Harry Goodman, also serve as the Chairman and Vice President of MPD,
respectively. Aside from the sublease, there are no intercompany transactions
between EHC and MPD. The Company believes that the terms and consideration of
this sublease are commensurate with subleases to third parties.
CREDIT FACILITIES
On July 29, 1996, EHC entered into a term loan agreement (the 'Term Loan')
with Republic National Bank of New York for the principal amount of $500,000, of
which $375,000 remains outstanding as of December 27, 1997. The Term Loan bears
interest at 1% above the annual interest rate established by Republic National
Bank as its reference rate for domestic commercial loans and is payable in 11
quarterly installments, commencing on October 31, 1996 with a final payment of
the remaining balance due and payable on July 31, 1999. EHC may prepay the loan
without penalty. The Term Loan is guaranteed by David L. Kassel, Harry Goodman,
Andrew Franzone and AFC, an affiliate of the Company. The guarantee provisions
which are part of the Term Loan indicate that upon any default under the Term
Loan, the bank may immediately cause the related note to be due and payable by
the guarantors. The guarantors also waive their right to trial by jury, the
right to interpose any set-off or counterclaim or any claim for consequential,
punitive or special damages. See 'Certain Transactions--Affiliated
Transactions.'
On July 29, 1996, EHC entered into a demand loan agreement (the 'Demand
Loan') with Republic National Bank for the principal amount of $1,000,000, of
which $753,000 remains outstanding as of December 27, 1997. The Demand Loan
bears interest at 1/2% above the interest rate established by Republic National
Bank.
EHC entered into a loan agreement (the 'Loan' and together with the Term
Loan and Demand Loan, the 'Indebtedness') with Long Island Development
Corporation ('LIDC') for the principal amount of $250,000 on
39
<PAGE>
February 21, 1997, of which $235,171 remains outstanding as of December 27,
1997, and granted LIDC a security interest in all of its personal property. The
Loan is payable in 120 monthly installments with interest at 7% per annum,
commencing on March 1, 1997 and continuing until February 1, 2007. The loan is
guaranteed by AFC, Andrew Franzone, David L. Kassel and Harry Goodman. The
guarantors jointly and severally represent and agree to identical provisions of
the Loan as EHC, including guarantee provisions which provide that in the event
of default of the Loan, the bank may declare the related promissory note due and
payable. Additionally, AFC guarantees a security agreement between EHC and LIDC
relating to the Loan. Under the security agreement, both EHC and AFC grant and
convey a security interest in all of their property, goods and chattels and
promise to retain possession of their collateral, keep collateral in its
location, in good repair and fully insured and defend title of the collateral.
Upon any default of the Loan, the obligations of the security agreement become
immediately due and payable by sale of the collateral of EHC and AFC.
The Company has received a letter agreement from Republic National Bank of
New York stating that it will release the personal guarantees of Messrs.
Franzone, Kassel and Goodman under the Term Loan upon the successful completion
of the Offering. LIDC will not release the personal guarantees of Messrs.
Franzone, Kassel and Goodman under the Loan.
OFFICER LOANS
Messrs. Kassel and Goodman have advanced funds to the Company for working
capital. The loans are evidenced by five notes bearing interest at a rate of 10%
per annum and requiring monthly payments over the term of five years. As of
December 27, 1997, three loans are payable to David L. Kassel, two from EHC in
the amounts of $171,186 and $53,185, respectively and one from CDP is in the
amount of $107,500, of which the Company is a guarantor. Two loans are payable
to Harry Goodman, one for $50,972 and another for $133,911.
During 1997, David L. Kassel rendered services to the Company in
consideration for the sum of $150,000. At the request of the Company, in lieu of
a lump sum payment, Mr.Kassel accepted a promissory note due on January 1, 1999,
with interest at 6% per annum.
AFFILIATED TRANSACTIONS
EHC is a guarantor of two loan agreements between AFC, an affiliate of the
Company, and Republic National Bank for the aggregate principal amount of
$1,000,000, of which $738,000 has been borrowed and remains outstanding as of
December 27, 1997. Each of the directors of EHC are also stockholders, directors
and officers of AFC, a New York corporation incorporated in 1985. The Vice
President and General Manager of AFC, Andrew Franzone, Jr., is the son of the
President and Chief Executive Officer of the Company. Additionally, EHC and AFC
have entered into an engineering consulting and services agreement on a fee-for-
services basis. Under such agreement, (a) EHC will have the exclusive right to
manufacture or contract for the manufacturing of certain AFC products on a time
and materials basis, and (b) EHC will not develop products in the following
lines other than for AFC: (i) point of sale display items; (ii) cabinet and
furniture plastic hardware; and (iii) endcaps on cylinders or mailing tubes. The
Company believes the terms and consideration of this agreement are no less
favorable to the Company than agreements with similar unrelated third party
companies. The Company recorded sales to AFC in the approximate amounts of
$84,000 for the three months ended March 28, 1998 and $70,000 for the three
months ended March 29, 1997. The Company's profit on such sales was $4,100 for
the three months ended March 28, 1998 and $11,000 for the three months ended
March 29, 1997. The Company recorded sales to AFC in the approximate amounts of
$371,000 for the year ended December 27, 1997 and $320,000 for the year ended
December 28, 1996. The Company's profit on such sales was $30,000 for the year
ended December 27, 1997 and $20,000 for the year ended December 28, 1996.
Ms. Bao-Wen Chen, an independent director of the Company, also provides
consulting services to the Company on behalf of her company, B.C. China
Business, Inc. ('BCI'), in connection with the Company's manufacturing in China.
The agreement between the Company and BCI provides that BCI will provide such
consulting services until March 1, 2008 at the minimum hourly rate of $50 per
hour and an amount equivalent to 1.5% of the net cost of products manufactured
in China up to $5,000,000 per year and 1% of net costs exceeding $5,000,000. In
consideration for her services to the Company, Ms. Chen shall receive an
aggregate of 50,000 shares of Common Stock, consisting of (i) 25,000 shares of
unregistered Common Stock to be issued in 5,000
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shares increments, commencing on the Effective Date and each anniversary of the
Effective Date for four years thereafter and (ii) 25,000 shares of registered
Common Stock granted pursuant to the Company's Stock Option and Grant Plan, to
be issued as outright grants in 5,000 share increments, commencing on the
Effective Date and each anniversary of the Effective Date for four years
thereafter. The Company intends to register all or a portion of the shares under
its Stock Option and Grant Plan with the Securities and Exchange Commission
within three months after the Offering. The Company believes that consulting
fees paid to Ms. Chen and grants of Common Stock or options are no less
favorable to the Company than consulting fees it would pay to other third party
consultants. See 'Management--Stock Option and Grant Plan.'
Carl Seldin Koerner, an independent director of the Company and Secretary
of the Company's wholly-owned subsidiary, CDP, is a managing partner of the law
firm of Koerner Silberberg & Weiner, LLP. Such firm has been general counsel to
the Company since 1976 and is acting as counsel to the Company in connection
with this Offering. The Company believes that the fees paid to Koerner
Silberberg & Weiner, LLP are comparable to those fees that would have been paid
to an unrelated third party law firm. Mr. Koerner is entitled to receive a fee
of $300 per month and reimbursement of reasonable expenses in attending meetings
in connection with his serving as a member of the Board of Directors.
In order to obtain the benefit of better purchasing opportunities, some
goods or services, including insurance, are purchased jointly by one or more of
EHC, AFC, K&G and MPD and the cost of such goods or services are shared by the
parties.
All future transactions and loans between the Company and its officers,
directors, affiliates and five percent shareholders will be made or entered into
on terms no less favorable than could be obtained from unaffiliated third
parties and such transactions and loans, including the forgiveness of any loans,
must be approved by a majority of disinterested, independent members of the
board of directors of the Company.
KEY MAN LIFE INSURANCE
EHC is the beneficiary of a key man life insurance policy on behalf of
Andrew Franzone, the Chief Executive Officer of the Company. In the event of Mr.
Franzone's death or disability the Company will receive $200,000. The Company
currently is applying for an additional $300,000 of key man insurance on the
life of Mr. Franzone.
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DESCRIPTION OF SECURITIES
The authorized capital stock of the Company upon completion of the Offering
will consist of 10,000,000 shares of Common Stock, of which 3,195,000 shares
will be issued and outstanding, and 1,000,000 shares of undesignated Preferred
Stock issuable in series by the Board of Directors, of which no shares will be
issued and outstanding. The following summary description of the capital stock
of the Company is qualified in its entirety by reference to the Company's
Certificate of Incorporation (the 'Certificate') and By-laws (the 'By-laws'),
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part. The Certificate and By-laws have been duly adopted by
the stockholders and the Board of Directors of the Company.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders. The holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of Preferred
Stock, if and when issued. The holders of Common Stock have no preemptive or
other subscription rights.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor, with each share of Common Stock sharing equally in
such dividends. The possible issuance of Preferred Stock with a preference over
Common Stock as to dividends could impact the dividend rights of holders of
Common Stock.
There are no redemption provisions with respect to the Common Stock. All
outstanding shares of Common Stock, including the shares offered hereby, are, or
will be upon completion of the Offering, fully paid and non-assessable.
The By-laws provide that the number of directors shall be fixed by the
Board of Directors. Any director of the Company may be removed from office only
for cause by the holders of two-thirds of the outstanding shares of the Company
entitled to vote at an election of directors.
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 1,000,000 shares of Preferred
Stock in one or more classes or series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series or the designation of such series.
However, pursuant to the Certificate, the holders of Preferred Stock would not
have cumulative voting rights with respect to the election of directors. Any
such Preferred Stock issued by the Company may rank prior to the Common Stock as
to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock
is, in part, to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of Preferred Stock could adversely affect the voting
power of the holders of Common Stock and could have the effect of delaying,
deferring, or preventing a change in control of the Company.
WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the warrant agreement (the 'Warrant Agreement')
among the Company, the Underwriter, and Continental Stock Transfer and Trust
Company (the 'Warrant Agent'). A copy of the Warrant Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part. As
of the date hereof, there are no Warrants outstanding. See 'Additional
Information.'
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time over a five year period, commencing one year
after the Effective Date, one share of Common Stock at $5.00 per
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share, subject to adjustment in accordance with the anti-dilution provisions and
other provisions referred to below. The holder of any Warrant may exercise such
Warrant by surrendering the certificate representing the Warrant to the Warrant
Agent, with the subscription form thereon properly completed and executed,
together with payment of the exercise price. The Warrants may be exercised at
any time in whole or in part at the applicable exercise price until expiration
of the Warrants. No fractional shares will be issued upon the exercise of the
Warrants.
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
Adjustments. The holders of the Warrants are protected against dilution of
their interests by adjustments, as set forth in the Warrant Agreement, of the
exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Warrants upon the occurrence of certain events, including stock
dividends, stock splits, combinations or reclassification of the Common Stock,
or sale by the Company of shares of its Common Stock or other securities
convertible into Common Stock at a price below the then-applicable exercise
price of the Warrants. Additionally, an adjustment would be made in the case of
a reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company in order to enable warrantholders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might otherwise have been purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing 12 months after the date of this
Prospectus, all, but not less than all, of the Warrants are subject to
redemption at $0.10 per Warrant on not less than 30 days' prior written notice
to the holders of the Warrants provided the per share closing price or bid
quotation of the Common Stock as reported on Nasdaq SmallCap or BSE, if traded
thereon, or if not traded thereon, the average closing sale price if listed on a
national or regional securities exchange equals or exceeds 150% of the then
current exercise price (subject to adjustment) for any 20 trading days within a
period of 30 consecutive trading days ending on the 15th day prior to the date
on which the Company gives notice of redemption. The Warrants will be
exercisable until the close of business on the day immediately preceding the
date fixed for redemption in such notice. If any Warrant called for redemption
is not exercised by such time, it will cease to be exercisable and the holder
will be entitled only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time commencing one year after the Effective Date and prior to their expiration
date five years from the date of this Prospectus, at which time the Warrants
become wholly void and of no value. If a market for the Warrants develops, the
holder may sell the Warrants instead of exercising them. There can be no
assurance, however, that a market for the Warrants will develop or continue.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has an effective Registration Statement including the shares of Common
Stock issuable upon exercise of the Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Warrants. Although the
Company will use its best efforts to have all the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there can be assurance that it will be able to do
so.
The Warrants are separately transferable immediately upon issuance.
Although the Warrants will not knowingly be sold to purchasers in jurisdictions
in which the Warrants are not registered or otherwise qualified for sale or
exemption, purchasers may buy Warrants in the after-market in, or may move to,
jurisdictions in which Warrants and the Common Stock underlying the Warrants are
not so registered or qualified or exempt. In this event, the Company would be
unable lawfully to issue Common Stock to those persons desiring to exercise
their Warrants (and the Warrants would not be exercisable by those persons)
unless and until the Warrants and the underlying Common Stock are registered, or
qualified for sale in jurisdictions in which such purchasers reside, or any
exemption from registration or qualification exists in such jurisdiction.
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Warrantholder Not a Stockholder. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. No modifications may be
made to the Warrants without the consent of two-thirds of the warrantholders.
UNDERWRITER'S WARRANTS
In connection with the Offering, the Company has agreed to issue to the
Underwriter the Underwriter's Warrants, which consist of up to 125,000 shares of
Common Stock and 125,000 Warrants, initially exercisable at 125% of the Offering
price as of the Effective Date. The Underwriter's Warrants will be exercisable
for a period of four years commencing one year after the closing of the
Offering. The Underwriter is entitled to certain registration rights under the
Securities Act relating to the shares of Common Stock received upon the exercise
of the Underwriter's Warrants. The Underwriter's Warrants may not be sold,
transferred, assigned, pledged or hypothecated during the first year after
issuance, except to the Underwriter and persons who are officers and partners
thereof. The exercise price and the number of shares of Common Stock that may be
purchased are subject to adjustment pursuant to anti-dilution provisions of the
Underwriter's Warrants. See 'Underwriting.'
DELAWARE LAW WITH RESPECT TO BUSINESS COMBINATIONS
As of the date of this Prospectus, the Company will be subject to the State
of Delaware's 'business combination' statute, Section 203 of the Delaware
General Corporation Law. In general, such statute prohibits a publicly-held
Delaware corporation from engaging in a 'business combination' with a person who
is an 'interested stockholder' for a period of three years after the date of the
transaction in which that person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A 'business
combination' includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. An 'interested stockholder' is
a person who, together with affiliates, owns (or, within three years prior to
the proposed business combination, did own) 15% or more of the Delaware
corporation's voting stock. The statute could prohibit or delay mergers or other
takeovers or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate a provision to eliminate the personal liability of
its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, except for liability for breaches of duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
Delaware General Corporation Law or for any transaction from which a director
derives an improper personal benefit. This provision does not alter a director's
liability under the federal securities laws and does not affect the availability
of equitable remedies, such as an injunction or recission, for breach of
fiduciary duty. In addition, the By-laws of the Company provide that the Company
is required to indemnify its officers and directors, employees and agents under
certain circumstances, including those circumstances in which indemnification
would otherwise be discretionary, and the Company is required to advance
expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. The By-laws provide
that the Company, among other things, will indemnify such officers and
directors, employees and agents against certain liabilities that may arise by
reason of their status or service as directors, officers, or employees (other
than liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. At present, the Company is not aware of any
pending or threatened litigation or proceeding involving a director, officer,
employee or agent of the Company in which indemnification would be required or
permitted. The Company believes that its charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company
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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 Company of expenses incurred or paid
by a director, officer or controlling person of the Company on the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Company.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
As of the Effective Date, the Company has registered its Common Stock and
Warrants under the provisions of Section 12(g) of the Exchange Act, and the
Company has agreed that it will use its best efforts to continue to maintain
such registration for a minimum of five years from the Effective Date. Such
registration will require the Company to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have 3,195,000
shares of Common Stock outstanding (3,382,500 shares if the Underwriter's
over-allotment option is exercised in full and assuming no exercise of Warrants
or the Underwriter's Warrants). Of these shares, the 1,250,000 shares sold in
the Offering (1,437,500 shares if the Underwriter's over-allotment option is
exercised in full) will be freely tradeable. The remaining 1,945,000 shares are
deemed to be 'restricted securities,' as that term is defined under Rule 144, in
that such shares were issued and sold by the Company in private transactions not
involving a public offering and are not currently part of an effective
registration. Except for the 'lock-up' agreements described below, such shares
are eligible for sale under Rule 144, or will become so eligible at various
times. In addition, the Company has granted the Underwriter demand and piggyback
registration rights with respect to the securities issuable upon exercise of the
Underwriter's Warrants. No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or even the availability of such shares for sale
will have on the market prices prevailing from time to time. If the holders of
the shares, eligible for registration so choose, they could require the Company
to register all of said shares at anytime. See 'Underwriting.'
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least one year is entitled
to sell, within any three month period, a number of shares that does not exceed
the greater of 1% of the total number of outstanding shares of the same class
or, if the Common Stock is quoted on Nasdaq, the average weekly trading volume
during the four calendar weeks preceding the sale. A person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and who has beneficially owned shares of Common Stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
Except upon the consent of the Underwriter, all executive officers, all
directors and holders of substantially all of the outstanding stock of the
Company have agreed not to, directly or indirectly, issue, offer, agree or offer
to sell, sell, transfer, assign, encumber, grant an option for the purchase or
sale of, pledge, hypothecate or otherwise dispose of any beneficial interest in
such securities for a period of 24 months following the Effective Date.
Provided, however, that if either of Messrs. Franzone, Kassel or Goodman dies
during the lock-up period, each estate of the deceased may, to the extent that
the Company receives proceeds from insurance on the life of the deceased, cause
the Company to redeem up to 250,000 shares for $500,000 and may sell the
remaining shares pursuant to Rule 144, provided that the estate does not sell
more than 25,000 shares within any three-month period. For a period of two years
from the date of this Prospectus, the Company has also agreed not to file any
registration statement relating to the offering or sale of the Company's
securities (not including a registration statement on Form S-8 on behalf of
employees) without the consent of the Underwriter.
Prior to the Offering, there has been no market for the Securities and no
prediction can be made as to the effect, if any, that market sales of shares of
the Securities or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
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UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement (the 'Underwriting Agreement') to purchase from the
Company and the Company has agreed to sell to the Underwriter on a firm
commitment basis, 1,250,000 shares of Common Stock and 1,250,000 Warrants.
The Underwriter is committed to purchase all the shares of Common Stock and
Warrants offered hereby, if any of such Securities are purchased. The
Underwriting Agreement provides that the obligations of the Underwriter is
subject to conditions precedent specified therein.
The Company has been advised by the Underwriter that the Underwriter
proposes initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per share of Common
Stock and $ per Warrant. Such dealers may reallow a concession not in excess
of $ per share of Common Stock and $ per Warrant to certain other dealers.
After the commencement of the Offering, the public offering prices, concession
and reallowance may be changed by the Underwriter.
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act that arise out of or
are in connection with the Registration Statement, Prospectus and related
Exhibits filed with the Commission. The Company has also agreed to pay to the
Underwriter a non-accountable expense allowance equal to 3% of the gross
proceeds derived from the sale of the Securities underwritten hereby, provided
that the underwriting is successfully completed.
The Company has granted to the Underwriter an over-allotment option,
exercisable during the 45-day period from the Effective Date, to purchase up to
an additional 187,500 shares of Common Stock and/or 187,500 Warrants at the
Offering price per share of Common Stock and Warrants, respectively, offered
hereby, less underwriting discounts and the non-accountable expense allowance.
Such option may be exercised only for the purpose of covering over-allotments,
if any, incurred in the sale of the Securities offered hereby. To the extent
such option is exercised in whole or in part, the Underwriter will have a firm
commitment, subject to certain conditions, to purchase the number of the
additional securities proportionate to its initial commitment.
In connection with the Offering, the Company agreed to sell to the
Underwriter, for nominal consideration, warrants to purchase from the Company up
to 125,000 shares of Common Stock and 125,000 Warrants (the 'Underwriter's
Warrants'). The Underwriter's Warrants are initially exercisable at 150% of the
Offering price as of the Effective Date, for a period of four years, commencing
one year after the Effective Date. The Underwriter's Warrants are restricted
from sale, transfer, assignment or hypothecation for a period of 12 months from
the date hereof, except to officers of the Underwriter. The Underwriter's
Warrants provide for adjustment in the number of shares of Common Stock and
Warrants issuable upon the exercise thereof and in the exercise price of the
Underwriter's Warrants as a result of certain events, including subdivisions and
combinations of the Common Stock. The Underwriter's Warrants grant to the
holders thereof certain rights of registration for the securities issuable upon
exercise thereof.
Except upon the consent of the Underwriter, all executive officers, all
directors and holders of substantially all of the outstanding stock of the
Company have agreed not to, directly or indirectly, issue, offer, agree or offer
to sell, sell, transfer, assign, encumber, grant an option for the purchase or
sale of, pledge, hypothecate or otherwise dispose of any beneficial interest in
such securities for a period of 24 months following the Effective Date.
Provided, however, that if either of Messrs. Franzone, Kassel or Goodman dies
during the lock-up period, the estate of the deceased may, to the extent that
the Company receives proceeds from insurance on the life of the deceased, cause
the Company to redeem up to 250,000 shares for $500,000 and may sell the
remaining shares pursuant to Rule 144, provided that the estate does not sell
more than 25,000 shares within any three month period. If any such transaction
is entered into or any such lock-ups are waived or shortened, to the extent that
the Company is aware of any such transaction or early release and is required to
disclose the same, such information will be disclosed in a timely manner. In
addition, without the consent of the Underwriter and except pursuant to the
exercise of the Warrants and the Underwriter's Warrants, the Company has agreed
that it, its subsidiaries and affiliates shall not sell or offer for sale any of
their equity securities commencing the Effective Date for a period of 24 months
thereafter. The Company has further agreed for a period of 24 months following
the Effective Date
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not to file a registration statement covering any of its securities without the
prior written consent of the Underwriter, except a registration statement on
Form S-8 relating to the Company's employees and Ms. Bao-Wen Chen, a consultant
and independent director of the Company who is entitled to receive an aggregate
of 25,000 registered shares of Common Stock pursuant to the Grant Plan, issuable
in annual increments of 5,000 shares commencing on the Effective Date.
Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Underwriter, and to the extent
not inconsistent with the guidelines of the NASD and the Rules and Regulations
of the Commission, the Company has agreed to pay the Underwriter a commission
which shall not exceed 5% of the aggregate exercise price of such Warrants in
connection with bona fide services provided by the Underwriter relating to any
warrant solicitation. In addition, the individual must designate the firm
entitled to payment of such warrant solicitation fee. However, no compensation
will be paid to the Underwriter in connection with the exercise of the Warrants
if (a) the market price of the Common Stock is lower than the exercise price,
(b) the Warrants were held in a discretionary account or (c) the Warrants are
exercised in an unsolicited transaction. Unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Underwriter will be
prohibited from engaging in any market-making activities with regard to the
Company's securities for the period from five business days (or other such
applicable periods as Rule 10b-6 may provide) prior to any solicitation of the
exercise of the Warrants until the later of their termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
the Underwriter may have to receive a fee. As a result, the Underwriter may be
unable to continue to provide a market for the Company's securities during
certain periods while the Warrants are exercisable. If the Underwriter has
engaged in any of the activities prohibited by Rule 10b-6 during the periods
described above, the Underwriter undertakes to waive unconditionally its right
to receive a commission on the exercise of such Warrants.
In connection with the Offering, the Underwriter and its affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Common Stock and Warrants. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M,
pursuant to which such persons may bid for or purchase Common Stock or Warrants
for the purpose of stabilizing their respective market prices. The Underwriter
also may create a short position for the account of such Underwriter by selling
more shares of Common Stock or Warrants in connection with the Offering than it
is committed to purchase from the Company, and in such case may purchase shares
of Common Stock or Warrants in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriter may
also cover all or a portion of such short position by exercising the
Underwriter's over-allotment option. In addition, the Underwriter may impose
'penalty bids' under contractual arrangements whereby it may reclaim from a
dealer participating in the Offering the selling concession with respect to
shares of Common Stock and Warrants that are distributed in the Offering but
subsequently purchased for the account of the Underwriter in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock and Warrants at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and if they are undertaken they may be
discounted at any time.
The Company has agreed that the Underwriter may nominate for election one
person to the Company's Board of Directors (which person shall be reasonably
acceptable to the Company) for a period of three years from the Effective Date.
In the event the Underwriter elects not to exercise the right, then the
Underwriter may designate one person to attend meetings of the Company's Board
of Directors as a non-voting advisor (which person shall be reasonably
acceptable to the Company). Such designee shall be entitled to attend all such
meetings of the Company's Board of Directors and to receive all notices and
other correspondence and communications sent by the Company to members of its
Board of Directors. The Company has agreed to reimburse designees of the
Underwriter for their out-of-pocket expenses incurred in connection with their
attendance of meetings of the Company's Board of Directors.
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants. Consequently, the Offering prices of the Securities has been
determined by negotiation between the Company and the Underwriter and does not
necessarily bear any relationship to the Company's asset value, net worth or
other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
48
<PAGE>
of the Company's management, the prospects of the Company, its capital
structure, the market for initial public offerings and certain other factors as
were deemed relevant.
The Company has agreed to retain the Underwriter as a financial consultant
to the Company for a period of 24 months after the Offering for an aggregate fee
of $120,000 payable in full upon consummation of the Offering. As the Company's
financial consultant, the Underwriter will provide investment banking services
to the Company as well as seek out strategic transactions on behalf of the
Company and furnish advice to the Company in connection with any such
transactions.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See 'Additional Information.'
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by Koerner Silberberg & Weiner, LLP, New York, New York. Morrison Cohen
Singer & Weinstein, LLP, New York, New York, has acted as counsel for the
Underwriter in connection with the Offering. Carl Seldin Koerner, Esq., a
managing partner of the law firm of Koerner Silberberg & Weiner, LLP, is one of
the independent directors of the Company and also serves as the Secretary to one
of the Company's wholly-owned subsidiaries, CDP. See 'Certain Transactions.'
EXPERTS
The consolidated financial statements of the Company and its subsidiary,
EHC, and the financial statements of CDP appearing in this Prospectus and
elsewhere in the Registration Statement, have been audited by Feldman Sherb
Ehrlich & Co., P.C. (formerly Feldman Radin & Co., P.C.), independent auditors,
as set forth in their report and appearing elsewhere herein, and are included in
reliance upon the authority of such firm as experts in accounting and auditing
in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the 'Registration Statement') under the Securities Act and the rules and
regulations promulgated thereunder, with respect to the Common Stock and
Warrants offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information regarding the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as part of the Registration Statement. Statements contained in
the Prospectus concerning the provisions or contents of any contract, agreement
or other document referred to herein are not necessarily complete with respect
to each such contract, agreement or document filed as an exhibit to the
Registration Statement. Reference is made to such exhibits for a more complete
description of the matters involved, and each statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained at the
Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) System. The electronically filed documents, including reports, proxy
statements and other information, are maintained by the Commission and may be
found at the World Wide Web site http://www.sec.gov.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
Independent Accountants' Report................................................................... F-2
Consolidated Balance Sheets....................................................................... F-3
Consolidated Statements of Operations............................................................. F-4
Consolidated Statement of Changes in Stockholders' Equity......................................... F-5
Consolidated Statements of Cash Flows............................................................. F-6
Notes to Consolidated Financial Statements........................................................ F-7 to F-11
COMPACT DISC PACKAGING CORP. (A DEVELOPMENT STAGE ENTERPRISE)
Independent Accountants' Report................................................................... F-12
Balance Sheets.................................................................................... F-13
Statements of Operations.......................................................................... F-14
Statements of Stockholders Equity................................................................. F-15
Statements of Cash Flows.......................................................................... F-16
Notes to Financial Statements..................................................................... F-17
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Description of Unaudited Pro Forma Consolidated Financial Statements.............................. F-18
Unaudited Pro Forma Consolidated Balance Sheet.................................................... F-19
Unaudited Pro Forma Consolidated Statements of Operations......................................... F-20 to F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors of
International Plastic Technologies, Inc.
Farmingdale, New York
We have audited the accompanying consolidated balance sheet of International
Plastic Technologies, Inc. and its subsidiary, Electronic Hardware Corp., as of
December 27, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 27, 1997 and
December 28, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits 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 consolidated financial statements referred to above present
fairly, the financial position of International Plastic Technologies, Inc. and
its subsidiary, Electronic Hardware Corp., as of December 27, 1997 and the
results of their operations and their cash flows for each of the years ended
December 27, 1997 and December 28, 1996 in conformity with generally accepted
accounting principles.
/s/ Feldman Sherb Ehrlich & Co., P.C.
FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants
(Formerly Feldman Radin & Co., P.C.)
New York, New York
March 6, 1998
F-2
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 29, 1998
MARCH 28, 1998 PRO FORMA(1) DECEMBER 27, 1997
-------------- -------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 253,186 $ 153,186 $ 351,740
Accounts Receivable (net of allowance for doubtful accounts
of $14,000).............................................. 620,451 620,451 681,471
Inventory................................................... 1,053,129 1,053,129 1,043,011
Prepaid expenses............................................ 151,139 151,139 96,026
-------------- -------------- -----------------
Total current assets..................................... 2,077,905 1,977,905 2,172,248
Property and equipment--net................................... 632,922 632,922 623,215
Other assets.................................................. 223,437 223,437 112,357
-------------- -------------- -----------------
$2,934,264 $2,834,264 $ 2,907,820
-------------- -------------- -----------------
-------------- -------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................... $ 447,915 $ 447,915 $ 392,696
Current portion of long term debt (including $129,210 to
officer/stockholders).................................... 1,004,773 1,004,773 1,001,181
Current portion of obligations under capital lease.......... 52,816 52,816 53,315
-------------- -------------- -----------------
Total current liabilities................................ 1,505,504 1,505,504 1,447,192
-------------- -------------- -----------------
Long term debt (including $280,044 to officer/stockholders)... 706,925 706,925 771,244
Fee payable to officer/shareholder............................ 150,000 150,000 150,000
Obligations under capital leases.............................. 72,953 72,953 88,540
-------------- -------------- -----------------
Total liabilities........................................ 2,435,382 2,435,382 2,456,976
-------------- -------------- -----------------
Stockholders' equity:
Common Stock--Par value .001 authorized, issued and
outstanding 1,500,000 shares............................. 1,500 1,500 1,500
Paid in Capital............................................. 317,941 317,941 317,941
Retained Earnings........................................... 179,441 79,441 131,403
-------------- -------------- -----------------
Total stockholders' equity............................... 498,882 398,882 450,844
-------------- -------------- -----------------
$2,934,264 $2,834,264 $ 2,907,820
-------------- -------------- -----------------
-------------- -------------- -----------------
</TABLE>
- ------------------
(1) Reflects an anticipated $100,000 stockholder dividend subsequent to March
31, 1998.
See notes to financial statements
F-3
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
---------------------------- ----------------------------------
MARCH 28, MARCH 29, DECEMBER 27, DECEMBER 28,
1998 1997 1997 1996
------------ ------------ --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................... $ 1,437,535 $ 1,525,061 $ 6,054,747 $ 5,398,041
Cost of goods sold...................................... 901,632 1,060,588 3,831,599 3,668,420
------------ ------------ --------------- ---------------
Gross profit.......................................... 535,903 464,473 2,223,148 1,729,621
------------ ------------ --------------- ---------------
Operating expenses:
Selling and shipping.................................. 136,846 117,775 472,096 427,400
General and administrative............................ 301,673 195,342 1,298,797 1,045,038
------------ ------------ --------------- ---------------
Total operating expenses.............................. 438,519 313,117 1,770,893 1,472,438
------------ ------------ --------------- ---------------
Income from operations.................................. 97,384 151,356 452,255 257,183
Interest expense........................................ 49,346 49,800 206,900 193,138
------------ ------------ --------------- ---------------
Net income............................................ 48,038 101,556 245,355 64,045
Pro-forma income taxes.................................. 19,000 40,000 98,000 26,000
------------ ------------ --------------- ---------------
Pro-forma net income.................................. $ 29,038 $ 61,556 $ 147,355 $ 38,045
------------ ------------ --------------- ---------------
------------ ------------ --------------- ---------------
Pro-forma earnings per share--basic..................... $ 0.02 $ 0.04 $ 0.10 $ 0.03
------------ ------------ --------------- ---------------
Weighted average common shares used..................... 1,500,000 1,500,000 1,500,000 1,500,000
------------ ------------ --------------- ---------------
------------ ------------ --------------- ---------------
</TABLE>
See notes to financial statements
F-4
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance December 30, 1995............................ 1,500,000 $1,500 $ 317,941 $ 162,625 $ 482,066
Net Income........................................... 64,045 64,045
Distributions........................................ (207,243) (207,243)
--------- ------ ---------- --------- ---------
Balance December 28, 1996............................ 1,500,000 1,500 317,941 19,427 338,868
Net Income........................................... 245,355 245,355
Distributions........................................ (133,379) (133,379)
--------- ------ ---------- --------- ---------
Balance December 27, 1997............................ 1,500,000 1,500 317,941 131,403 450,844
Net Income........................................... 48,038 48,038
--------- ------ ---------- --------- ---------
Balance March 28, 1998 (unaudited)................... 1,500,000 $1,500 $ 317,941 $ 179,441 $ 498,882
--------- ------ ---------- --------- ---------
--------- ------ ---------- --------- ---------
</TABLE>
See notes to financial statements
F-5
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
---------------------- ----------------------------
MARCH 28, MARCH 29, DECEMBER 27, DECEMBER 28,
1998 1997 1997 1996
--------- --------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 48,038 $ 101,556 $ 245,355 $ 64,045
--------- --------- ------------ ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 63,460 82,978 346,990 365,931
Gain on sale of equipment............................... -- -- (10,000) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.............. 61,020 (141,060) (41,919) 88,305
Increase in inventory................................... (10,118) (2,023) (141,311) (45,381)
(Increase) in prepaid expenses.......................... (55,113) (41,183) (1,400) (34,823)
Decrease (increase) in other assets..................... (111,080) 20,681 41,308 (109,797)
Increase (decrease) in accounts payable and accrued
expenses............................................. 55,218 80,589 80,576 (96,466)
Increase in consulting fee payable...................... -- -- 150,000 --
--------- --------- ------------ ------------
Total Adjustments............................. 3,387 (18) 424,244 167,769
--------- --------- ------------ ------------
Net cash provided by operating activities................. 51,425 101,538 669,599 231,814
--------- --------- ------------ ------------
Cash flows from investing activities:
Proceeds from sale of equipment......................... -- -- 10,000 --
Expenditures for property and equipment................. (73,167) (114,419) (200,089) (122,944)
--------- --------- ------------ ------------
Net cash used in investing activities..................... (73,167) (114,419) (190,089) (122,944)
--------- --------- ------------ ------------
Cash flows from financing activities:
Decrease in due to officers and affiliated companies ... -- (26,750) (71,352) (156,184)
Distributions........................................... -- -- (133,379) (207,243)
Proceeds from loans..................................... 40,000 357,100 357,100 1,647,483
Payments on loans....................................... (116,812) (287,887) (348,049) (1,413,942)
--------- --------- ------------ ------------
Net cash (used in) provided by financing activities....... (76,812) 42,463 (195,680) (129,886)
--------- --------- ------------ ------------
Net increase (decrease) in cash........................... (98,554) 29,582 283,830 (21,016)
Cash, beginning of year................................... 351,740 67,910 67,910 88,926
--------- --------- ------------ ------------
Cash, end of year......................................... $ 253,186 $ 97,492 $ 351,740 $ 67,910
--------- --------- ------------ ------------
--------- --------- ------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest.................................. $ 38,264 $ 44,770 $ 175,521 $ 168,515
--------- --------- ------------ ------------
--------- --------- ------------ ------------
Cash paid for taxes..................................... $ 5,709 -- -- --
--------- --------- ------------ ------------
--------- --------- ------------ ------------
</TABLE>
See notes to financial statements
F-6
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY
International Plastic Technologies, Inc. ('International') was incorporated
in February 1998 in Delaware as a holding company for the purpose of acquiring
the common stock of Electronic Hardware Corporation ('EHC'), Compact Disc
Packaging Corp. ('CDP') and Duralogic Technologies, Inc. ('DTI') in
contemplation of an initial public offering of International's stock (the
'Offering') (see note 17).
Under an agreement and plan of reorganization, dated as of the day
immediately preceding the Offering, International will issue 1,500,000 shares of
its stock for the stock of EHC. The shareholders of EHC will own the same
proportionate interest of International as EHC. EHC, a company located in
Farmingdale, New York, manufactures injection molded plastic components used in
consumer, industrial and military products sold in the United States.
Accordingly, the reorganization has been accounted for as a combination of
commonly controlled entities and the accompanying financial statements presented
herein present the financial position and results of operations and cash flows
of International and EHC as if they had been combined for all periods presented.
Under another agreement and plan of reorganization, dated as of the day
immediately preceding the Offering, International will issue 445,000 shares of
its stock for the stock of CDP, a development stage enterprise. CDP is owned by
one of the shareholders of EHC and two other shareholders. Such transaction will
be accounted for as a pooling of interests commencing on the date of the
transaction.
DTI has not commenced operations as of December 27, 1997 and its stock will
be acquired by International in March 1998 for $1,000.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Fiscal Year--The Company operates on a '52-53 week' reporting year
ending the last Saturday preceding December 31.
(b) Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that effect 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Recognition of Revenue--Revenue is recognized upon completion of the
sale which is when the goods are shipped to the customer.
(d) Inventories--Inventories are stated at the lower of cost or market.
Cost is determined principally by the use of the first-in, first-out
method.
(e) Depreciation and Amortization--Fixed assets are depreciated on the
straight line basis over the estimated useful lives of the related
assets. Leasehold improvements are being amortized on the straight line
basis over 10 years.
(f) Income Taxes--EHC has made an election to be treated as an S
Corporation. Accordingly, under such election, any income taxes due or
tax benefits derived are the responsibilities of the stockholders.
(g) Net Income and Pro Forma Per Share Net Income--Net income per share is
computed based on the weighted average of number of common shares
outstanding during the period. Pro forma income and pro forma income
per share have been calculated as if the EHC was a C corporation for
federal and state income tax purposes.
(h) Accounting for Long-Lived Assets--The Company reviews long-lived assets
for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be recovered.
At December 27, 1997, the Company believes that there has been no
impairment of its long-lived assets.
F-7
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORY
Inventories consist of the following at December 27, 1997:
<TABLE>
<S> <C>
Raw Materials............................................... $ 69,409
Work in Process............................................. 116,002
Finished Goods.............................................. 347,000
Components.................................................. 510,600
----------
$1,043,011
----------
----------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following at December 27, 1997:
<TABLE>
<CAPTION>
LIFE
----------
<S> <C> <C>
Machinery and Equipment........................................... 5-10 Years $3,064,825
Tools, Dies and Molds............................................. 5-10 Years 1,193,333
Leasehold Improvements............................................ 10 Years 217,836
Office Furniture and Fixtures..................................... 5 Years 148,975
----------
4,624,969
Less: accumulated depreciation and amortization................... 4,001,754
----------
$ 623,215
----------
----------
</TABLE>
5. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under various capital lease
arrangements expiring in April 1998 through February 2002:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
PORTION PORTION TOTAL
------- --------- --------
<S> <C> <C> <C>
Total minimum lease payments........................................ $63,262 $105,058 $168,320
Less: Amounts representing interest................................. 9,947 16,518 26,465
------- --------- --------
$53,315 $ 88,540 $141,855
------- --------- --------
------- --------- --------
</TABLE>
F-8
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LOANS PAYABLE
Loans payable are comprised of the following at December 31, 1997:
<TABLE>
<S> <C> <C>
(1) Term loan payable, bank, due August 1999, payable in quarterly installments of $25,000
of principal plus interest at prime plus 1% (9.5% at December 27, 1997). The loan is
guaranteed by the Companys three officers/stockholders and requires the Company to
comply with certain covenants......................................................... 375,000
(2) Line of credit, bank (available up to $1,000,000), payable upon demand, bearing
interest at prime plus 1/2% (9% at December 27, 1997)................................. 753,000
(3) Loan agreement payable in monthly installments of $2,903 of principal and interest at
7% per annum due February 2007. The loan is guaranteed by the Company's three
officers/stockholders................................................................. 235,171
(4) Various loans payable to officer/stockholders, all bearing interest at 10% per annum,
payable in monthly installments ranging from $2,656 to $4,664 plus interest. The loans
are due in dates ranging from September 1999 through February 2007.................... 409,254
----------
1,772,425
Less: current portion................................................................. 1,001,181
----------
Long term portion..................................................................... 771,244
----------
----------
Long term debt mature as follows:
1999............................................................................. 424,715
2000............................................................................. 111,356
2001............................................................................. 84,519
2002............................................................................. 25,082
2003............................................................................. 26,895
Thereafter....................................................................... 98,677
----------
$ 771,244
----------
----------
</TABLE>
The loans are secured by substantially all the assets of the Company. The
Company estimates that the fair value of the above loans approximates their
carrying value.
7. RETIREMENT PLAN
The Company sponsors a 401(k) savings plan covering all non-union employees
who have attained the age of 21 and have completed 3 months of service.
Participants may contribute up to 15% of their annual compensation, subject to
certain limitations. In addition, the Company may make contributions to the
plan. During the years ended December 27, 1997 and December 28, 1996, the
Company did not make any contributions to the plan.
8. CASH GAIN SHARING PROGRAM
The Company's full time, non-union employees and other key company
employees receive additional compensation as determined by cash profits, as
defined, under the Cash Gain Sharing Program. For the year ended December 27,
1997 employees earned approximately $87,000 under the program. No additional
compensation was earned in 1996.
9. STOCK OPTION AND GRANT PLAN
In March 1998, the Company adopted the Stock Option and Grant Plan (the
'Plan') which provides for the aggregate grant of 300,000 shares of the Companys
common stock or options to purchase shares of common stock.
F-9
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. KEY MAN LIFE INSURANCE
The Company is the beneficiary of a $200,000 life insurance policy on the
life of the President of the Company.
11. COLLECTIVE BARGAINING AGREEMENT
The Company's factory employees and factory supervisors are represented by
a collective bargaining agreement between Local 531, International Brotherhood
of Teamsters, AFL-CIO and the Company. Such agreement expired in May 1998 and
has been renewed until June 9, 1998.
12. RELATED PARTY TRANSACTIONS
a. Sales during the years ended December 27, 1997 and December 28, 1996
included $371,000 and $320,000, respectively to another company owned by
the three officer/stockholders of the Company. Profit on such sales was
approximately $30,000 and $20,000 for the years ended December 27, 1997
and December 28, 1996, respectively.
b. The Company leases its premises from a company owned by two of the
officer/stockholders of the Company at an annual rental of $138,000.
Such lease expires in December 2005. The mortgage on the premises in the
amount of $567,514 at December 27, 1997 is guaranteed by the Company.
c. During the year ended December 27, 1997, the Company entered into a
consulting agreement with one of its officer/stockholders for consulting
services provided in 1997. The Company executed a $150,000 promissory
note due January 1, 1999 with interest at 6% per annum for such
services.
d. The Company subleases part of its premises to another company owned by
two of the officers/stockholders for an annual rent of $3,000.
e. In March 1998, the Company entered into employment agreements with its
three officer/stockholders for a period of 10 years at an aggregate
annual base salary of $325,000. Such agreement provides for increases at
the greater of 5% or the consumer price index and an annual bonus to be
determined by the Board of Directors.
f. In March 1998, the Company and an affiliate entered into an engineering
consulting and services agreement on a fee for services basis under
which the Company will have the right to manufacture certain of the
affiliates products.
g. The Company is a guarantor of two loans aggregating $132,000 made to CDP
by two of its stockholders.
h. The Company is a guarantor on two loans made to an entity owned by the
three officer/stockholders of the Company. At December 27, 1997 the
outstanding aggregate balance on such loans was $738,000. The loans are
secured by an assignment of the affiliates fixed assets, accounts
receivable, inventories and all other assets. The unaudited figures of
the affiliate as of December 31,1997 are as follows:
<TABLE>
<S> <C>
Cash........................................................ $ 346,962
Accounts Receivable (Net)................................... 507,806
Inventories................................................. 601,644
Prepaid Expenses............................................ 95,313
Fixed Assets (Net).......................................... 542,417
Prepaid and Other Assets.................................... 200,044
----------
Total Assets................................................ $2,294,186
----------
----------
Total Liabilities........................................... $1,706,695
Stockholders' Equity........................................ 587,491
----------
Total Liabilities and Stockholders' Equity.................. $2,294,186
----------
----------
</TABLE>
F-10
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LEGAL PROCEEDINGS
The Company is involved in one legal proceeding involving a complaint
against the Company alleging sexual harassment. The Company is vigorously
defending this action and in the opinion of management, the ultimate disposition
of this case will not have a material effect on its financial condition or
results of operations.
14. LICENSE AGREEMENT
In February 1998, DTI entered into an exclusive license agreement with an
individual which grants DTI the rights to manufacture, market and sell a
thermoelectric massager. In consideration of such rights, DTI shall pay the
individual a royalty in the first year of the greater of 5% of the monthly net
sales of the massager or $75,000 and in subsequent years the greater of 5% of
monthly net sales or $50,000. In addition, DTI shall pay $100,000 upon the
earlier of the consummation of an initial public offering of the Company's stock
or September 15, 1998, and an additional $1,200 per week until such offering is
consummated. The agreement will be terminated if the above mentioned $100,000 is
not paid.
15. CONSULTING AGREEMENT
In March 1998, the Company entered into a ten year consulting agreement in
connection with the Company's plans to develop manufacturing resources in the
People's Republic of China ('China'). The Consultant will be paid at the rate of
$50 per hour and 1.5% of the net cost, as defined, of all products manufactured
in China up to $5,000,000 per year and 1% of net costs in excess of $5,000,000.
The Consultant will also receive over a five year period 25,000 shares of
unregistered common stock of the Company and 25,000 options to purchase shares
of common stock.
16. PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 1,000,000 shares of Preferred
Stock in one or more classes or series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series or the designation of such series.
17. PROPOSED PUBLIC OFFERING
In February 1998, the Company entered into a letter of intent with an
underwriter for the sale of 1,250,000 shares of common stock at $4.50 per share
and 1,250,000 redeemable warrants at $.10 per warrant to purchase one share of
common stock at $5 per share. Simultaneously with the offering, International is
to acquire 100% of the stock of EHC and two other companies in transactions to
be accounted for as a pooling of interests. (note 1). The Company has agreed to
retain the underwriter as a consultant for a period of two years after the
offering for a fee of $120,000 payable upon the consummation of the offering.
18. STOCKHOLDERS' AGREEMENTS
In March 1998, the Company entered into an agreement with each of its three
officer/stockholders which provides that in the event of the death of the
stockholder within 24 months after the consummation of a public offering of the
Company's stock, the estate of the stockholder can require the Company to
repurchase 250,000 shares of the stockholder's stock for $500,000. The
repurchase of stock can only be made through the use of insurance proceeds
payable to the Company upon the death of the stockholder.
F-11
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Compact Disc Packaging Corp.
Farmingdale, New York
We have audited the accompanying balance sheet of Compact Disc Packaging Corp.
as of December 31, 1997 and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1997 and 1996 and for the
period January 31, 1995 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits 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 referred to above present fairly, in
all material respects the financial position of Compact Disc Packaging Corp. as
of December 31, 1997 and the results of its operations and its cash flows for
each of the years ended December 31, 1997 and 1996 and for the period from
January 31, 1995 (inception) through December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Feldman Sherb Ehrlich & Co., P.C.
FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants
(Formerly Feldman Radin & Co., P.C.)
New York, New York
March 18, 1998
F-12
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................................................. $ 445 $ 445
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses...................................................................... 325 --
Due to stockholders................................................................... 132,585 148,161
------------ -----------
Total liabilities................................................................... 132,910 148,161
------------ -----------
Stockholders equity:
Common stock and capital in excess of .01 par value (authorized 10,000 shares,
issued and outstanding 500 shares)............................................... 25,000 25,000
Deficit accumulated during development stage........................................ (157,465) (172,716)
------------ -----------
Total stockholders equity........................................................... (132,465) (147,716)
------------ -----------
$ 445 $ 445
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements
F-13
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
THREE MONTHS ENDED JANUARY 31, 1995 YEAR ENDED JANUARY 31, 1995
--------------------- (INCEPTION) THROUGH --------------------------- (INCEPTION) THROUGH
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1996 1997
--------- --------- ------------------- ------------ ------------ -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............... $ -- $ -- $ -- $ -- $ -- $ --
Costs and expenses:
Salaries................ 6,500 3,500 32,500 26,000 -- 26,000
Professional and
consulting fees...... 7,975 3,000 58,841 21,821 28,310 50,866
Research and
development.......... 45,594 20,010 5,500 45,594
Other general &
administrative
expenses............. 776 3,610 35,781 21,899 10,692 35,005
--------- --------- ------------------- ------------ ------------ -------------------
Total costs and expenses
(net loss).............. $(15,251 ) $(10,110 ) $(172,716) $(89,730) $(44,502) $(157,465)
--------- --------- ------------------- ------------ ------------ -------------------
--------- --------- ------------------- ------------ ------------ -------------------
</TABLE>
See notes to financial statements
F-14
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
PAR VALUE DEFICIT
NUMBER OF AND CAPITAL IN ACCUMULATED DURING TOTAL STOCKHOLDERS'
SHARES EXCESS OF PAR DEVELOPMENT STAGE EQUITY (DEFICIENCY)
--------- -------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Balance--January 31, 1995 (inception).......... -- $ -- $ -- $ --
Issuance of Common Stock....................... 500 25,000 -- 25,000
Net Loss....................................... (23,233) (23,233)
--- -------------- ------------------ -------------------
Balance--December 31, 1995..................... 500 25,000 (23,233) 1,767
Net Loss....................................... (44,502) (44,502)
--- -------------- ------------------ -------------------
Balance--December 31, 1996..................... 500 25,000 (67,735) (42,735)
Net Loss....................................... (89,730) (89,730)
--- -------------- ------------------ -------------------
Balance--December 31, 1997..................... 500 $ 25,000 $ (157,465) $ (132,465)
Net Loss....................................... (15,251) (15,251)
--- -------------- ------------------ -------------------
Balance--March 31, 1998 (unaudited)............ 500 $ 25,000 $ (172,716) $ (147,716)
--- -------------- ------------------ -------------------
--- -------------- ------------------ -------------------
</TABLE>
See notes to financial statements
F-15
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
JANUARY 31, 1995 JANUARY 31, 1995
THREE MONTHS ENDED (INCEPTION) YEAR ENDED (INCEPTION)
--------------------- THROUGH --------------------------- THROUGH
MARCH 28, MARCH 29, MARCH 28, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1996 1997
--------- --------- ---------------- ------------ ------------ ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(15,251 ) $(10,110 ) $ (172,716) $(89,730) $(44,502) $ (157,465)
--------- --------- ---------------- ------------ ------------ ----------------
Changes in assets and
liabilities:
Increase (decrease) in
accrued expenses........ (325 ) (3,642 ) -- (3,316) 3,293 325
--------- --------- ---------------- ------------ ------------ ----------------
Net cash used in operating
activities................ (15,576 ) (13,752 ) 172,716 (93,046) (41,209) (157,140)
--------- --------- ---------------- ------------ ------------ ----------------
Cash flows from financing
activities:
Loans payable to
stockholders............ 15,576 2,833 148,161 82,236 27,464 132,585
Issuance of capital
stock................... -- -- 25,000 -- 25,000 25,000
--------- --------- ---------------- ------------ ------------ ----------------
Net cash provided by
financing activities...... 15,576 2,833 173,161 82,236 52,464 157,585
--------- --------- ---------------- ------------ ------------ ----------------
Net increase (decrease) in
cash...................... -- (10,919 ) 445 (10,810) 11,255 445
Cash, beginning of period.... 445 11,255 -- 11,255 -- --
--------- --------- ---------------- ------------ ------------ ----------------
Cash, end of period.......... $ 445 $ 336 $ 445 $ 445 $ 11,255 $ 445
--------- --------- ---------------- ------------ ------------ ----------------
--------- --------- ---------------- ------------ ------------ ----------------
</TABLE>
See notes to financial statements
F-16
<PAGE>
COMPACT DISC PACKAGING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY
Compact Disc Packaging Corp. (the 'Company') was incorporated in Delaware
on January 31, 1995 to manufacture and market a proprietary compact disc
packaging system. As of December 31, 1997 the Company has not generated any
revenue.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect 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 revenue and expenses during the reporting period. Actual results
could differ from those estimates.
b. Research and Development--Research and development expenditures are
charged to operations as incurred.
3. DUE TO STOCKHOLDERS
On January 1, 1998 the Company executed promissory notes for $107,500 and
$25,000, respectively, to two of its stockholders bearing interest at 10% per
annum due on January 1, 1999. Such amounts were for monies advanced to the
Company by the stockholders to fund company expenses. The notes are guaranteed
by an affiliate, International Plastic Technologies, Inc. (note 5).
4. LICENSE AGREEMENT
In February 1998 the Company entered into an exclusive license agreement
with a corporation which grants the Company the rights to manufacture, market
and sell a compact disc packaging system. The Company shall pay such a
corporation annual royalties of 2% of net sales and 25% of other fees, as
defined, plus an initial fee of $30,000. The exclusive provisions of the license
agreement are subject to termination if certain minimum royalty levels are not
obtained or if the Company does not obtain a $1,000,000 cash investment within
24 months of the agreement.
5. PROPOSED PUBLIC OFFERING
In February 1998, a Delaware holding company, International Plastic
Technologies, Inc. ('International') was incorporated for the purpose of
acquiring the stock of the Company and two other affiliated companies. The
acquisitions are to occur simultaneously with the successful consummation of an
initial public offering of International's common stock. International will
issue 445,000 shares of its stock for the stock of CDP in a transaction to be
accounted for as a pooling of interests.
F-17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet presents the
pro forma financial position of International Plastic Technologies, Inc.
('International') and its subsidiary, Electronic Hardware Corp. ('EHC,' and
together with International, the 'Company') and Compact Disc Packaging Corp.
('CDP') at March 31, 1998 as if the proposed merger of the two companies had
been consummated at such date. Included are adjustments to reflect the
acquisition of CDP by the Company and an anticipated $100,000 stockholder
dividend subsequent to March 31, 1998.
The unaudited pro forma consolidated statements of operations for the three
months ended March 28, 1998 and 1997 and for the years ended December 27, 1997
and December 28, 1996 reflect the combined results of the Company and CDP as if
the transaction summarized in the preceding paragraph had occurred at the
beginning of the first period presented.
The unaudited pro forma consolidated statements of operations do not
necessarily represent actual results that would have been achieved had the
companies been together at the beginning of each respective period, nor are they
necessarily indicative of future results. These unaudited pro forma consolidated
financial statements should be read in conjunction with the companies'
respective historical financial statements and notes thereto.
F-18
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 28, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------- ADJUSTMENTS
INTERNATIONAL PLASTIC COMPACT DISC --------------------
TECHNOLOGIES, INC. PACKAGING CORP. DR CR TOTAL
--------------------- --------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............................. $ 253,186 $ 445 (4) 100,000 $ 153,631
Accounts receivable (net of
allowance for doubtful accounts
of $14,000).................... 620,451 620,451
Inventory......................... 1,053,129 1,053,129
Prepaid expenses.................. 151,139 151,139
--------------------- --------------- -------- -------- ----------
Total current assets................ 2,077,905 445 100,000 1,978,350
Property and equipment--net......... 632,922 632,922
Other assets........................ 223,437 223,437
--------------------- --------------- -------- -------- ----------
$ 2,934,264 $ 445 100,000 $2,834,709
--------------------- --------------- -------- -------- ----------
--------------------- --------------- -------- -------- ----------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued
expenses....................... $ 447,915 $ -- $ 447,915
Current portion of long term
debt........................... 1,004,773 1,004,773
Current portion of obligations
under capital leases........... 52,816 52,816
--------------------- --------------- -------- -------- ----------
Total current liabilities........... 1,505,504 -- 1,505,504
--------------------- --------------- -------- -------- ----------
Long term debt.................... 706,925 148,161 855,086
Fee payable to
officer/shareholder............ 150,000 150,000
Obligations under capital
leases......................... 72,953 72,953
--------------------- --------------- -------- -------- ----------
Total liabilities................... 2,435,382 148,161 2,583,543
--------------------- --------------- -------- -------- ----------
Stockholders' equity:
Common Stock--par value
.001 authorized issued and
outstanding 1,945,000
shares......................... 1,500 25,000(1) 25,000(5) 445 1,945
Deficit accumulated during
development stage.............. (172,716) (2) 172,716
Paid in capital................... 317,941 (5) 445(1) 25,000 421,937
(3) 79,441
Retained earnings (Deficit)......... 179,441 (2) 172,716 (172,716)
(3) 79,441
(4) 100,000
--------------------- --------------- -------- -------- ----------
Total stockholders' equity.......... 498,882 (147,716) 377,602 277,602 251,166
--------------------- --------------- -------- -------- ----------
$ 2,934,264 $ 445 $377,602 $277,602 $2,834,709
--------------------- --------------- -------- -------- ----------
--------------------- --------------- -------- -------- ----------
</TABLE>
F-19
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1998
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------- PRO-FORMA
INTERNATIONAL PLASTIC COMPACT DISC ----------
TECHNOLOGIES, INC. PACKAGING CORP. TOTAL
--------------------- --------------- ----------
<S> <C> <C> <C>
Net sales..................................................... $ 1,437,535 $ -- $1,437,535
Cost of goods sold............................................ 901,632 -- 901,632
--------------------- --------------- ----------
Gross profit.................................................. 535,903 -- 535,903
--------------------- --------------- ----------
Operating expenses:
Selling and shipping........................................ 136,846 -- 136,846
General and administrative.................................. 301,673 15,251 316,924
--------------------- --------------- ----------
Total operating expenses...................................... 438,519 15,251 453,770
--------------------- --------------- ----------
Income from operations........................................ 97,384 (15,251) 82,133
Interest expense.............................................. 49,346 -- 49,346
--------------------- --------------- ----------
Net income (loss)............................................. 48,038 (15,251) 32,787
Pro-forma income taxes........................................ 19,000 -- 19,000
--------------------- --------------- ----------
Pro-forma net income.......................................... $ 29,038 $ (15,251) $ 13,787
--------------------- --------------- ----------
--------------------- --------------- ----------
Pro-forma earnings per share--Basic........................... $ 0.02 $ -- $ 0.01
--------------------- --------------- ----------
--------------------- --------------- ----------
Weighted average common shares used........................... 1,500,000 -- 1,945,000
--------------------- --------------- ----------
--------------------- --------------- ----------
</TABLE>
F-20
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------- PRO-FORMA
INTERNATIONAL PLASTIC COMPACT DISC ----------
TECHNOLOGIES, INC. PACKAGING CORP. TOTAL
--------------------- --------------- ----------
<S> <C> <C> <C>
Net sales..................................................... $ 1,525,061 $ -- $1,525,061
Cost of goods sold............................................ 1,060,588 -- 1,060,588
--------------------- --------------- ----------
Gross profit.................................................. 464,473 -- 464,473
--------------------- --------------- ----------
OPERATING EXPENSES:
Selling and shipping........................................ 117,775 -- 117,775
General and administrative.................................. 195,342 10,110 205,452
--------------------- --------------- ----------
Total operating expenses...................................... 313,117 10,110 323,227
--------------------- --------------- ----------
Income from operations........................................ 151,356 (10,110) 141,246
Interest expense.............................................. 49,800 -- 49,800
--------------------- --------------- ----------
Net income (loss)............................................. 101,556 (10,110) 91,446
Pro-forma income taxes........................................ 40,000 -- 40,000
--------------------- --------------- ----------
Pro-forma net income.......................................... $ 61,556 $ (10,110) $ 51,446
--------------------- --------------- ----------
--------------------- --------------- ----------
Pro-forma earnings per share--Basic........................... $ 0.04 $ -- $ 0.03
--------------------- --------------- ----------
--------------------- --------------- ----------
Weighted average common shares used........................... 1,500,000 -- 1,945,000
--------------------- --------------- ----------
--------------------- --------------- ----------
</TABLE>
F-21
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 27, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------- PRO-FORMA
INTERNATIONAL PLASTIC COMPACT DISC ----------
TECHNOLOGIES INC. PACKAGING CORP. TOTAL
--------------------- --------------- ----------
<S> <C> <C> <C>
Net sales..................................................... $ 6,054,747 -- $6,054,747
Cost of goods sold............................................ 3,831,599 -- 3,831,599
--------------------- --------------- ----------
Gross profit.................................................. 2,223,148 -- 2,223,148
--------------------- --------------- ----------
Operating expenses:
Selling and shipping........................................ 472,096 -- 472,096
General and administrative.................................. 1,298,797 89,730 1,388,527
--------------------- --------------- ----------
Total operating expenses...................................... 1,770,893 89,730 1,860,623
--------------------- --------------- ----------
Income from operations........................................ 452,255 (89,730) 362,525
Interest expense.............................................. (206,900) -- (206,900)
--------------------- --------------- ----------
Net income (loss)............................................. 245,355 (89,730) 155,625
Pro-forma income taxes........................................ 98,000 -- 98,000
--------------------- --------------- ----------
Pro-forma net income.......................................... $ 147,355 $ (89,730) $ 57,625
--------------------- --------------- ----------
--------------------- --------------- ----------
Pro-forma earnings per share--Basic........................... $ 0.10 $ -- $ 0.03
--------------------- --------------- ----------
--------------------- --------------- ----------
Weighted average common shares used........................... $ 1,500,000 $ -- $1,945,000
--------------------- --------------- ----------
--------------------- --------------- ----------
</TABLE>
F-22
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------- PRO-FORMA
INTERNATIONAL PLASTIC COMPACT DISC ----------
TECHNOLOGIES INC. PACKAGING CORP. TOTAL
--------------------- --------------- ----------
<S> <C> <C> <C>
Net sales..................................................... $ 5,398,041 -- $5,398,041
Cost of goods sold............................................ 3,668,420 3,668,420
--------------------- --------------- ----------
Gross profit.................................................. 1,729,621 -- 1,729,621
--------------------- --------------- ----------
Operating expenses:
Selling and shipping........................................ 427,400 427,400
General and administrative.................................. 1,045,038 44,502 1,089,540
--------------------- --------------- ----------
Total operating expenses...................................... 1,472,438 44,502 1,516,940
--------------------- --------------- ----------
Income from operations........................................ 257,183 (44,502) 212,681
Interest expense.............................................. (193,138) -- (193,138)
--------------------- --------------- ----------
Net income (loss)............................................. 64,045 (44,502) 19,543
Pro-forma income taxes........................................ 26,000 -- 26,000
--------------------- --------------- ----------
Pro-forma net income (loss)................................... $ 38,045 $ (44,502) $ (6,457)
--------------------- --------------- ----------
--------------------- --------------- ----------
Pro-forma earnings per share--Basic........................... 0.03 -- --
--------------------- --------------- ----------
--------------------- --------------- ----------
Weighted average common shares used........................... 1,500,000 -- 1,945,000
--------------------- --------------- ----------
--------------------- --------------- ----------
</TABLE>
F-23
<PAGE>
The inside back cover shows pictures of various knobs and assemblies
manufactured by EHC interspersed throughout the page. In the bottom half of the
page is a photograph of a man with a clipboard in front of manufacturing
machinery located in EHC's facility.
The EHC logo appears in the upper right corner of the page. Below the logo
is the following description:
'KNOBS, MECHANICAL DEVICES, CUSTOM MOLDING
Electronic Hardware Corporation is a customer-focused supplier of
molded plastic components and assemblies. Our product line provides the
marketplace with many innovative solutions. Our mission is to exceed
customer expectations for service, quality and value through continuous
improvement of people, processes, and products.'
At the bottom of the page is the following caption: 'Electronic Hardware
Corp. is a wholly-owned subsidiary of International Plastic Technologies, Inc.'
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS,
OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY BY ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 19
Dividend Policy................................. 20
Dilution........................................ 21
Capitalization.................................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
Business........................................ 26
Management...................................... 34
Principal Stockholders.......................... 38
Certain Transactions............................ 39
Description of Securities....................... 42
Shares Eligible for Future Sale................. 46
Underwriting.................................... 47
Legal Matters................................... 49
Experts......................................... 49
Additional Information.......................... 49
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,250,000 SHARES
OF COMMON STOCK
AND
1,250,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
INTERNATIONAL PLASTIC
TECHNOLOGIES, INC.
------------------------
PROSPECTUS
------------------------
NETWORK 1 FINANCIAL
SECURITIES, INC.
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware. Section 145 of the General Corporation Law of the State of Delaware
empowers a Delaware corporation to indemnify, subject to the standards therein
prescribed, any person in connection with any action, suit or proceeding brought
or threatened by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or was serving as such with
respect to another corporation or other entity at the request of such
corporation.
The Company's Certificate provides that each person who was or is made a
party to (or is threatened to be made a party to) or is otherwise involved in
any civil or criminal action, suit or proceeding by reason of the fact that such
person is or was a director or officer of the Company shall be indemnified and
held harmless by the Company to the fullest extent authorized by Section 145 of
the General Corporation Law of the State of Delaware against all expense,
liability and loss (including without limitation attorneys' fees) incurred by
such person in connection therewith.
Nothing contained in the Company's Certificate shall eliminate or limit the
liability of directors (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
under Section 174 of the General Corporation Law of the State of Delaware; or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company maintains directors and officers liability insurance covering
all directors and officers of the Company against claims arising out of the
performance of their duties.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration.............................................................. $
NASD Listing Fee..............................................................
Nasdaq Listing Fee............................................................
Transfer Agent Fee............................................................
Printing and Engraving Costs..................................................
Legal Fees and Expenses.......................................................
Accounting Fees and Expenses..................................................
Blue Sky Fees and Expenses....................................................
Miscellaneous.................................................................
------------
Total....................................................................... $
------------
------------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following shares of Common Stock were issued by the Company during the
past three years without registering the securities under the Securities Act.
There were no underwriting discounts or commissions paid in connection with the
issuance of any of the securities set forth below.
The sales of the securities described in the following table were made in
reliance upon Section 4(2) of the Securities Act, which provides certain
exemptions for transactions not involving a public offering. The purchasers of
securities in each transaction 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. All purchasers of securities in each such
transaction had adequate information concerning the Company.
II-1
<PAGE>
As part of a reorganization, the Company will acquire solely in exchange
for Common Stock of the Company, all of the outstanding capital stock of EHC and
CDP, to take effect immediately prior to the Effective Date. The value and
number of shares to be issued to former holders of the outstanding capital stock
of CDP and EHC was determined by negotiations between the Company and Andrew
Franzone, David L. Kassel, Harry Goodman, Robert Gillings and David Cowan. Mr.
Gillings subsequently transferred his shares of CDP to David L. Kassel in an
arms'-length transaction dated May 29, 1998 in return for a nonrecourse
promissory note from Mr. Kassel in favor of Mr. Gillings in the principal amount
of $450,000 bearing interest at the rate of 6% per annum, payable in full on
August 1, 2000 or earlier as provided in such promissory note. The
Reorganization exchange is an arm's-length transaction acceptable to each of the
parties based upon such negotiations. The amount of shares to be issued is based
on a ratio of shares held in CDP and EHC to a percentage of shares of the
Company. The Company also acquired all of the outstanding capital stock of DTI
for $1,000. Following the reorganization, each of the following individuals will
hold the amount of shares of the Company's common stock set forth below:
<TABLE>
<S> <C>
David L. Kassel.................................................................... 900,000
Harry Goodman...................................................................... 500,000
Andrew Franzone.................................................................... 500,000
David Cowan........................................................................ 45,000
</TABLE>
ITEM 27. LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and CDP
*2.2 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and EHC
*3.1 Certificate of Incorporation of International Plastic Technologies, Inc.
*3.2 By-Laws of International Plastic Technologies, Inc.
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Certificate
4.3 Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust Company
4.4 Form of Underwriter's Warrant Agreement
*5 Opinion of Koerner Silberberg & Weiner, LLP
*10.1 Employment Agreement between the Company and Andrew Franzone
*10.2 Employment Agreement between the Company and David L. Kassel
*10.3 Employment Agreement between the Company and Harry Goodman
*10.4 Consulting Agreement between the Company and B.C. China Business, Inc. and Letter Agreement between
the Company and Bao-Wen Chen dated March 1, 1998
10.5 Consulting Agreement between the Company and Network 1 Financial Securities, Inc.
10.6 Lease Agreement between the Company and K&G Realty Associates dated December 19, 1989, Rider to Lease
Agreement dated January 1, 1990, Letter Agreement between the Company and K&G Realty Associates dated
March 16, 1995 and Riders to Lease Agreement dated March 1, 1998 and May 14, 1998
10.7 Licensing Agreement between CDP and Inch, Inc.
10.8 Licensing Agreement between DTI and Dr. Richard Deutsch
*10.9 Promissory Notes payable to David L. Kassel dated September 13, 1994, August 1, 1996, December 31,
1997 and Janaury 1, 1998, and Guarantee of CDP Promissory Note dated January 1, 1998 by International
Plastic Technologies, Inc.
*10.10 Promissory Notes payable to Harry Goodman dated September 1, 1994 and August 1, 1996
*10.11 Demand Grid Note between AFC and Republic National Bank of New York dated December 1, 1997, Term Loan
Agreement Promissory Note between AFC and Republic National Bank of New York dated July 29, 1996 and
Guaranty and Security Agreement by EHC dated July 25, 1996
*10.12 Term Loan Agreement between EHC and Republic National Bank of New York dated July 29, 1996 and Term
Loan Agreement Promissory Note dated July 29, 1996
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
*10.13 Demand Grid Note between Republic National Bank of New York and EHC dated July 29, 1996
<C> <S>
*10.14 Loan Agreement between EHC and Long Island Development Corporation dated February 21, 1997, Loan
Promissory Note dated February 21, 1997 and Security Agreement dated February 21, 1997
*10.15 Mortgage between K&G Realty Associates and Long Island Commercial Bank dated November 28, 1995, Rider
to Mortgage dated November 28, 1995, Mortgage Note, Guaranty of Mortgage Note by EHC and Assignment of
Leases and Rent
*10.16 Sublease between EHC and MPD dated March 1, 1998
10.17 Collective Bargaining Agreement between EHC and Local 531, International Brotherhood of Teamsters,
AFL-CIO and Extension Agreement dated May 8, 1998
10.18 Stockholders' Agreement between the Company, Andrew Franzone, David L. Kassel and Harry Goodman and
Amendment No. 1 to the Stockholders' Agreement
*10.19 International Plastic Technologies, Inc., 1998 Stock Option and Grant Plan
*10.20 Agreement between AFC and EHC to engineer, manufacture and import products
*21 List of Subsidiaries of the Company
*23.1 Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion filed as Exhibit 5 hereto).
23.2 Consent of Feldman Sherb Ehrlich & Co., P.C. (formerly Feldman Radin & Co., P.C.)
*24 Power of Attorney (included on the signature page)
27.1 Financial Data Schedule for International Plastic Technologies, Inc.
27.2 Financial Data Schedule for Compact Disc Packaging Corp.
</TABLE>
- ------------------
* Previously filed
ITEM 28. UNDERTAKINGS
A. Certificates
The undersigned registrant (the 'Registrant') hereby undertakes to provide
to the Underwriter at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
B. Rule 415 Offering
If the Company elects to register the securities under Rule 415 of the
Securities Act, the undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the Registration Statement and; (iii)
include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
C. Request for Acceleration of Effective Date
The Company may elect to request acceleration of the Effective Date of the
Registration Statement under Rule 461 of the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
II-3
<PAGE>
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
D. Rule 430A Offering
If the Company relies on Rule 430A under the Securities Act, the Company
hereby undertakes that:
(1) For purposes of determinating 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 of the Securities
Act 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 deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all requirements of filing on Form SB-2 and authorizes this Amendment
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York on June 4, 1998.
INTERNATIONAL PLASTIC TECHNOLOGIES,
INC.
By: /s/ ANDREW FRANZONE
-----------------------------------
Andrew Franzone
Chief Executive Officer and
President
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ANDREW FRANZONE Chief Executive Officer, President and Director June 4, 1998
- ------------------------------------------
Andrew Franzone
* Chairman of the Board June 4, 1998
- ------------------------------------------
David L. Kassel
* Vice President and Director June 4, 1998
- ------------------------------------------
Harry Goodman
* Chief Financial Officer and Controller June 4, 1998
- ------------------------------------------
Steven Sgammato
*By: /s/ ANDREW FRANZONE
-------------------------------------
Andrew Franzone, Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and
CDP
*2.2 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and
EHC
*3.1 Certificate of Incorporation of International Plastic Technologies, Inc.
*3.2 By-Laws of International Plastic Technologies, Inc.
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Certificate
4.3 Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust
Company
4.4 Form of Underwriter's Warrant Agreement
*5 Opinion of Koerner Silberberg & Weiner, LLP
*10.1 Employment Agreement between the Company and Andrew Franzone
*10.2 Employment Agreement between the Company and David L. Kassel
*10.3 Employment Agreement between the Company and Harry Goodman
*10.4 Consulting Agreement between the Company and B.C. China Business, Inc. and Letter Agreement
between the Company and Bao-Wen Chen dated March 1, 1998
10.5 Consulting Agreement between the Company and Network 1 Financial Securities, Inc.
10.6 Lease Agreement between the Company and K&G Realty Associates dated December 19, 1989,
Rider to Lease Agreement dated January 1, 1990, Letter Agreement between the Company and
K&G Realty Associates dated March 16, 1995 and Riders to Lease Agreement dated March 1,
1998 and May 14, 1998
10.7 Licensing Agreement between CDP and Inch, Inc.
10.8 Licensing Agreement between DTI and Dr. Richard Deutsch
*10.9 Promissory Notes payable to David L. Kassel dated September 13, 1994, August 1, 1996,
December 31, 1997 and Janaury 1, 1998, and Guarantee of CDP Promissory Note dated January
1, 1998 by International Plastic Technologies, Inc.
*10.10 Promissory Notes payable to Harry Goodman dated September 1, 1994 and August 1, 1996
*10.11 Demand Grid Note between AFC and Republic National Bank of New York dated December 1, 1997,
Term Loan Agreement Promissory Note between AFC and Republic National Bank of New York
dated July 29, 1996 and Guaranty and Security Agreement by EHC dated July 25, 1996
*10.12 Term Loan Agreement between EHC and Republic National Bank of New York dated July 29, 1996
and Term Loan Agreement Promissory Note dated July 29, 1996
*10.13 Demand Grid Note between Republic National Bank of New York and EHC dated July 29, 1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
*10.14 Loan Agreement between EHC and Long Island Development Corporation dated February 21, 1997,
Loan Promissory Note dated February 21, 1997 and Security Agreement dated February 21, 1997
<C> <S> <C>
*10.15 Mortgage between K&G Realty Associates and Long Island Commercial Bank dated November 28,
1995, Rider to Mortgage dated November 28, 1995, Mortgage Note, Guaranty of Mortgage Note
by EHC and Assignment of Leases and Rent
*10.16 Sublease between EHC and MPD dated March 1, 1998
10.17 Collective Bargaining Agreement between EHC and Local 531, International Brotherhood of
Teamsters, AFL-CIO and Extension Agreement dated May 8, 1998
10.18 Stockholders' Agreement between the Company, Andrew Franzone, David L. Kassel and Harry
Goodman and Amendment No. 1 to the Stockholders' Agreement
*10.19 International Plastic Technologies, Inc., 1998 Stock Option and Grant Plan
*10.20 Agreement between AFC and EHC to engineer, manufacture and import products
*21 List of Subsidiaries of the Company
*23.1 Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion filed as Exhibit 5
hereto).
23.2 Consent of Feldman Sherb Ehrlich Radin & Co., P.C. (formerly Feldman Radin & Co., P.C.)
*24 Power of Attorney (included on the signature page)
27.1 Financial Data Schedule for International Plastic Technologies, Inc.
27.2 Financial Data Schedule for Compact Disc Packaging Corp.
</TABLE>
- ------------------
* Previously filed.
<PAGE>
REGISTRATION NO. 333-48701
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THEIR ORGANIZATIONAL DOCUMENTS)
VOLUME I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
___________, 1998
To Underwriters listed on Schedule I attached hereto
c/o Network 1 Financial Securities, Inc.
The Galleria
Building 2/Penthouse
Red Bank, New Jersey 07701-1106
Gentlemen:
The undersigned, International Plastic Technologies, Inc., a Delaware
corporation, hereby confirms its agreement with Network 1 Financial Securities,
Inc., as the representative (the "Representative") of the several underwriters
identified in Schedule I hereto (together with the Representative, the
"Underwriters") as follows. All references to the "Company" shall include
International Plastic Technologies, Inc., and all of its wholly-owned
subsidiaries, to wit Electronic Hardware Corp., a New York corporation ("EHC"),
Compact Disc Packaging Corp., a Delaware corporation ("CDP"), and Duralogic
Technologies, Inc., a New York corporation ("DTI"), unless otherwise noted.
1. Introduction. The Company proposes to issue and sell to the Underwriters
an aggregate amount of 1,250,000 shares of common stock (the "Stock"), par value
$.001 per share (the "Common Stock"), and 1,250,000 Redeemable Common Stock
Purchase Warrants (the "Warrants," and together with the Stock, the
"Securities") of the Company. The Stock and the Warrants shall be separately
transferrable immediately upon issuance. Each Warrant is exercisable
1
<PAGE>
for a five-year period, commencing 12 months from the date the Securities and
Exchange Commission (the "Commission") declares the Registration Statement (as
defined herein) effective and entitles the holder thereof to purchase one share
of Common Stock at an exercise price equal to $5.00 per share (the "Warrant
Stock"), subject to adjustment in certain circumstances. As long as the
Registration Statement (as defined herein) is effective, the Warrants are
redeemable by the Company at any time commencing 12 months after the date of the
prospectus, at a price of $.10 per Warrant, upon
not less than 30 days prior written notice to the registered holders of the
Warrants, provided that the average closing bid quotations of the Common Stock
as reported on the Nasdaq SmallCap Market System ("SCM") or the Boston Stock
Exchange ("BSE"), if traded thereon, or if not traded thereon, the average
closing sale price if listed on a national or regional securities exchange
equals or exceeds 150% of the offering price per share of the Stock for any 20
trading days within a period of 30 consecutive trading days ending on the 15th
day prior to the day on which the Company gives notice of redemption. In
addition, solely for the purpose of covering over-allotments, the Company
proposes to grant to the Representative an option (the "Over-allotment Option")
to purchase from the Company, up to an additional 187,500 shares of Common Stock
(the "Additional Stock") and 187,500 Warrants (the "Additional Warrants," and
together with the Additional Stock, the "Additional Securities"). The Securities
and the Additional Securities are more fully described in the prospectus
referred to below.
2. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with, the
Underwriters that:
(1) The Company has filed with the Commission a registration
statement, and may have filed one or more amendments thereto, on Form SB-2
(Registration File No. 333-48701), including in such registration statement
and each such amendment a related preliminary prospectus, for the
registration of the Securities, the Warrant Stock and the Additional
Securities, the Common Stock issuable upon the exercise of the Additional
Warrants (the "Additional Warrant Stock") the warrants referred to in
Section 5(a)(15) (the "Underwriter's Warrants"), the shares of Common Stock
issuable upon exercise of the Underwriter's Warrants (the "Underlying
Stock"),
2
<PAGE>
Warrants issuable upon the exercise of the Underwriter's Warrants (the
"Underlying Warrants," and together with the Underlying Stock, the
"Underlying Securities") and the Common Stock issuable upon the exercise of
the Underlying Warrants (the "Underlying Warrant Stock") under the
Securities Act of 1933, as amended (the "Act"). As used in this Agreement,
the term "Registration Statement" shall refer to such registration
statement, as amended, on file with the Commission at the time such
Registration Statement becomes effective under the Act (including the
prospectus, financial statements, exhibits, and all other documents filed
as a part thereof, provided, however, that such Registration Statement, at
the time it becomes effective, may omit such information as is permitted to
be omitted from such Registration Statement when it becomes effective under
the Act pursuant to Rule 430A of the General Rules and Regulations of the
Commission under the 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 becomes effective under the Act, the form of
prospectus omitting Rule 430A Information included in the Registration
Statement when the Registration Statement becomes effective under the Act,
if applicable (the "Rule 430A Prospectus"), and any prospectus filed by the
Company with the Representative's consent pursuant to Rule 424(a) of the
Regulations; and the term "Prospectus" shall refer to the final prospectus
in the form first filed pursuant to Rule 424(b)(1) or (4) of the
Regulations or, if no such filing is required, the form of final prospectus
included in the Registration Statement.
(2) When the Registration Statement becomes effective under the Act,
and at all times subsequent thereto up to and including the Closing Date
(as defined in Section 3) and each Additional Closing Date (as defined in
Section 3), and during such longer period as the Prospectus may be required
to be delivered in connection
3
<PAGE>
with sales by the Underwriters or a dealer, and during such longer period
until any post-effective amendment thereto shall become effective under the
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), respectively, will contain all statements
which are required to be stated therein in accordance with the Act and the
Regulations, will comply with the 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 becomes effective under the
Act, the 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 Act or the
Regulations, will comply with the 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 Act and the Regulations, complied
with the 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 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
4
<PAGE>
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 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, Warrant Stock, Additional Securities, Additional Warrant
Stock, Underwriter's Warrants, Underlying Securities, or the Underlying
Warrant Stock, nor has any of such authorities instituted or, to the best
of the Company's knowledge, 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 properly with the Commission as an exhibit to the
Registration Statement.
(5) The Company has no subsidiary or subsidiaries (as defined in the
Regulations) other than as disclosed in the Registration Statement. The
Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, 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 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 be so qualified does not amount
5
<PAGE>
to a material liability or disability to the Company and its subsidiaries
taken as a whole.
(6) The Company has authorized capital stock as disclosed in the
Registration Statement, of which the Prospectus is a part. Except as
disclosed in the Prospectus, 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 rights of
stockholders. 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 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, except as may be properly
be described in the Prospectus. The certificates evidencing the Common
Stock are in proper form.
(7) The consolidated financial statements of the Company and EHC and
the financial statements of CDP included in the Registration Statement and
the Prospectus fairly present 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 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 Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
consistently applied throughout the periods involved, are correct and
complete in all material respects, and are in accordance with the books and
records of the Company and its combined subsidiaries. Feldman Radin & Co.,
P.C., the certified public accountants whose reports on the audited
financial statements are filed with the
6
<PAGE>
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 to the
Company, EHC and CDP, respectively, within the meaning of the Act and the
Regulations. No other financial statements are required by Form SB-2 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 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, or, to the best
knowledge of the Company, threatened or in prospect (or any basis therefor)
with respect to the Company or any of its 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
can not in the future reasonably be expected to have, a material adverse
effect upon the operations, business, properties, or assets of the Company
and its subsidiaries taken as a whole. The Company 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 can not in the future reasonably be
expected to have, a material adverse effect upon the operations, business,
properties, or assets of the Company and its subsidiaries taken as a whole;
nor is the Company required currently to take any action in order to avoid
any such violation or default.
(9) The Company has good 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 such as to
not materially and adversely affect the value of such property and do not
interfere with the use made or proposed to made of such property (or except
as may be properly described in the
7
<PAGE>
Prospectus). No real property leased, licensed, or used by the Company 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 inactions 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 leasing, licensing, or use of such real property in the business
of the Company as presently conducted or as the Prospectus indicates it
contemplates conducting, with such exceptions as are not material and do
not interfere with the use made or proposed to be made of such property and
buildings by the Company (or except as may be properly described in the
Prospectus).
(10) Neither the Company 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 material provision of any
contract, agreement, instrument, lease, license, arrangement, or
understanding which is material to the Company, 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
terms, except as otherwise disclosed in the Prospectus. The Company enjoys
peaceful and undisturbed possession under all leases and licenses under
which it is operating. Except as described in the Prospectus, the Company
is not 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 its
subsidiaries taken as a whole. The Company is not in violation or breach
of, or in default with respect to, any term of its certificate of
incorporation, as amended, (or other charter document) or By-Laws, as
amended.
(11) All United States and foreign patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
franchises, and other
8
<PAGE>
intangible properties and assets (all of the foregoing being herein called
"Intangibles") that the Company owns or has pending, or under which it is
licensed, are in good standing and uncontested, except as may be properly
described in the Prospectus. There is no right under any Intangible
necessary to the business of the Company as presently conducted or as the
Prospectus indicates it contemplates conducting, except as may be so
designated in the Prospectus. The Company to the best of its knowledge has
not received notice of (or knows of any basis for) a third party claim of
infringement with respect to asserted Intangibles of others, except as may
be properly described in the Prospectus. To the knowledge of the Company,
there is no material infringement by others of Intangibles of the Company.
To the knowledge of the Company, there is no Intangible of others 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, except as may be properly described in
the Prospectus.
(12) Neither the Company nor, to the best of the Company's knowledge,
any director, officer, agent, employee, or other person associated with, or
acting on behalf of, the Company 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 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 this Agreement and the Underwriter'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
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Underwriter'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 is enforceable as to the Company in accordance with its
terms. The Underwriter'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 Underwriter's Warrants
(except filings under the Act which have been or will be made before the
Closing Date and filings and consents consisting only of filings and
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 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 Underwriter's Warrants;
and the execution, delivery, and performance of this Agreement and the
Underwriter'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, or violate, result in a breach of, or conflict with any term
of the certificate of incorporation, as amended (or other charter document)
or By-Laws, as amended, 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 to which any of its respective operations,
businesses, properties, or assets are subject.
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(14) The Stock and Additional Stock are 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 stockholders, and the Underwriters will
receive good title to the Stock and Additional Stock free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. The Common Stock, Stock and Additional Stock
conform to all statements relating thereto contained in the Registration
Statement or the Prospectus.
(15) The Warrant Stock and the Additional Warrant Stock are validly
authorized and have been duly and validly reserved for issuance and, when
issued and delivered upon exercise of the Warrants and Additional Warrants,
respectively, 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 rights of stockholders; and the holders of the Warrants and
Additional Warrants, as the case may be, will receive good title to the
Common Stock purchased by them upon the exercise of the Warrants and
Additional Warrants, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts. The Warrants, Additional Warrants, Warrant Stock and the Additional
Warrant Stock conform to all statements relating thereto contained in the
Registration Statement or the Prospectus.
(16) The Underlying Stock and the Underlying Warrant Stock are validly
authorized and have been duly and validly reserved for issuance and, when
issued and delivered upon exercise of the Underwriter's Warrants and
Underlying Warrants, as the case may be, in accordance with the respective
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 rights of stockholders; and
the holders of the Underwriter's Warrants and the Underlying
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Warrants will receive good title to the securities purchased by them upon
the exercise of the such warrants, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and
voting trusts. The Underwriter's Warrants, Underlying Stock, Underlying
Warrants and the Underlying Warrant Stock conform to all statements
relating thereto contained in the Registration Statement or the Prospectus.
(17) 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, the Company has not (i)
issued any securities or incurred any liability or obligation, primary or
contingent, for borrowed money, (ii) entered into any transactions not in
the ordinary course of business, (iii) declared or paid any dividend on its
capital stock, or (iv) experienced any adverse changes or any development
which may materially adversely effect the condition (financial or
otherwise), net assets or stockholders' equity, results of operations,
business, key personnel, assets, or properties of the Company and its
subsidiaries taken as a whole.
(18) Neither the Company nor, to the best of the Company's knowledge,
any of its 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 Securities or the Additional Securities.
(19) The Company has obtained from each of its directors, officers and
principal stockholders a written agreement, in form and substance
satisfactory to counsel for the Underwriters, that, for a period of 24
months from the date on which the Registration Statement shall become
effective under the Act, he or she will not, without the Representative's
prior written consent, publicly offer, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly,
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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 only 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.
Further, if either of Messrs. Andrew Franzone, the Company's Chief
Executive Officer and President, David L. Kassel, the Chairman of the
Company's Board of Directors, and Harry Goodman, the Company's Vice
President and Secretary, dies during such 24-month period, the estate of
the deceased may cause the Company to redeem 250,000 shares for an
aggregate of $500,000 and may sell the remaining shares pursuant to Rule
144 promulgated under the Act, provided that the estate does not sell more
than 25,000 shares within any three-month period.
(20) The Company is not, and does not intend to conduct its business
in a manner in which it would become, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(21) Except for the securities that are being registered pursuant to
the Registration Statement, 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.
(22) 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.
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(23) Neither the Company, nor any of its 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 effective under the 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), the Company 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), will inform the Florida Department within 90 days after
any change occurs with respect to previously reported information.
(24) To the knowledge of the Company, no officer, director, or
principal stockholder of the Company has any affiliation or association
with the National Association of Securities Dealers, Inc. (the "NASD") or
any member thereof.
(25) Except as disclosed in the Prospectus, the Company 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.
(26) To the best knowledge of the Company, none of the activities or
businesses of the Company is in violation of, or will cause the Company to
violate, any law, rule, regulation, or order of the United States, any
state, county, or locality, or of any agency or body of the United States
or of any state, county, or locality, the violation of which would have a
material adverse effect upon the condition (financial or otherwise),
business, property, prospective results of operations, or net worth of the
Company.
3. Purchase, Sale, and Delivery of the Securities and the Additional
Securities. 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
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sell to the Underwriters, and the Underwriters, severally and not jointly, agree
to purchase from the Company on a firm-commitment basis, the numbers of shares
of Stock and Warrants set forth opposite the respective names of the
Underwriters in Schedule I hereto.
The purchase price per share of the Stock to be paid by the Underwriters
shall be $4.05. The public offering price per share of the Stock shall be $4.50.
The purchase price per Warrant to be paid by the Underwriters shall be $.09. The
public offering price per Warrant shall be $.10.
Payment for the Securities by the Underwriters shall be made by certified
or official bank check in New York Clearing House funds payable to the order of
the Company at the offices of Morrison Cohen Singer & Weinstein, LLP, counsel to
the Underwriters, 750 Lexington Avenue, New York, New York 10022, or at such
other place as the Representative shall determine and advise the Company by at
least two full days' notice in writing, upon delivery of the Securities to the
Representative for the respective accounts of the Underwriters. Such delivery
and payment shall be made by 12:00 p.m., New York City local time, on the third
business day following the time of the public offering, as defined in Section
11(a) (unless such time and date is postponed in accordance with the provisions
of Section 9(c)), 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 for the Stock and Warrants 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, or its designee, to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
In addition, the Company hereby grants to the Representative the
Over-allotment Option to purchase all or a portion of the Additional Stock and
Additional Warrants as may be necessary to cover over-allotments, at the same
respective purchase price per share to be paid by the Underwriters to the
Company for the Additional Stock and Additional Warrants as provided for in this
Section 3. The Representative may elect to exercise the Over-allotment Option
for a disproportionate amount of Additional Stock and Additional Warrants. The
Over-allotment Option may be exercised only to cover over-allotments in the sale
of Stock and Warrants by the Underwriters. The Over-allotment Option may be
exercised by the Representative on the basis of the representations, warranties,
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covenants, and agreements of the Company 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 (45th) day following the date on which the Registration
Statement becomes effective under the Act, by written notice by the
Representative to the Company. Such notice shall set forth the aggregate number
of Additional Stock and Additional Warrants as to which the Over-allotment
Option is being exercised (which shall be allocated as the Company and the
Representative deems appropriate) and the time and date, as determined by the
Representative, when such Additional Stock and Additional Warrants are to be
delivered (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 Over-allotment Option shall have
been given not 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, excluding any payments in
connection with the Company's Subchapter S corporation status pursuant to the
Internal Revenue Code of 1986, as amended, as set forth in the Prospectus, 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 and Additional Warrants by the
Representative shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company at the offices of
Morrison Cohen Singer & Weinstein, LLP, counsel to the Underwriters, 750
Lexington Avenue, New York, New York 10022, or at such other place as the
Representative shall determine and advise the Company by at least two full days'
notice in writing, upon delivery of the Additional Stock and Additional Warrants
to the Representative for the account of the Representative.
Certificates for the Additional Stock and Additional Warrants 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 Additional Closing Date with respect thereto. The
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Company shall permit the Representative, or its designee, to examine and package
such certificates for delivery at least one full business day prior to the
Additional Closing Date with respect thereto.
4. Offering. The Underwriters are to make an initial public offering of the
Securities and Additional Securities, as the case may be, as soon, on or after
the date on which the Registration Statement becomes effective under the Act, as
the Representative deems it advisable so to do. The Stock and Warrants or
Additional Stock and Additional Warrants, as the case may be, are to be
initially offered to the public at the respective initial public offering prices
set forth in Section 3 (such respective prices 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 initial Public
Offering Price, in the Representative's sole discretion, 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 Act as promptly as possible and notify the
Representative immediately, and confirm such notice in writing, (i) when
the Registration Statement and any post-effective amendment thereto become
effective under the 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 becomes effective
under the 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), the Company will file with the Commission the Prospectus,
properly completed, pursuant to Rule 424(b) within the time period
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prescribed and will provide evidence satisfactory to the Representative of
such timely filing.
(2) During the time when a prospectus relating to the Securities,
Warrant Stock, Additional Securities and the Additional Warrant Stock is
required to be delivered hereunder or under the Act or the Regulations,
comply with all requirements imposed upon it by the 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 Securities, Warrant Stock, Additional Securities and the
Additional Warrant Stock in accordance with the provisions hereof and the
Prospectus. If, at any time when a prospectus relating to the Securities,
Warrant Stock, Additional Securities or the Additional Warrant Stock is
required to be delivered hereunder or under the 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 reasonable 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 Act or the
Regulations, the Company will immediately notify the Representative and
promptly prepare and file with the Commission an appropriate amendment or
supplement (in form and substance satisfactory to the Representative) which
will correct such statement or omission or which will effect such
compliance and will use its best efforts to have any such amendment
declared effective under the Act as soon as possible.
(3) Deliver without charge to each of the Underwriters such number of
copies of each Preliminary Prospectus as the Underwriters may reasonably
request and, as soon as the Registration Statement, or any amendment
thereto, becomes effective under the Act or a supplement is filed with the
Commission, deliver without
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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 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 Act.
(4) Endeavor in good faith, in cooperation with the Representative, at
or prior to the time the Registration Statement becomes effective under the
Act, to qualify the Securities, Warrant Stock, Additional Securities and
Additional Warrant Stock for offering and sale under the "blue sky" or
securities laws of such jurisdictions as the Representative may designate;
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.
(5) Make generally available (within the meaning of Section 11(a) of
the Act and the Regulations) to its securityholders as soon as practicable,
but not later than 45 days after the end of the fiscal quarter in which the
first anniversary date of the Registration Statement occurs, an earnings
statement (which need not be certified by independent certified public
accountants unless required by the Act or the Regulations, but which shall
satisfy the provisions of Section 11(a) of the Act and the Regulations)
covering a period of at least 12 months beginning after the effective date
of the Registration Statement.
(6) For a period of 24 months after the date on which the Registration
Statement shall become effective under the Act, not, without the
Representative's prior written consent, offer, issue, sell, contract to
sell, grant any option for the sale
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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 provided in Section 3
or as described in the Prospectus and except for the issuance of (i)
300,000 shares of Common Stock which may be issued pursuant to the
Company's Stock Option and Grant Plan, as described in the Prospectus (the
"Plan"), including the shares of Common Stock issuable upon the exercise of
options granted thereunder, (ii) the Underlying Stock and (iii) the
Underlying Warrant Stock.
(7) For a period of five years after the effective date of the
Registration Statement, furnish to the Representative, without charge, the
following:
(i) as soon as practicable after they have been sent to
stockholders of the Company or filed with, or furnished to, the
Commission or the NASD, three copies of each annual and interim
financial, proxy statements and other reports or communications sent
by the Company to its stockholders or filed with, or furnished to, the
Commission or the NASD; and
(ii) as soon as practicable, two copies of every press release
and every material news item and article in respect of the Company or
its affairs which was released by the Company.
(iii) such additional documents and information with respect to
the Company and its affairs as the Representative may from time to
time reasonably request; provided, however, that such additional
documents and information shall be received by the Representative on a
confidential basis, unless otherwise disclosed to the public, and
shall not be used in violation of the Federal Securities laws and the
Regulations.
(8) Apply the net proceeds received by it from the offering
contemplated by this Agreement in a manner as close as practicable to that
set forth under the heading "Use of Proceeds" in the Prospectus.
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(9) Furnish to the Representative as early as practicable prior to the
Closing Date and any Additional Closing Date, as the case may be, but no
less than two full business days prior thereto, a copy of the latest
available unaudited interim consolidated 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
Sections 7(f) hereof.
(10) Comply with all filing and reporting requirements of the Exchange
Act, which may from time to time be applicable to the Company.
(11) Comply with all provisions of all undertakings contained in the
Registration Statement.
(12) Prior to the Closing Date or any Additional Closing Date, as the
case may be, issue no press release or other public communication,
financial in nature or otherwise, 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 of them, or
this offering, without the Representative's prior written consent.
(13) If the principal stockholders, officers, or directors of the
Company are required by the "blue sky" or securities authority of any
jurisdiction selected by the Representative pursuant to Section 5(a)(4) to
escrow or agree to restrict the sale of any security of the Company owned
by them for the Company to qualify or register the Securities or the
Additional Securities for sale under the "blue sky" or securities laws of
any such jurisdiction, use its best power to cause each such person to
escrow or restrict the sale of such securities on the terms and conditions
and in the form specified by the securities administrator of such
jurisdiction.
(14) Use its best efforts to maintain the inclusion of the Securities
and the Additional Securities, if applicable, on the SCM and BSE, for at
least five years from the date of this Agreement.
(15) On the Closing Date, sell to the Representative, individually and
not as the representative of the Underwriters, for an aggregate purchase
price of $10.00,
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the Underwriter's Warrants to purchase up to 125,000 shares of the Stock
and 125,000 Warrants, exclusive of the exercise of any portion of the
Over-allotment Option, which shall be substantially in the form set forth
as an exhibit to the Registration Statement. The Underwriter's Warrants
shall not be redeemable by the Company at any time or for any reason
without the prior, written consent of the Representative. Each
Underwriter's Warrant shall entitle the holder thereof to purchase one
share of Common Stock and one Warrant of the Company at a price equal to
125% of the initial public offering price of the Securities sold in the
offering, respectively, for a four-year period, commencing one year after
the Commission declares the Registration Statement effective. The
Underwriter's Warrants may not be sold, transferred, assigned, pledged or
hypothecated by any person for a period of one year, commencing the date
the Commission declares the Registration Statement effective, except that
it may be transferred, in whole or in part, to one or more officers and
partners of the Representative or Underwriters, as the case may be or by
operation of law; provided, however, that the foregoing restriction shall
lapse in respect to shares of Common Stock and other securities issuable
upon exercise of the Underlying Warrants as the Warrants are called for
redemption. Thereafter, the Underwriter's Warrants will be transferrable
provided such transfer is in accordance with the Act.
(16) For five (5) years following the Effective Date, should the
Company merge, reorganize or take any other action which would terminate
the Underwriter's Warrants, the Company shall make provision, satisfactory
to the Representative or its designees, for either the exercise or
continuation of the Underwriter's Warrants. Furthermore, the Company may
not under any circumstances call for the redemption of the Underwriter's
Warrants. The Underwriter's Warrants will contain certain anti-dilution
provisions in the event the Company (a) subdivides or combines the
outstanding shares of Common Stock, (b) issues or sells any shares of
Common Stock or options or warrants to purchase Common Stock or securities
convertible into Common Stock for consideration less than the prevailing
market price of a share
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of Common Stock or (c) engages in a merger or combination which results in
a reclassification or change of the outstanding Common Stock. In the event
of a merger or acquisition of the Company which involves the issuance of
shares of Common Stock, any change in the exercise price of the
Underwriter's Warrants shall be adjusted based upon the difference between
the exercise price of the Underwriter's Warrants and fair market value of
the Common Stock issued in connection with such merger or acquisition (if
lower than the market price of the Common Stock) and the total number of
outstanding shares of Common Stock. The Company shall set aside and at all
times have available a sufficient number of Shares of Common Stock to be
issued upon exercise of the Underwriter's Warrants.
(17) During the four-year period commencing one year from the
effective date of the Registration Statement, the Company will agree to use
its best efforts to register the (i) Underwriter's Warrants, (ii)
Underlying Stock, (iii) Underlying Warrants and (iv) Underlying Warrant
Stock upon written request of the holders of at least a majority of the
Underlying Stock, no more than once at the Company's own expense, on a
registration statement on Forms SB-2, S-1 or S-3 or other appropriate form,
or offering statement, pursuant to the Act, or file an amendment to the
Registration Statement. These best efforts shall include the preparation
and filing of one demand registration statement with respect to the
securities issuable upon the exercise of the Underwriter's Warrants during
such four-year period and maintaining the effectiveness thereof, for nine
months or until the sale of such securities in the open market, at the
Company's sole expense (other than underwriter or selling broker costs),
including blue sky fees and expenses.
(18) During the period commencing the second year and concluding at
the end of the seventh year after the effective date of the Registration
Statement, notify all holders of the Underwriter's Warrants and securities
issuable thereunder of the Company's intention to do another offering of
the Company's securities (whether by the Company or by any security holder
of the Company) and, if requested by such holders, include any
Underwriter's Warrants, Underlying Stock, Underlying
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Warrants and Underlying Warrant Stock, regardless of whether some of such
holders have availed themselves of any of the demand registration right
described above, in such offering at the Company's sole cost and expense,
and maintain the effectiveness thereof for at least 12 months ("Piggyback
Registration Rights"). The Piggyback Registration Rights are not applicable
to a Registration Statement filed by the Company with the Commission on
Forms S-4, S-8 or any other inappropriate form. The objection of a
subsequent underwriter to the exercise of any Piggyback Registration Rights
and inclusion of such securities, to the extent deemed necessary by such
underwriter, shall be without penalty or prejudice to any of the Piggyback
Registration Rights of the holders of the unregistered Underwriter's
Warrants and securities issuable thereunder. Notwithstanding the foregoing,
to the extent a subsequent underwriter agrees to register a portion of the
Underwriter's Warrants and securities issuable thereunder, such inclusion
shall be on a pro-rata basis to the holders thereof without penalty or
prejudice to the holders of the unregistered securities. However, in such
event, the Company will, within six months of the completion of such
subsequent underwriting, file, at its sole expense, a registration
statement to such register such excluded securities.
(19) Until expiration of the Underwriter's Warrants, keep reserved
sufficient shares of Common Stock for issuance upon exercise of the
Underwriter's Warrants and Underlying Warrants.
(20) Deliver to the Representative, without charge, no later than six
months after the last Additional Closing Date or the expiration of the
period during which the Representative may exercise the Over-allotment
Option, five (5) sets of bound volumes of the complete Registration
Statement and all related materials to the individuals designated by the
Representative or counsel to the Underwriters.
(21) For a period of three years after the effective date of the
Registration Statement, provide, at its sole expense, to the Representative
copies of the Company's daily transfer sheets. The Company shall cause its
depository (at the Company's
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expense) to fax a "special security position report" to the Underwriter on
a weekly basis.
(22) Maintain key-person life insurance, payable to the Company on the
life of Mr. Andrew Franzone, the Company's Chief Executive Officer and
President, in the amount of $200,000 and use its best efforts to increase
such amount by an additional $300,000 for the period of time equal to the
longer of (i) three years from the date on which the Registration Statement
becomes effective under the Act and (ii) the terms of the employment
agreement between the Company and Mr. Franzone.
(23) Use its best efforts, for a period of three years following the
date on which the Registration Statement becomes effective under the Act,
to cause a designee of the Representative to be elected to the Company's
Board of Directors, in the Representative's reasonable judgment, or to be
appointed as an advisor to such Board of Directors (the "Designee"). The
Designee shall attend the meetings of the Board, receive all notices and
other correspondence and communications sent by the Company to members of
the Board of Directors and receive compensation equal to entitlement of
other non-officer Directors. In addition, the Designee shall be entitled to
receive reimbursement for all costs incurred in attending such meetings,
including, but not limited to, food, lodging and transportation. The
Company further agrees that, during said three-year period, it shall
schedule no less than four formal and "in person" meetings of its Board of
Directors in each such year at which meetings the Designee shall be
permitted to attend as set forth herein; said meetings shall be held
quarterly each year and advance notice of such meetings identical to the
notice given to Directors shall be given to the Designee. Further, in the
event the Representative shall not have selected the Designee during such
three-year period, the Company and its principal stockholders shall give
notice to the Representative with respect to any proposed acquisition,
merger, reorganization or other similar transaction.
(24) Indemnify, to the extent permitted by applicable law, and hold
the Representative and the Designee harmless against any and all claims,
actions, damages, costs, expenses and judgments arising solely out of the
attendance and
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participation of the Designee at any such meeting described in Section
5(a)(23) above. In the event the Company maintains a liability insurance
policy affording coverage of its officers and directors, it agrees, if
possible, to include the Designee as an insured party under such policy.
(25) Until the expiration of three years from the date on which the
Registration Statement becomes effective under the Act, not effect a change
in the independent certified public accountants for the Company unless the
Company has received the prior written consent of the Representative.
(26) For a period of three years from date on which the Registration
Statement becomes effective under the Act, the Company, at its expense,
shall cause its regularly engaged independent certified public accountants
to review (but not audit) the Company's financial statements for each of
the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's Quarterly Report on Form
10-QSB, and the mailing of quarterly financial information to stockholders.
(27) Have outstanding, on the Closing Date, 3,195,000 shares of Common
Stock on a fully diluted basis, excluding the Additional Stock, Additional
Warrant Stock, Warrant Stock, Underlying Stock and Underlying Warrant
Stock. The Company will supply the Underwriter with a list of all current
stockholders of the Company and all persons who possess securities
exercisable or exchangeable for, or convertible into, capital stock.
(28) Have in effect on the Closing Date the Plan, which will provide
for the issuance of shares of Common Stock and options to purchase Common
Stock (which in either case shall not be more than an aggregate of 300,000
shares of Common Stock). The Company shall not grant, for a period of three
years following the date on which the Registration Statement becomes
effective under the Act, any options having an exercise price less than the
fair market value of the Common Stock on such date, except that the Company
shall be permitted to grant non-qualified options; provided, however, that
the exercise price of such non-qualified options
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<PAGE>
shall be no less than 85% of the fair market value of the Company's Common
Stock on the date of grant.
(29) Cooperate, in addition to the demand and Piggyback Registration
Rights, with the then holders of the Underwriter's Warrants and securities
issuable thereunder, in the preparation and execution of any registration
statement, in addition to the registration statements and offering
statements referred to above, required in order to sell or transfer the
aforesaid securities and supply all information required to be included in
such registration statement, but the expenses of such additional
registration statement or offering statement will be pro-rated between the
Company and the holders of the registered securities according to the
aggregate sales price of the securities being registered.
(30) For a period of 24 months following the effective date, not
effect any offerings of securities pursuant to Regulation S (or any
successor statute) under the Act, without the Representative's consent,
which consent shall not be unreasonably withheld.
(31) For a period of 24 months following the effective date, not file
a Registration Statement on Form S-8 registering securities other than
securities issued to (i) employees of the Company and its subsidiaries and
(ii) 25,000 shares of Common Stock to be issued to Ms. Bao-Wen Chen under
the Plan in annual increments of 5,000 shares, commencing the date the
Commission declares the Registration Statement effective.
(32) The Company, its subsidiaries and its principal stockholders will
grant to the Representative a right of first refusal for a period of three
years from the effective date for any public or private offering of
securities to raise capital and sale of securities to be made by the
Company, its principal stockholders or any of its present or future
subsidiaries.
(33) At or prior to the Closing Date, the Company shall enter into an
agreement retaining the Representative as management and financial
consultants to the Company for a 24-month period, commencing as of the
Closing Date at a fee equal to $5,000 per month, or an aggregate of
$120,000. The entire fee of $120,000 shall be paid in its entirety on the
Closing Date.
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<PAGE>
(34) Subject to the rules and regulations of the NASD, the Company
will pay the Representative a commission equal to five percent (5%) for all
Warrants exercised more than 12 months after the effective date. The
Representative may allow a portion of this commission to members in good
standing with the NASD. Any costs incurred by the Company in connection
with the solicitation of the exercise price of such Warrants shall be borne
by the Company. The Company agrees not to solicit warrant exercises through
any broker dealer other than the Representative.
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 the following:
(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 other underwriting and
related agreements and related documents, including the cost of all copies
thereof and of the Preliminary Prospectus 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 and the Additional Securities, including any transfer or other
taxes payable thereon;
(c) the qualification of the Securities, Warrant Stock, Additional
Securities and Additional Warrant Stock 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 for the Underwriters'
counsel in the amount of $35,000 and the disbursements in connection
therewith (not including fees of special counsel if required to be incurred
in a merit review state which may require local counsel);
(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 and Warrants
on SCM or BSE, as the case may be;
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<PAGE>
(f) the cost of printing certificates representing the Securities,
Warrant Stock, Additional Securities and Additional Warrant Stock.
(g) the fees of the transfer agent and warrant agent for the Common
Stock and Warrants, respectively;
(h) the cost of publication of "tombstone" advertisements with respect
to the offering;
(i) a non-accountable expense allowance to the Representative equal to
three percent of the gross proceeds of the Securities and, to the extent
Additional Securities are sold, on the gross proceeds of the sale of the
Additional Securities (less amounts, if any, previously paid to the
Representative in respect of such non-accountable expense allowance) to the
Representative on the Closing Date or Additional Closing Date, as the case
may be.
7. Conditions of Underwriter's Obligations. The obligations of the
Underwriters to purchase and pay for the Securities and the Additional
Securities, as provided herein, shall be subject, in their reasonable
discretion, to the continuing accuracy of the representations and warranties of
the Company contained herein in all material respects and in each certificate
and document contemplated under this Agreement to be delivered to the
Representative, 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
of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective under the
Act no later than 6:00 p.m., New York City 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 Regulations.
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<PAGE>
(b) At the Closing Date and any Additional Closing Date, as the case
may be, the Representative shall have received the favorable opinion of
Koerner Silberberg & Weiner, LLP, counsel for the Company, having offices
at 112 Madison Avenue, New York, New York 10016, dated the date of
delivery, addressed to the Underwriters, and in form and scope reasonably
satisfactory to counsel for the Underwriters, with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect
that, as of such Closing Date or Additional Closing Date, as the case may
be:
(1) the Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority, and, to the best of
such counsel's knowledge, 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. To the best of
such Counsel's knowledge, the Company is duly qualified to do business
as a foreign corporation and is in good standing in the jurisdictions
in which its ownership and leasing of any properties or the
characteristics of its operations require such qualification;
(2) EHC is a corporation duly incorporated, validly existing, and
in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority, and, to the best of such
counsel's knowledge, 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. To the best of
such Counsel's knowledge, the Company is duly qualified to do business
as a foreign corporation and is in good standing in the jurisdictions
in which its ownership and leasing of any properties or the
characteristics of its operations require such qualification;
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<PAGE>
(3) CDP is a corporation duly incorporated, validly existing, and
in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority, and, to the best of such
counsel's knowledge, 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. To the best of
such Counsel's knowledge, the Company is duly qualified to do business
as a foreign corporation and is in good standing in the jurisdictions
in which its ownership and leasing of any properties or the
characteristics of its operations require such qualification;
(4) DTI is a corporation duly incorporated, validly existing, and
in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority, and, to the best of such
counsel's knowledge, 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. To the best of
such Counsel's knowledge, the Company is duly qualified to do business
as a foreign corporation and is in good standing in the jurisdictions
in which its ownership and leasing of any properties or the
characteristics of its operations require such qualification;
(5) the authorized capital stock of the Company is as reflected
in the Registration Statement, of which the Prospectus is a part.
Except as disclosed in the Prospectus, 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 statutory preemptive rights of stockholders. To the
knowledge of such counsel, there is no commitment, plan, or
arrangement to issue, and no outstanding option, warrant,
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<PAGE>
or other right calling for the issuance of, any share of capital stock
of the Company 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.
To the knowledge of such counsel, 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, except
as may be described in the Prospectus. The certificates evidencing the
Common Stock are in proper form;
(6) to the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending or in prospect with respect to the
Company and its subsidiaries or its operations, business, 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 can not
reasonably be expected in the future to have, a material adverse
effect upon the operations, business, properties, or assets of the
Company and its subsidiaries.
(7) such counsel has not been advised by the Company that the
Company is now, or is expected to be in violation or breach of, or in
default with respect to, any material provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding
which is material to the Company, except as set forth in Exhibit E,
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;
(8) to the knowledge of such counsel, the Company is not in
violation or breach of, or in default with respect to, any term of its
certificate of incorporation (or other charter document) or By-Laws,
as those documents have been amended or restated;
(9) the Company has all requisite power and authority to execute,
deliver, and perform this Agreement and the Underwriter's Warrants.
All necessary
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<PAGE>
corporate proceedings of the Company have been taken to authorize the
execution, delivery, and performance by the Company of this Agreement
and the Underwriter'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 is enforceable as to
the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency and other laws affecting the enforceability of
creditors' rights generally.
(10) the Underwriter'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. To the knowledge of
such counsel, 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 Underwriter's
Warrants (except filings under the Act which have been made or will be
made before the Closing Date or Additional Closing Date, as the case
may be, and filings and consents consisting only of filings and
consents under "blue sky" or securities laws). No consent of any party
to any material contract or agreement filed as an exhibit to the
Registration Statement or incorporated by reference therein or which,
to the best knowledge of such counsel based solely on the
representations of the Company, is required to be filed as exhibit to
the Registration Statement, is required for the execu tion, delivery,
or performance of this Agreement and the Underwriter's Warrants; and
the execution, delivery, and performance of this Agreement and the
Underwriter'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 or instrument, violate or
result in a breach of, or conflict
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<PAGE>
with any term of the certificate of incorporation (or other charter
document) or ByLaws of the Company.
(11) each share of 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 is not issued in violation of any statutory
preemptive rights of stockholders, and assuming the Underwriters are
"bona fide" purchasers under the Uniform Commercial Code as in effect
in the State of New York, the Underwriters will receive good title to
the shares of Stock purchased by them, from the Company, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts. The
Additional Stock is validly authorized and when issued and delivered
in accordance with the terms hereof, will be fully paid and
nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any
preemptive rights of stockholders, and upon delivery of the Additional
Stock in accordance with the terms of the Over-allotment Option,
assuming the Underwriters are "bona fide" purchasers under the Uniform
Commercial Code as in effect in the state of New York, the
Underwriters will receive good title to the shares of Additional Stock
purchased by them, from the Company, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholder's
agreements and voting trusts. The Common Stock, the Stock, and the
Additional Stock conform in all material respects to all statements
relating thereto contained in the Registration Statement or the
Prospectus;
(12) the Warrant Stock is validly authorized and has been duly
and validly reserved for issuance pursuant to the terms of the
Warrants. The Warrants have been duly and validly authorized, executed
and delivered. The Warrant Stock, when issued and delivered in
accordance with the 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
statutory preemptive rights of
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<PAGE>
stockholders. The holders of the Warrants, assuming the Underwriters
are "bona fide" purchasers under the Uniform Commercial Code as in
effect in the State of New York, will receive good title to the
Warrant Stock upon exercise of the Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Warrants and the
Warrant Stock conform in all material respects to all statements
relating thereto contained in the Registration Statement or the
Prospectus;
(13) the Underlying Stock and Underlying Warrant Stock are
validly authorized and has been duly and validly reserved for issuance
pursuant to the terms of the Underwriter's Warrants and Underlying
Warrants, respectively. The Underlying Warrants have been duly and
validly authorized, executed and delivered. The Underlying Stock and
Underlying Warrant Stock, when issued and delivered in accordance with
the Underwriter's Warrants and Underlying Warrants, respectively 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 statutory preemptive rights of
stockholders. The Representative, and any other holders of the
Underwriter's Warrants, assuming the Underwriters are "bona fide"
purchasers under the Uniform Commercial Code as in effect in the State
of New York, will receive good title to the Underlying Stock and
Underlying Warrants upon exercise of the Underwriter's Warrants and to
the Underlying Warrant Stock upon exercise of the Underlying Warrants,
free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts. The
Underwriter's Warrants, Underlying Stock, Underlying Warrants and
Underlying Warrant Stock conform in all material respects to all
statements relating thereto contained in the Registration Statement or
the Prospectus;
(14) 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
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Statement has been filed with the Commission as an exhibit to the
Registration Statement;
(15) 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 in all material
respects;
(16) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended 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;
(17) 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 as described in the Prospectus; and
(18) such counsel has been advised by the Commission that the
Registration Statement has become effective under the 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 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 has 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
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<PAGE>
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 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 effective date 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, solely on the federal laws of the
United States, the laws of the State of Delaware and the laws of the State of
New York, without giving effect to principles relating to conflicts of laws; (B)
as to matters of fact, to the extent such counsel deems proper, on originals or
copies, certified or otherwise identified to such counsel's satisfaction, of
such corporate records, agreements, documents and other instrument or comparable
documents of public officials; and (C) as to opinions expressed as being made
"to such counsel's knowledge," such counsel's examination is limited to (i) a
review of documents in such counsel's files as to which such counsel has
represented the Company, (ii) conversations with certain of the executive
officers of the Company, and (iii) reasonable inquiry by such counsel into
applicable laws. Such counsel has not made independent investigation as to the
accuracy or completeness of any representations, warranties, data or other
information, written or oral, made or furnished by the Company to such counsel
or to the Representative.
In such examination, counsel has assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to counsel as originals, the conformity to original documents of all
documents submitted to counsel as certified or photostatic copies and the
authenticity of the originals of such latter documents.
(c) On or prior to the Closing Date and any Additional Closing Date, as the
case may be, the Representative shall have been furnished with such information,
documents, certificates,
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and opinions as it may reasonably require and specifically request for the
purpose of enabling it 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 in all material respects, 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 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 and its subsidiaries taken as a whole 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 Act, and
the Company shall not 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 or threatened with
respect to the Company or any of its 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 and its
subsidiaries taken as a whole and (iv) the Securities shall have been approved
for listing on the SCM and BSE.
(e) At the Closing Date and any Additional Closing Date, as the case may
be, the Representative shall have received a certificate of the chief executive
officer, the chief financial
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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 that among
other things (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 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, the Representative 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 the independent
certified public accountants for the Company, dated the date of delivery:
(1) 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 Act and the published Regulations and stating that the
answer to Item 13 of the Registration Statement is correct insofar as it
relates to them;
(2) stating that, in their opinion, the consolidated 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 Act and the related published
rules and regulations;
(3) 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 consolidated 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 stockholders and Board of Directors of the
Company and committees of such Board of Directors, inquiries to certain
officers and other employees of the Company responsible for financial and
accounting matters, and other specified procedures and inquiries,
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nothing has come to their attention that caused them to believe that: (A)
the unaudited consolidated 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 Act, the Exchange Act and the Regulations, 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 stockholders'
equity of the Company as of the date of the latest available consolidated
monthly financial statements of the Company or 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 most recent balance sheet 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 the Representative in its
sole discretion shall accept, or (C) there was any decrease in consolidated
net sales, net earnings, or net earnings per share of Common Stock of the
Company, during the period from the date of such balance sheet to the date
of the latest available consolidated 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
the preceding fiscal year, other than as properly described in the
Registration Statement and Prospectus or any decrease (which shall be set
forth therein) which the Representative in its sole discretion shall
accept; and
(4) 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
40
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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 and the Additional Securities shall be
satisfactory in form and substance to the Representative and to counsel for the
Underwriters, and the Representative shall have received from such counsel for
the Underwriters a favorable 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 initial public offering of
the Securities and the Additional Securities, 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 Underwriter's Warrants with the Representative.
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. 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 Underwriters, may terminate this
Agreement or, if the Representative so elects, in writing waive any such
conditions which have not been fulfilled or extends 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, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act
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<PAGE>
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, reasonable attorneys' fees and any and
all reasonable expenses incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claims 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
Statement, any Preliminary Prospectus, any Rule 430A 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 or the Additional 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 expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, any Rule 430A 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 officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of an Underwriter (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 it may have other than pursuant to this Section 8(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably
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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 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
additional 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. 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
Representative and Underwriters of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the sale of the Securities or the Additional Securities, the
Registration Statement, any Preliminary Prospectus, any Rule 430A 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 director of the Company, each officer of the Company who shall
have signed the Registration Statement on their own behalf or pursuant to a
power of attorney, and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to the
Underwriters in Section 8(a), but only with respect to statements or omissions,
if any, made in the Registration Statement, any Preliminary Prospectus, any Rule
430A Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or on
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<PAGE>
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 the
Representative expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, any Rule 430A 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 the Representative to provide
indemnity under the provisions of this Section 8(b) shall be limited to the
amount which represents the product of the number of shares of Securities and
Additional Securities underwritten by the Representative and the initial public
offering price per share of such as set forth on the cover page of the
Prospectus. For all purposes of this Agreement, the amounts of the selling
concession and reallowance set forth in the Prospectus constitute the only
information furnished in writing by or on behalf of the Representative expressly
for inclusion in the Registration Statement, any Preliminary Prospectus, any
Rule 430A 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 or any other
person so indemnified based on the Registration Statement, any Preliminary
Prospectus, any Rule 430A Prospectus, or the Prospectus, or any amendment or
supplement thereto, or on any application, and in respect of which indemnity may
be sought against the Representative pursuant to this Section 8(b), the
Representative 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 8(a).
(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 8(a) or 8(b)
(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 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 one entity and the
Underwriters, 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
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expenses whatsoever to which any of them may be subject in such proportions as
are appropriate to reflect the relative benefits received by the Company and the
Underwriters in the aggregate; provided, however, that if applicable law does
not permit such allocation, then other relevant equitable considerations such as
the relative fault of the Company and the Underwriters in the aggregate in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative benefits received
by the Company and the Underwriters in the aggregate shall be deemed to be in
the same proportion as (i) the total proceeds from the offering of the
Securities (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and (ii) the total proceeds of the offering of
the Additional Securities (net of underwriting discounts and commissions but
before deducting 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 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 and the Underwriters agree
that it would be unjust and inequitable if the respective obligations of the
Company 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 Section
8(c). In no case shall any Underwriter be responsible for a portion of the
contribution obligation imposed on all Underwriters in excess of its pro rata
share based on the number of shares underwritten by it as compared to the number
of shares underwritten by all Underwriters who do not default in their
obligations under this Section 8(c). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8(c), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee, agent,
and counsel of an Underwriter shall have the same rights to contribution as such
Underwriter and each
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<PAGE>
person, if any, who controls the Company within the meaning of Section 15 of the
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(c). Anything in this Section 8(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 8(c) is intended to supersede any right to contribution under the Act,
the Exchange Act, or otherwise.
(d) Notwithstanding the foregoing, in no event shall the indemnification
agreement contained in this Section 8 inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
losses, claims, damages, liabilities or actions arising from the sale of the
Securities upon the initial public offering to any person by such Underwriter if
such losses, claims, damages, liabilities or actions arise out of, or are based
upon, a statement or omission or alleged omission in a preliminary prospectus
and if, in respect to such statement, omission or alleged omission, the
Prospectus differs in a material respect from such preliminary prospectus and a
copy of the Prospectus has not been sent or given to such person at or prior to
the confirmation of such sale to such person, provided, however, that (i)
sufficient quantities of such Prospectus have been delivered to the Underwriters
to deliver to investors having had received a preliminary prospectus and (ii)
the Company has advised in writing the Underwriters (A) that such Prospectus
materially differs from such preliminary prospectus and (B) to deliver the
Prospectus to such investors.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Securities or Additional Securities hereunder, and if the
number of Securities or Additional Securities to which the defaults of all
Underwriters in the aggregate relate does not exceed 10% of the number of
Securities or Additional Securities, as the case may be, which all Underwriters
have agreed to purchase hereunder, then such Securities or Additional Securities
to which such defaults relate shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
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<PAGE>
(b) If such defaults exceed in the aggregate 10% of the number Securities
or Additional Securities, as the case may be, which all Underwriters have agreed
to purchase hereunder, the Representative may, in the Representative's
discretion, arrange for itself or for another party or parties to purchase such
Securities or Additional Securities, 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 Securities or Additional Securities within five
business days after the occurrence of defaults relating to in excess of 10% of
the Securities or the Additional Securities, as the case may be, then the
Company shall be entitled to a further period of four business days within which
to procure another party or parties reasonably satisfactory to the
Representative to purchase such Securities or Additional Securities, as the case
may be, on such terms. If the Representative or the Company with respect to the
Securities or Additional Securities, as the case may be, does not arrange for
the purchase of the Securities or Additional Securities to which such defaults
relate as provided in this Section 9(b), this Agreement may be terminated by the
Representative or Company with respect to the Securities or Additional
Securities, in each case without liability on the part of the Company (except
that the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall survive such
termination) or the several Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for any damages occasioned by its default
hereunder.
(c) If the Securities or Additional Securities 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 Securities or Additional Securities shall have the
right to postpone the Closing Date or the Additional Closing Date, as the case
may be, for a reasonable period but in any event not more than ten 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 Securities or the Additional Securities, 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
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to this Agreement and had been allocated the number of Securities and Additional
Securities actually purchased by it as a result of its original commitment to
purchase Securities and Additional Securities and its purchase of Securities or
Additional Securities 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 Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, 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 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 Securities and the Additional Securities
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.
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 Act. 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 Act.
(b) If the relative purchase price of the Stock and the Warrants as
provided for in Section 3 has been changed and has not been determined prior to
4:30 p.m., New York City local time, on the third full business day after the
date the Registration Statement becomes effective under the 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
relative purchase price for the Stock and Warrants has been so determined. If
the relative purchase price of the Stock and Warrants has not been so determined
prior to 4:30 p.m., New York City local time, on the tenth full
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business day after the date the Registration Statement becomes effective under
the 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 by giving notice to the
Company, and, if exercised, the Over-allotment Option, at any time prior to any
Additional Closing Date, by giving notice to the Company, (i) if any domestic or
international event, act, or occurrence has materially disrupted, or, in the
Representative's opinion, will in the immediate future materially disrupt, the
securities 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, Boston Stock Exchange or the American Stock Exchange or in the
over-the-counter market; or (iii) if there shall have been any new 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 Representative's opinion, make it
inadvisable to proceed with the offering, sale, or delivery of the or the
Additional Securities, as the case may be; or (viii) if any two of David L.
Kassel, Andrew Franzone and Harry Goodman are rendered disabled or die or
otherwise become unable to function in their respective official capacities at
the Company; or (ix) 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 (x) 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 Stock and Warrants; or (xi) if there shall have a material
adverse change in the market for the Securities or securities in general or in
political, financial, or
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economic conditions as in the Representative's judgment makes it inadvisable to
proceed with the offering, sale, and delivery of the Securities or the
Additional Securities, 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, the
Representative shall notify the Company 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 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 by the Representative pursuant to this Section 11, the sole liability
of the Company to the Underwriters, in addition to the obligations the Company
assumed pursuant to Section 6, will be to reimburse the Underwriters for
accountable out-of-pocket expenses only as shall have been incurred by them in
connection with this Agreement or the proposed offer, sale, and delivery of the
Securities and the Additional Securities, and, upon demand, the Company agrees
to pay promptly the full amount thereof to the Representative for the respective
accounts of the Underwriters. 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 to perform any covenant or agreement or satisfy any condition of
this Agreement by it to be performed or satisfied, the Company shall have no
liability to the Underwriters other than for obligations assumed by the Company
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.
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:
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Network 1 Financial Securities, Inc.
The Galleria
Building 2/Penthouse
2 Bridge Avenue
Red Bank, New Jersey 07701-1106
Attention: Virginia K. Sourlis, Esq.
Telephone: (800) 886-7007
Facsimile: (732) 758-6671
with copies to: Damon Testaverde
580 Oakdale Street
Staten Island, New York 10312
Telephone: (718) 317-7746
Facsimile: (718) 966-9711
and Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attention: Robert H. Cohen, Esq.
Philip Magri, Esq.
Telephone: (212) 735-8600
Facsimile: (212) 735-8708
or if sent to the Company shall be mailed, delivered, or telexed or telegraphed
and confirmed by letter, to the Company:
International Plastic Technologies, Inc.
320 Broad Hollow Road
Farmingdale, New York 11735
Attention: Andrew Franzone, President
Telephone: (516) 752-1950
Facsimile: (516) 752-1971
with a copy to: Koerner Silberberg & Weiner, LLP
112 Madison Avenue
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
Guido A. Panzera, Esq.
Telephone: (212) 689-4400
Facsimile: (212) 689-3077
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All notices hereunder shall be effective upon receipt by the party to which it
is addressed.
13. Parties. The Representative represents that it is authorized to act on
behalf of the several Underwriters named in Schedule I hereto, and the Company
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 the Representative on such behalf. This Agreement shall inure
solely to the benefit of, and shall be binding upon, the Underwriters and the
Company, 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
Securities or the Additional Securities), 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.
14. Severability. Should any provision or portion of any provision of this
Agreement be invalidated for any reason, the validity of the remaining
provisions or of the other portion of the provision in question shall not be
affected thereby. This Agreement supersedes any prior letter, agreement or
understanding concerning the subject matter hereof.
15. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
16. Counterparts. The Agreement may be executed in any number of
counterparts and each of such counterpart shall for all purposes be deemed to be
an original, and such counterparts shall together constitute but one and the
same instrument.
17. Construction. THIS AGREEMENT SHALL BE 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.
18. 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
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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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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If the foregoing correctly sets forth the understanding between the
Representative and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
INTERNATIONAL PLASTIC
TECHNOLOGIES, INC.
By:
----------------------------
Name: Andrew Franzone
Title: President
Accepted as of the date first above
written in New York, New York
NETWORK 1 FINANCIAL SECURITIES, INC.*
By:
---------------------------------
Name: William R. Hunt, Jr.
Title: President
* On behalf of itself and the other several
Underwriters named in Schedule I hereto.
54
<PAGE>
SCHEDULE I
Underwriter Stock Purchased Warrants Purchased
Network 1 Financial Securities, Inc.
--------- ---------
Total: 1,250,000 1,250,000
========= =========
55
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
- ------ ------
CUSIP 46017R 10 4
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
10,000,000 SHARES PAR VALUE $.001 EACH
See Reverse for
Certain Definitions
VOTING COMMON STOCK
THIS IS TO CERTIFY THAT ____________________________________________ IS THE
OWNER OF ____________________________________________________________ fully paid
and non-assessable shares of the above Corporation transferable only on the
books of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED
- ------------------------------------- --------------------------------------
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - - as tenants in common
TEN ENT - - as tenants by the entireties
JT TEN - - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ____________________ Custodian __________________
(Cust) (Minor)
under Uniform Gifts to Minors Act ____________________________________
(State)
For value received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
_________________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
______________________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________ 19___ ______________________________
In presence of
- ----------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as
written upon the face of the certificate
in every particular without alteration
or enlargement or any change whatever.
<PAGE>
No. W _______________________ VOID AFTER _______, 2003
______ WARRANTS
REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
EXERCISABLE FROM ___________, 1999
UNTIL 5:00 P.M. (EST) _________, 2003
CUSIP 46017R 11 2
THIS WARRANT CERTIFICATE CERTIFIES THAT, FOR VALUE RECEIVED
___________ or registered assigns (the "Registered Holder") is the owner of
the number of Redeemable Common Stock Purchase Warrants (the "Warrants")
specified above. Each Warrant initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.001 par value (the "Common Stock"), of International
Plastic Technologies, Inc., a Delaware corporation (the "Company"), at any time
from _______, 1999 (the "Initial Warrant Exercise Date") and prior to the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Exercise Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer & Trust Company,
2 Broadway, New York, New York 10004, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $5.00, subject to adjustment (the
"Exercise Price"), in lawful money of the United States of America in cash or by
certified or bank check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated as of _______, 1998, among the Company,
Network 1 Financial Securities, Inc. (the "Representative") and the Warrant
Agent (the "Warrant Agreement").
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares will be issued. In the case of the
exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York City time) on
________, 2003; provided, that if such date is not a business day, it shall mean
5:00 p.m., New York City time, on the next following business day. For purposes
hereof, the term "business day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York City, New York, are
authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless at the time of exercise
the Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
securities issuable upon exercise of the Warrants represented hereby and such
registration statement has been declared and shall remain effective and shall be
current, and such securities have been registered or qualified or be exempt
under the securities laws of the state or other jurisdiction of residence of the
Registered Holder and the exercise of the Warrants represented hereby in any
such state or other jurisdiction shall not otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing _______, 1999, provided that the closing bid
quotations of the Common Stock as reported on The NASDAQ SmallCap Market or the
Boston Stock Exchange, if traded thereon, or if not traded thereon, the closing
sale price if listed on a national or regional securities exchange (or other
reporting system that provides last sale prices), shall have for a period of any
20 trading
2
<PAGE>
days within a period of 30 consecutive trading days ending on the 15th day prior
to the date on which the Company gives the Notice of Redemption (as defined
below) exceeds 150% of the then Exercise Price, subject to the right of the
Registered Holder to exercise such Warrants prior to redemption. Notice of
redemption (the "Notice of Redemption") shall be given by the Company no less
than 30 days before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no right with respect to this Warrant except to receive the
$.10 per Warrant upon surrender of this Certificate.
Under certain circumstances described in the Warrant Agreement, the
Representative shall be entitled to receive as a solicitation fee an aggregate
of 5% of the Exercise Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated ______________
SEAL INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
By: ____________________________________
Andrew Franzone
Chief Executive Officer
By: ____________________________________
Harry Goodman
Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY,
as Warrant Agent
By:____________________________________
Authorized Officer
4
<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder
in order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
___________ Warrants represented by this Warrant Certificate, and to purchase
the securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
--------------------------------------
--------------------------------------
--------------------------------------
(please print or type name and address)
and be delivered to
--------------------------------------
--------------------------------------
--------------------------------------
(please print or type name and address)
and if such number of exercised Warrants shall not be all the Warrants evidenced
by this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by Network 1 Financial
Securities, Inc., please check the following box. |_|
2. The exercise of this Warrant was solicited by
------------------------------------------------------------------------
<PAGE>
3. If the exercise of this Warrant was not solicited, please check the
following box. |_|
Dated: ___________________________ X______________________________
- ----------------------------------
- ----------------------------------
Address
- ----------------------------------
Social Security or Taxpayer
Identification Number
- ----------------------------------
Signature Guaranteed
2
<PAGE>
ASSIGNMENT
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________, hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
--------------------------------------
--------------------------------------
--------------------------------------
(please print or type name and address)
______________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints ________________________________
as its/his/her attorney-in-fact to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: _____________________ x______________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
<PAGE>
WARRANT AGREEMENT
AMONG
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
a Delaware corporation,
NETWORK 1 FINANCIAL SECURITIES, INC.
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY.
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. APPOINTMENT OF WARRANT AGENT ....................................... 2
2. FORM OF WARRANT .................................................... 2
3. COUNTERSIGNATURE AND REGISTRATION .................................. 4
4. TRANSFERS AND EXCHANGES ............................................ 4
5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION
FEE ........................................................... 5
6. PAYMENT OF TAXES ................................................... 9
7. MUTILATED OR MISSING WARRANTS ......................................10
8. RESERVATION OF COMMON STOCK ........................................10
9. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF SECURITIES ..............11
10. FRACTIONAL INTERESTS ...............................................21
11. NOTICES TO WARRANTHOLDERS ..........................................21
12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS ....................23
13. REDEMPTION OF WARRANTS .............................................23
14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
WARRANT AGENT .................................................24
15. DUTIES OF WARRANT AGENT ............................................25
16. CHANGE OF WARRANT AGENT ............................................27
17. IDENTITY OF TRANSFER AGENT .........................................29
18. NOTICES ............................................................29
19. SUPPLEMENTS AND AMENDMENTS .........................................30
20. NEW YORK CONTRACT ..................................................31
21. BENEFITS OF THIS AGREEMENT .........................................31
22. SUCCESSORS .........................................................31
23. SEVERABILITY .......................................................31
24. CAPTIONS ...........................................................32
23. COUNTERPARTS .......................................................32
<PAGE>
WARRANT AGREEMENT, dated as of ________, 1998, among International Plastic
Technologies, Inc., a Delaware corporation (the "Company"), Network 1 Financial
Securities, Inc. ("Network 1 Financial" or "Representative") and Continental
Stock Transfer & Trust Company, as warrant agent (the "Warrant Agent").
The Company proposes to issue and sell through an initial public offering
(the "IPO") underwritten by a group of underwriters (the "Syndicate") for whom
Network 1 Financial is acting as the representative on a firm commitment basis,
an aggregate of 1,250,000 shares of common stock, $.001 par value, of the
Company (the "Common Stock"), and 1,250,000 redeemable Common Stock purchase
warrants ("Warrants") to purchase an equal number of shares of Common Stock in
accordance with Section 2(b) hereof and, pursuant to Network 1 Financial's
over-allotment option (the "Over-allotment Option"), an additional 187,500
shares of Common Stock and 187,500 Warrants. The shares of Common Stock and
Warrants shall be purchased separately in the IPO.
In consideration for its services as representative of the Syndicate in
connection with the IPO, the Company proposes to sell to Network 1 Financial
warrants (the "Underwriter's Warrants") to purchase 125,000 shares of Common
Stock and 125,000 Warrants for an aggregate purchase price of $10.00.
The Company desires the Warrant Agent to act on behalf of the Company, and
the Warrant Agent is willing so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants. The Warrants
shall be redeemable by the Company as set forth in Section 13 hereof.
THEREFORE, the parties hereto agree as follows:
<PAGE>
Section 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Upon the execution of this Agreement, certificates representing 1,250,000
Warrants to purchase an aggregate of 1,250,000 shares of Common Stock (subject
to modification and adjustment as provided in Section 9 hereof) shall be
executed by the Company and delivered to the Warrant Agent.
Upon the exercise of the Over-allotment Option, certificates representing
up to 187,500 Warrants to purchase an aggregate of 187,500 shares of Common
Stock (subject to adjustment as provided in Section 9 hereof) shall be executed
by the Company and delivered to the Warrant Agent.
Upon exercise of the Underwriter's Warrant as provided therein,
certificates representing 125,000 Warrants to purchase an aggregate of 125,000
shares of Common Stock (subject to adjustment as provided in Section 9 hereof)
shall be executed by the Company and delivered to the Warrant Agent.
Section 2. FORM OF WARRANT.
(a) The text of the Warrants and the form of election to purchase Common
Stock to be printed on the reverse thereof shall be substantially as set forth
in Exhibit A attached hereto (the provisions of which are hereby incorporated
herein). All of the certificates for the Warrants may have such letters, numbers
or other marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company
2
<PAGE>
may deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage.
(b) Each Warrant shall initially entitle the registered holder thereof to
purchase one share of Common Stock at a purchase price of five dollars ($5.00)
(as adjusted as hereinafter provided, the "Exercise Price"), at any time during
the four-year period (the "Exercise Period") commencing on _______, 1999, the
one year anniversary of the date the Securities and Exchange Commission declares
the Company's registration statement on Form SB-2 filed on March 26, 1998, File
No. 333-48701 (the "Registration Statement") to be effective (the "Effective
Date") and expiring at 5:00 p.m. New York City time, on _______, 2003, the fifth
anniversary of the Effective Date (the "Expiration Date"). The Exercise Price
and the number of shares of Common Stock issuable upon exercise of the Warrants
are subject to adjustment upon the occurrence of certain events, all as
hereinafter provided. The Warrants shall be executed on behalf of the Company by
the manual or facsimile signature of the present or any future Chairman of the
Board or Vice Chairman, Chief Executive Officer, President or Vice President of
the Company, and attested to by the manual or facsimile signature of the present
or any future Secretary, Treasurer, or Assistant Secretary or Assistant
Treasurer of the Company, and shall have imprinted thereon a facsimile of the
Company's seal.
(c) Warrants shall be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange and issued in
registered form. Warrants
3
<PAGE>
shall be numbered serially with the letter "W" on the Warrants. Warrants shall
be redeemable as set forth in Section 13 hereof.
(d) In the event the Expiration Date falls on a day that is not a business
day, then the Warrants shall expire at 5:00 p.m. New York City time on the next
succeeding business day. For purposes hereof, the term "business day" shall mean
any day other than a Saturday, Sunday or a day on which banking institutions in
New York City, New York, are authorized or obligated by law to be closed.
Section 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. The Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Section 4. TRANSFERS AND EXCHANGES. The Warrant Agent shall transfer, from
time to time, any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee or in accordance with
such transferee's instructions and the surrendered Warrant
4
<PAGE>
shall be canceled by the Warrant Agent and reflected in the record books of the
Company. Warrants so canceled shall be delivered by the Warrant Agent to the
Company from time to time upon request. Warrants may be exchanged at the option
of the holder thereof, when surrendered at the office of the Warrant Agent, 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 shares of
Common Stock. No certificates for Warrants shall be issued except for (i)
Warrants initially issued hereunder in accordance with Section 1 hereof, (ii)
Warrants reflecting the partial exercise of a predecessor Warrant by the holder
thereof, (iii) Warrants issued upon any transfer or exchange of Warrants, (iv)
Warrants issued in replacement of lost, stolen, destroyed or mutilated
certificates for Warrants pursuant to Section 7 hereof, and (v) at the option of
the Board of Directors of the Company, Warrants in such form as may be approved
by its Board of Directors, to reflect any adjustment or change in the Exercise
Price or the number of shares of Common Stock issuable upon exercise of the
Warrants pursuant to Section 9 hereof.
Section 5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION FEE.
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, at any time during the Exercise Period, to exercise such
Warrants and purchase the number of shares of Common Stock specified in such
Warrants upon presentation and surrender of such Warrants to the Company at the
corporate office of the Warrant Agent, with the exercise form on the reverse
thereof duly executed, and upon payment to the Company of the Exercise Price,
determined in accordance with the provisions of Sections 2, 9 and 10 of this
Agreement, for the number of shares of Common Stock in respect of which such
Warrants are then exercised. Payment of the Exercise Price shall be made in cash
or
5
<PAGE>
by certified or official bank check in New York Clearing House funds payable to
the order of the Company. Subject to Section 6 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Warrant Agent, on behalf of the
Company, shall cause to be issued and delivered with all reasonable dispatch to
or upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares of Common Stock
immediately prior to the close of business on the date of the surrender of such
Warrants and payment of the Exercise Price as aforesaid. The rights of purchase
represented by the Warrants shall be exercisable during the Exercise Period, at
the election of the registered holders thereof, either in their entirety or from
time to time for a portion of the shares specified therein and, in the event
that any Warrant is exercised in respect of less than all of the shares of
Common Stock specified therein at any time prior to the earlier of the
Expiration Date or date of redemption pursuant to Section 13 hereof, a new
Warrant or Warrants will be issued to the registered holder for the remaining
number of shares of Common Stock specified in the Warrant so surrendered, and
the Warrant Agent is hereby irrevocably authorized to countersign and to deliver
the required new Warrants pursuant to the provisions of this Section 5 and of
Section 3 of this Agreement and the Company, whenever requested by the Warrant
Agent, will supply the Warrant Agent with Warrants duly executed on behalf of
the Company for such purpose. Upon the exercise of any one or more Warrants, the
Warrant Agent shall promptly notify the Company in writing of such fact and of
the number of securities
6
<PAGE>
delivered upon such exercise and, subject to the provisions below, shall cause
all payments of an amount, in cash or by check made payable to the order of the
Company, equal to the aggregate Exercise Price for such Warrants, less any
amounts payable to the Representative pursuant to Section 5(a) below, to be
deposited promptly in the Company's bank account. The Company and Warrant Agent
shall determine, in their sole and absolute discretion, whether a Warrant
certificate has been properly completed for exercise by the registered holder
thereof.
Anything in the foregoing to the contrary notwithstanding, no Warrant shall
be exercisable and the Company shall not be obligated to deliver any securities
pursuant to the exercise of any Warrant unless at the time of exercise the
Company has filed with the Securities and Exchange Commission a registration
statement pursuant to the Securities Act of 1933, as amended (the "Act"),
therein registering the securities issuable upon exercise of such Warrant and
such registration statement shall have been declared and shall remain effective
and shall be current, and such shares have been registered or qualified or be
exempt under the securities laws of the state or other jurisdiction of residence
of the holder of such Warrant and the exercise of such Warrant in any such state
or other jurisdiction shall not otherwise be unlawful. During the Exercise
Period, the Company shall use its best efforts to have a current registration
statement on file with the Securities and Exchange Commission covering the
issuance of Common Stock underlying the Warrants so as to permit the Company to
deliver to each person exercising a Warrant a prospectus meeting the
requirements of Section 10(a)(3) of the Act and otherwise complying therewith,
and will deliver such prospectus to each such person. During the Exercise
Period, the Company shall also use its best efforts to effect appropriate
qualifications of the Common Stock underlying the Warrants under the laws and
regulations of the states and other
7
<PAGE>
jurisdictions in which the Common Stock and Warrants are sold by the
Underwriters in the IPO in order to comply with applicable laws in connection
with the exercise of the Warrants.
(a) If at the time of exercise of any Warrant (i) the market price of the
Common Stock is not less than the then exercise price of the Warrant, (ii) the
exercise of the Warrant is solicited by the Representative at such time as it is
a member of the National Association of Securities Dealers, Inc. ("NASD") and
the Representative is designated in writing by the holder of the Warrants as the
NASD member soliciting the exercise, (iii) the Warrant is not held in a
discretionary account, (iv) disclosure of the compensation arrangements is made
in documents provided to the holders of the Warrants both at the time of the IPO
and at the time of the exercise of the Warrants, and (v) the solicitation of the
exercise of the Warrants is not in violation of Rule 101 of Regulation M (as
such rule or any successor rule may be in effect as of such time of exercise)
promulgated under the Securities Exchange Act of 1934, as amended, then the
Representative shall be entitled to receive from the Company following exercise
of each of the Warrants so exercised a fee of five percent (5%) of the aggregate
exercise price of the Warrants so exercised (the "Exercise Fee"). The procedures
for payment of the Exercise Fee are set forth in Section 5(b) below.
(b) (i) Within five (5) days after the last day of each month commencing
with _________, 1999, one year after the Effective Date, the Warrant Agent will
notify the Representative of each Warrant certificate which has been properly
completed for exercise by holders of Warrants during the last month. The Warrant
Agent will provide the Representative with such information, in connection with
the exercise of each Warrant, as the Representative shall reasonably request.
8
<PAGE>
(ii) The Company hereby authorizes and instructs the Warrant Agent to
deliver to the Representative the Exercise Fee, if payable, in respect of each
exercise of Warrants, directly from the Exercise Price remitted to the Warrant
Agent in accordance with this Section 5. In the event that an Exercise Fee is
paid to the Representative with respect to a Warrant which the Company and the
Warrant Agent reasonably determine is not properly completed for exercise or in
respect of which the Representative is not entitled to an Exercise Fee, the
Representative will return such Exercise Fee to the Warrant Agent which shall
forthwith return such fee to the Company.
The Representative and the Company may at any time during business hours
examine the records of the Warrant Agent, including its ledger of original
Warrant certificates returned to the Warrant Agent upon exercise of Warrants.
Notwithstanding any provision to the contrary, the provisions of paragraph 5 (a)
and 5 (b) may not be modified, amended or deleted without the prior written
consent of the Representative.
Section 6. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates for shares of Common Stock in a name
other than that of the registered holder of Warrants in respect of which such
shares are issued, and in such case neither the Company nor the Warrant Agent
shall be required to issue or deliver any certificate for shares of Common Stock
or any Warrant until the person requesting the same has paid to the Company the
amount of such tax or has
9
<PAGE>
established to the Company's satisfaction that such tax has been paid or that no
such tax is required to be paid.
Section 7. MUTILATED OR MISSING WARRANTS. In the event that any Warrants
are mutilated, lost, stolen or destroyed, the Company may, in its discretion,
issue and the Warrant Agent shall countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction and, in case of a lost, stolen or destroyed Warrant,
indemnity or bond, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
Section 8. RESERVATION OF COMMON STOCK. There have been reserved, and the
Company shall at all times keep reserved, out of its authorized shares of Common
Stock, a number of shares of Common Stock sufficient to provide for the exercise
of the rights of purchase represented by the Warrants, and the transfer agent
for the shares of Common Stock and every subsequent transfer agent for any
shares of Common Stock issuable upon the exercise of any of the aforesaid rights
of purchase are irrevocably authorized and directed at all times to reserve such
number of authorized shares of Common Stock as shall be required for such
purpose. The Company covenants that all shares of Common Stock issuable upon
exercise of the Warrants shall be, at the time of delivery of the certificates
for such shares against payment of the Exercise Price therefor, validly issued,
fully paid, nonassessable, free of any preemptive
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rights, voting trust or indenture and listed on any national securities exchange
or included in any interdealer automated quotation system upon or in which the
other shares of outstanding Common Stock are then listed or included. The
Company will keep a copy of this Agreement on file with the transfer agent for
the shares of Common Stock (which may be the Warrant Agent) and with every
subsequent transfer agent for any shares of Common Stock issuable upon the
exercise of the Warrants. The Warrant Agent is irrevocably authorized to
requisition from time to time from such transfer agent stock certificates
required to honor outstanding Warrants. The Company will supply such transfer
agent with duly executed stock certificates for that purpose. All Warrants
surrendered in the exercise of the rights thereby evidenced shall be canceled by
the Warrant Agent and shall thereafter be delivered to the Company, and such
canceled Warrants shall constitute sufficient evidence of the number of shares
of Common Stock which have been issued upon the exercise of such Warrants.
Promptly after the date of expiration of the Warrants, the Warrant Agent shall
certify to the Company the total aggregate amount of Warrants then outstanding,
and thereafter no shares of Common Stock shall be subject to reservation in
respect of such Warrants which shall have expired.
Section 9. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF SECURITIES.
(a) Computation of Adjusted Price. Except as hereinafter provided, in case
the Company shall, at any time after the date of closing of the sale of
securities pursuant to the IPO (the "Closing Date"), issue or sell any shares of
Common Stock (other than the issuances or sales referred to in Section 9(f)
hereof), including shares held in the Company's treasury and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
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for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed pursuant to
Section 9(h) hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, (i)
for a consideration per share less than the lesser of the (A) "Market Price" (as
defined in Section 9(a)(vi) hereof) per share of Common Stock on the trading day
immediately preceding such issuance or sale or (B) the Exercise Price in effect
immediately prior to such issuance or sale, or (ii) without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) determined by multiplying the Exercise Price in effect immediately prior
to such issuance or sale by a fraction, the numerator of which shall be the sum
of (1) the number of shares of Common Stock outstanding immediately prior to
such issuance or sale multiplied by the Exercise Price immediately prior to such
issuance or sale plus (2) the consideration received by the Company upon such
issuance or sale, and the denominator of which shall be the product of (x) the
total number of shares of Common Stock outstanding immediately after such
issuance or sale, multiplied by (y) the Exercise Price immediately prior to such
issuance or sale; provided, however, that in no event shall the Exercise Price
be adjusted pursuant to this computation to an amount in excess of the Exercise
Price in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 9(c)
hereof. In no event shall the Exercise Price be increased.
For the purposes of any computation to be made in accordance with this
Section 9(a), the following provisions shall be applicable:
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(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by
the Company for subscription, the subscription price, or, if such
securities shall be sold to underwriters or dealers for public offering
without a subscription offering, the public offering price) before
deducting therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection
therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock
for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be
the fair market value of such consideration as determined in good faith by
the Board of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled
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to receive such shares, and the value of the consideration allocable to
such shares of Common Stock shall be determined as provided in subsection
(ii) of this Section 9(a).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable upon the
exercise of options, warrants or rights and upon the conversion or exchange
of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date shall be
deemed to be the average of the last reported sale price, or, in case no
such reported sale takes place on such day, the average of the last
reported sale prices for the last three trading days, in either case as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or as reported by the Nasdaq
Stock Market, Inc. ("NASDAQ") or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted on the
NASDAQ National Market ("NMS"), but is quoted on The NASDAQ SmallCap Market
or the NASD's Electronic Bulletin Board, the closing bid quotation as
reported by NASDAQ the National Quotation Bureau Incorporated or a similar
organization, or if the Common Stock is not quoted on NASDAQ or the
Electronic Bulletin Board, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available
to it for the day immediately preceding such issuance or sale, the day of
such issuance or sale and the day immediately after such issuance or sale.
If the Common Stock is listed or admitted to trading on a national
securities exchange and also quoted on the NASDAQ National Market, the
Market Price shall be determined as herein above provided by reference to
the prices reported in the NASDAQ National Market; provided that if the
Common
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Stock is listed or admitted to trading on the New York Stock Exchange, the
Market Price shall be determined as herein above provided by reference to
the prices reported by such exchange.
(b) Options, Rights, Warrants and Convertible and Exchangeable Securities.
Except in the case of the Company issuing rights to subscribe for shares of
Common Stock distributed pursuant to Section 9(h) hereof, if the Company shall
at any time after the Closing Date issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible into
or exchangeable for shares of Common Stock, in each case other than the
issuances or sales referred to in Section 9 (f) hereof, (i) for a consideration
per share less than the lesser of (A) the Exercise Price in effect immediately
prior to the issuance of such options, rights or warrants, or such convertible
or exchangeable securities, or (B) the Market Price on the trading day
immediately preceding such issuance, or (ii) without consideration, the Exercise
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provisions of Section 9(a) hereof; provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under all the outstanding options, rights or
warrants, less those securities redeemed, expired, terminated or otherwise
not exercisable at the time of such anti-dilution calculation, shall be
deemed to be issued and outstanding at the time all the outstanding
options, rights or warrants were issued, and for a consideration equal to
the minimum purchase price per share provided for in the options, rights or
warrants at the time of issuance, plus the consideration (determined in the
same manner as consideration received on the issue or sale of shares in
accordance with the terms of Section 9(a)), if any, received by the
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Company for the options, rights or warrants, and if no minimum purchase
price is provided in the options, rights or warrants, then the minimum
purchase price shall be equal to zero.
(ii) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities,
excluding those securities not convertible or exchangeable at the time of
such anti-dilution calculation, shall be deemed to be issued and
outstanding at the time of issuance of such securities, and for a
consideration equal to the consideration (determined in the same manner as
consideration received on the issue or sale of shares of Common Stock in
accordance with the terms of Section 9(a)) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the
Company upon the conversion or exchange thereof. No adjustment will be made
pursuant to this subsection (ii) upon the issuance by the Company of any
convertible or exchangeable securities pursuant to the exercise of any
option, right or warrant exercisable therefor, to the extent that
adjustments in respect of such options, rights or warrants were previously
made pursuant to the provisions of subsection (i) of this subsection 9(b).
(iii) If any change shall occur in the price per share provided for in
any of the options, rights or warrants referred to in subsection (i) of
this Section 9(b), or in the price per share at which the securities
referred to in subsection (ii) of this Section 9(b) are convertible or
exchangeable, or if any such options, rights or warrants are exercised at a
price greater than the minimum purchase price provided for in such options,
rights or warrants, or any such securities are converted or exercised for
more than the minimum consideration receivable by the Company upon such
conversion or exchange, the options, rights or warrants or conversion or
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date
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when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities; provided, however, that no
adjustment shall be made pursuant to this subsection (iii) with respect to
any change in the price per share provided for in any of the options,
rights or warrants referred to in subsection (b)(i) of this Section 9(b),
or in the price per share at which the securities referred to in subsection
(b)(ii) of this Section 9(b) are, convertible or exchangeable, which change
results from the application of the anti-dilution provisions thereof in
connection with an event for which, subject to subsection (iv) of Section
9(f), an adjustment to the Exercise Price and the number of securities
issuable upon exercise of the Warrants will be required to be made pursuant
to this Section 9.
(c) Subdivision and Combination. In case the Company shall at any time
after the Closing Date subdivide or combine the outstanding shares of Common
Stock, the Exercise Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination.
(d) Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 9, the number of shares of
Common Stock issuable upon the exercise of the Warrants shall be adjusted to the
nearest full whole number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of the Warrants immediately
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<PAGE>
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price; provided, however, that the number of shares of Common Stock
purchasable upon exercise of the Warrant shall not be decreased.
(e) Reclassification, Consolidation, Merger. etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Warrants and (y) the Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holder had exercised the Warrant.
(f) No Adjustment of Exercise Price in Certain Cases. Notwithstanding
anything herein to the contrary, no adjustment of the Exercise Price shall be
made:
(i) Upon the issuance or sale of the Underwriter's Warrants, the
shares of Common Stock or Warrants issuable upon the exercise of the
Underwriter's Warrants or the
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shares of Common Stock issuable upon exercise of the Warrants underlying
the Underwriter's Warrants; or
(ii) Upon the issuance or sale of (A) the shares of Common Stock or
Warrants issued by the Company in the IPO (including pursuant to the
Over-allotment Option) or other shares of Common Stock or warrants issued
by the Company upon consummation of the IPO or, (B) the shares of Common
Stock (or other securities) issuable upon exercise of Warrants; or
(iii) Upon (A) the issuance of shares of Common Stock and options
pursuant to the Company's stock option plan in effect on the date hereof or
as hereafter amended in accordance with the terms thereof or any other
employee or executive stock option plan approved by stockholders of the
Company or the sale by the Company of any shares of Common Stock pursuant
to the exercise of any such options, or (B) the sale by the Company of any
shares of Common Stock pursuant to the exercise of any options or warrants
issued and outstanding on the date of closing of the sale of Common Stock
and Warrants pursuant to the IPO; or (C) the issuance or sale by the
Company of any shares of Common Stock in connection with any bona fide
merger, acquisition or other business combination; or
(iv) If the amount of said adjustment shall be less than five cents
($.05) per share of Common Stock; provided, however, such amount shall be
included in any subsequent adjustment.
(g) Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time after the Closing
Date and prior to the exercise or expiration of all Warrants declare a dividend
(other than a dividend consisting solely of shares of
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Common Stock or a cash dividend or distribution payable out of current or
retained earnings) or otherwise distribute to the holders of Common Stock any
monies, assets, property, rights, evidences of indebtedness, securities (other
than such a cash dividend or distribution or dividend consisting solely of
shares of Common Stock), whether issued by the Company or by another person or
entity, or any other thing of value, the Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Warrants, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution as if the
Holders were the owners of the shares of Common Stock underlying such Warrants.
At the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
Section 9(g).
(h) Subscription of Common Stock or Other Securities. In case the Company
or an affiliate of the Company shall at anytime after the date hereof and prior
to the exercise of all the Warrants issue any rights to subscribe for shares of
Common Stock or any other securities of the Company or of such affiliate to all
the holders of Common Stock, the Holders of the unexercised Warrants shall be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Warrants, to receive such rights at the time
such rights are distributed to the other stockholders of the Company but only to
the extent of the number of shares of Common Stock, if any, for which the
Warrants remain exercisable.
(i) Notice in Event of Dissolution. In case of the dissolution, liquidation
or winding-up of the Company, all rights under the Warrants shall terminate on a
date fixed by the
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Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding-up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to each registered holder of the Warrants, as the
same shall appear on the books of the Company maintained by the Warrant Agent,
by registered mail at least thirty (30) days prior to such termination date.
(j) Computations. The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section 9, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 9.
Section 10. FRACTIONAL INTERESTS. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
deduct from the aggregate Exercise Price payable by such Warrantholder, in lieu
of the issuance of any fractional share otherwise issuable, the fractional
amount of the Exercise Price attributable to any fractional share. Such
deduction shall not affect the Exercise Fee pursuant to Section 5(a).
Section 11. NOTICES TO WARRANTHOLDERS.
(a) Upon any adjustment of the Exercise Price and the number of shares
of Common Stock issuable upon exercise of a Warrant, then and in each such
case, the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Exercise Price
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<PAGE>
resulting from such adjustment and the increase in the number of shares
purchasable at such price upon the exercise of a Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. The Company shall also mail such notice to the
holders of the Warrants at their respective addresses appearing in the
Warrant register. Failure to give or mail such notice, or any defect
therein, shall not affect the validity of the adjustments.
(b) In case at any time after the Closing Date:
(i) the Company shall pay dividends payable in stock upon its
Common Stock or make any distribution (other than regular cash
dividends) to the holders of Common Stock; or
(ii) the Company shall offer for subscription pro rata to all of
the holders of Common Stock any additional shares of stock of any
class or other rights; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of substantially all of its
assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then in any one or more of such cases, the Company shall give written
notice to the Warrant Agent and the holders of the Warrants in the manner set
forth in Section 11(a) of the date on which (A) a record shall be taken for such
dividend, distribution or subscription rights, or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or
22
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subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be. Such notice shall be given at least ten (10)
days prior to the action in question and not less than ten (10) days prior to
the record date in respect thereof. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any of the matters set
forth in this Section 11(b).
(c) The Company shall cause copies of all financial statements and reports,
proxy statements and other documents that are sent to its stockholders to be
sent by an identical class of mail, postage prepaid, on the date of mailing to
such stockholders, to each registered holder of Warrants at his address
appearing in the Warrant register as of the record date for the determination of
the stockholders entitled to such documents.
Section 12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(a) The Warrant Agent shall promptly forward to the Company all monies
received by the Warrant Agent for the purchase of shares of Common Stock
through the exercise of these Warrants.
(b) The Warrant Agent shall keep copies of this Agreement available
for inspection by holders of Warrants during normal business hours.
Section 13. REDEMPTION OF WARRANTS. The Warrants, excluding the
Underwriter's Warrants and Warrants issuable thereunder, are redeemable by the
Company commencing on the first anniversary of the date of the Prospectus
included in the Registration Statement, in whole or in part, on not less than
thirty (30) days' prior written notice at a redemption price of $.10 per
Warrant, provided the closing bid quotation of the Common Stock
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as reported on The NASDAQ SmallCap Market, if traded thereon, or if not traded
thereon, the closing sale price if listed on a national securities exchange or
the NASDAQ National Market (or other reporting system that provides last sale
prices), has been in excess of 150% of the Exercise Price for any 20 trading
days within a period of 30 consecutive trading days ending on the 15th day prior
to the date on which the Company gives notice of redemption. Any redemption in
part shall be made pro rata to all Warrant holders. The redemption notice shall
be mailed to the holders of the Warrants at their respective addresses appearing
in the Warrant register. Any such notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given on the date of mailing in
accordance with this Agreement whether or not the registered holder receives
such notice. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a registered holder of a Warrant (i) to whom notice was not mailed
or (ii) whose notice was defective. An affidavit of the Warrant Agent or the
Secretary or Assistant Secretary of the Company that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. Holders of the Warrants will have exercise rights until the
close of business on the day immediately preceding the date fixed for
redemption.
Section 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. Any
corporation or company which may succeed to the corporate trust business of the
Warrant Agent by any merger or consolidation or otherwise shall be the successor
to the Warrant Agent hereunder without the execution or filing of any paper or
any further act on the part of any of the parties hereto; provided, that such
corporation would be eligible for appointment as a successor Warrant Agent under
the provisions of Section 16 of this Agreement.
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Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed to the Company and to the registered holders of
each Warrant.
In case at the time such successor to the Warrant Agent shall succeed to
the agency created by this Agreement any of the Warrants shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent and deliver such
Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned. In all such cases such Warrants shall have
the full force provided in the Warrants and in this Agreement,
Section 15. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as
such describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
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(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any
holder of any Warrant in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or the
advice of such counsel.
(d) Any notice, statement, instruction, resolution, waiver, consent,
order, certificate or demand of the Company shall be sufficiently evidenced
by an instrument signed by the Chairman of the Board of Directors, Chief
Executive Officer, President or any Vice-President, unless other evidence
in respect thereof is herein specifically prescribed. Any resolution of the
Board of Directors may be evidenced to the Warrant Agent by a copy thereof
certified by the Secretary of the Company. The Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant
for any action taken in reliance on any notice, statement, instruction,
resolution, waiver, consent, order, certificate, demand or other instrument
reasonably believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for its
reasonable expenses, incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless against
any and all liabilities, including judgments, costs and reasonable counsel
fees, for anything done or omitted by the Warrant Agent in the execution of
this Agreement except as a result of the Warrant Agent's negligence,
willful misconduct or bad faith.
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(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expenses unless the Company or one or more registered holders of
Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with or without
any such security or indemnity. All rights of action under this Agreement
or under any of the Warrants may be enforced by the Warrant Agent without
the possession of any of the Warrants or the production thereof at any
trial or other proceeding. Any such action, suit or proceeding instituted
by the Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the registered
holders of the Warrants, as their respective rights and interests may
appear.
(g) The Warrant Agent and any stockholder, director, officer, partner
or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to or otherwise act as fully and freely as
though it were not the Warrant Agent under this Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and its
duties shall be determined solely by the provisions hereof.
Section 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement, except liabilities arising as a
result of the Warrant Agent's own gross negligence, wilful misconduct or bad
faith, by giving to the Company
27
<PAGE>
notice in writing, and to the holders of the Warrants notice by mailing such
notice to the holders at their respective addresses appearing on the Warrant
register, of such resignation, specifying a date when such resignation shall
take effect. The Warrant Agent may be removed by like notice to the Warrant
Agent from the Company and the like mailing of notice to the holders of the
Warrants. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of action, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
twenty (20) days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or after the Company has received such notice from a registered holder of a
Warrant (who shall, with such notice, submit his Warrant for inspection by the
Company), then the registered holder of any Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor Warrant Agent, whether appointed by the Company or by such a
court, shall be a bank or trust company, in good standing, incorporated under
New York or federal law, having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After appointment, the successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibility as if it had been
originally named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent all
canceled Warrants, records and property at the time held by it hereunder, and
execute and deliver any further assurance or conveyance necessary for this
purpose. Failure to file or mail any notice provided for in this Section 16,
however, or any defect
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<PAGE>
therein, shall not affect the validity of the resignation or removal of the
Warrant Agent or the appointment of the successor Warrant Agent, as the case may
be.
Section 17. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of
any transfer agent for the shares of Common Stock or of any subsequent transfer
agent for the shares of Common Stock, the Company will file with the Warrant
Agent a statement setting forth the name and address of such transfer agent.
Section 18. NOTICES. Any notice pursuant to this Agreement to be given by
the Warrant Agent or the registered holder of any Warrant to the Company, shall
be sufficiently given if sent by first-class mail, postage prepaid, or
facsimile, addressed (until another is filed in writing by the Company with the
Warrant Agent) as follows:
International Plastic Technologies, Inc.
320 Broad Hollow Road
Farmingdale, New York 11735
Attention: Andrew Franzone, Chief Executive Officer
Facsimile Number: (516) 752-1971
and a copy thereof to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, 3rd Floor
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
Facsimile Number: (212) 689-3077
Any notice pursuant to this Agreement to be given by the Company or the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, or facsimile, addressed
(until another address is filed in writing by the Warrant Agent with the
Company) as follows:
29
<PAGE>
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Steven G. Nelson
Facsimile Number: (212) 509-5150
Any notice pursuant to this Agreement to be given by the Warrant Agent or
the Company to the Representative shall be sufficiently given if sent by
first-class mail, postage prepaid, or facsimile, addressed (until another
address is filed in writing with the Warrant Agent) as follows:
Network 1 Financial Securities, Inc.
The Galleria, Penthouse
2 Bridge Avenue
Red Bank, New Jersey 07701
Attention: Virginia Sourlis, Esq.
Facsimile Number: (732) 758-6671
and a copy thereof to:
Damon Testaverde
580 Oakdale Street
Staten Island, New York 10312
Facsimile Number: (718) 966-9711
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attention: Philip Magri, Esq.
Facsimile Number: (212) 735-8708
Section 19. SUPPLEMENTS AND AMENDMENTS. The Company, the Warrant Agent and
the Representative may from time to time supplement or amend this Agreement in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company, the Warrant Agent and the Representative may deem
necessary or desirable and which shall not be inconsistent with the
30
<PAGE>
provisions of the Warrants and which shall not materially adversely affect the
interest of the holders of Warrants; and in addition the Company, the Warrant
Agent and the Representative may modify, supplement or alter this Agreement with
the consent in writing of the registered holders of the Warrants representing
not less than a majority of the Warrants then outstanding.
Section 20. NEW YORK CONTRACT. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York without
regard to the conflicts of law principles thereof.
Section 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent, the Representative and the registered holders of the Warrants any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered holders of the Warrants.
Section 22. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors mid assigns hereunder.
Section 23. SEVERABILITY. Should any provision or portion of any provision
of this Agreement be invalidated for any reason, the validity of the remaining
provisions or of the other portion of the provision in question shall not be
affected thereby. This Agreement supersedes any prior letter, agreement or
understanding concerning the subject matter hereof.
31
<PAGE>
Section 24. CAPTIONS. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
Section 25. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
By:______________________________________
Name: Andrew Franzone
Title: Chief Executive Officer
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:______________________________________
Name: Steven G. Nelson
Title: President
NETWORK 1 FINANCIAL SECURITIES, INC.
By:______________________________________
Name: William R. Hunt
Title: President
32
<PAGE>
No. W _________ VOID AFTER _______, 2003
______ WARRANTS
REDEEMABLE COMMON STOCK PURCHASE WARRANT
CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
EXERCISABLE FROM ___________, 1999
UNTIL 5:00 P.M. (EST) _________, 2003
CUSIP 46017R 11 2
THIS WARRANT CERTIFICATE CERTIFIES THAT, FOR VALUE RECEIVED
___________ or registered assigns (the "Registered Holder") is the owner of
the number of Redeemable Common Stock Purchase Warrants (the "Warrants")
specified above. Each Warrant initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.001 par value (the "Common Stock"), of International
Plastic Technologies, Inc., a Delaware corporation (the "Company"), at any time
from _______, 1999 (the "Initial Warrant Exercise Date") and prior to the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Exercise Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer & Trust Company,
2 Broadway, New York, New York 10004, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $5.00, subject to adjustment (the
"Exercise Price"), in lawful money of the United States of America in cash or by
certified or bank check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated as of _______, 1998, among the Company,
Network 1 Financial Securities, Inc. (the "Representative") and the Warrant
Agent (the "Warrant Agreement").
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares will be issued. In the case of the
exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York City time) on
________, 2003; provided, that if such date is not a business day, it shall mean
5:00 p.m., New York City time, on the next following business day. For purposes
hereof, the term "business day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York City, New York, are
authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless at the time of exercise
the Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
securities issuable upon exercise of the Warrants represented hereby and such
registration statement has been declared and shall remain effective and shall be
current, and such securities have been registered or qualified or be exempt
under the securities laws of the state or other jurisdiction of residence of the
Registered Holder and the exercise of the Warrants represented hereby in any
such state or other jurisdiction shall not otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing _______, 1999, provided that the closing bid
quotations of the Common Stock as reported on The NASDAQ SmallCap Market or the
Boston Stock Exchange, if traded thereon, or if not traded thereon, the closing
sale price if listed on a national or regional securities exchange (or other
reporting system that provides last sale prices), shall have for a period of any
20 trading
2
<PAGE>
days within a period of 30 consecutive trading days ending on the 15th day prior
to the date on which the Company gives the Notice of Redemption (as defined
below) exceeds 150% of the then Exercise Price, subject to the right of the
Registered Holder to exercise such Warrants prior to redemption. Notice of
redemption (the "Notice of Redemption") shall be given by the Company no less
than 30 days before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no right with respect to this Warrant except to receive the
$.10 per Warrant upon surrender of this Certificate.
Under certain circumstances described in the Warrant Agreement, the
Representative shall be entitled to receive as a solicitation fee an aggregate
of 5% of the Exercise Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated July 30, 1997
SEAL INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
By: _____________________________________
Andrew Franzone
Chief Executive Officer
By: _____________________________________
Harry Goodman
Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY,
as Warrant Agent
By:____________________________________
Authorized Officer
4
<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder
in order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
___________ Warrants represented by this Warrant Certificate, and to purchase
the securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and be delivered to
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and if such number of exercised Warrants shall not be all the Warrants evidenced
by this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by Network 1 Financial
Securities, Inc., please check the following box. |_|
2. The exercise of this Warrant was solicited by
- --------------------------------------------------------------------------------
<PAGE>
3. If the exercise of this Warrant was not solicited, please check the
following box. |_|
Dated: X
------------------------- _____________________________
- --------------------------------
- --------------------------------
Address
- --------------------------------
Social Security or Taxpayer
Identification Number
- --------------------------------
Signature Guaranteed
2
<PAGE>
ASSIGNMENT
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________, hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
______________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints ________________________________
as its/his/her attorney-in-fact to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: ___________________________ x___________________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
AND
NETWORK 1 FINANCIAL SECURITIES, INC.
UNDERWRITER'S WARRANT AGREEMENT
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of ______________, 1998 by and
between INTERNATIONAL PLASTIC TECHNOLOGIES, INC., a Delaware corporation having
its principal office at 320 Broad Hollow Road, Farmingdale, New York 11735 (the
"Company"), and NETWORK 1 FINANCIAL SECURITIES INC., a _____________ corporation
having its principal office at The Galleria, Building 2, Penthouse, 2 Bridge
Avenue, Redbank, New Jersey 07701 ("Network 1 Financial" or the "Underwriter").
Preliminary Statement
Network 1 Financial has agreed, pursuant to that certain underwriting
agreement dated ____________, 1998, between Network 1 Financial and the Company
(the "Underwriting Agreement"), to act as the representative of the underwriters
listed therein (together with Network 1 Financial, the "Syndicate") for the
Company's proposed initial public offering of 1,250,000 shares of the Company's
common stock, par value $0.001 per share (the "Common Stock"), and 1,250,000
Redeemable Common Stock Purchase Warrants (the "Warrants") on a firm commitment
basis, at an initial public offering price of $4.50 per share of Common Stock
and $0.10 per Warrant (the "Initial Public Offering").
The Company proposes to issue to Network 1 Financial at the closing of the
Initial Public Offering as part of Network 1 Financial's compensation in
connection therewith and in consideration of $10.00, warrants (the
"Underwriter's Warrants") to purchase an aggregate of 125,000 shares of Common
Stock and/or 125,000 Warrants. The Warrants being offered in the Initial Public
Offering and the Warrants purchasable upon exercise of the Underwriter's
Warrants will be identical in all respects and will be issued pursuant to, and
governed by, the provisions of that certain Warrant Agreement, dated
___________, 1998, among the Company, Network 1 Financial and Continental Stock
Transfer & Trust Company, as Warrant Agent (the "Warrant Agreement").
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, the payment by Network 1
Financial to the Company of Ten Dollars ($10.00), the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holders (as defined in Section 4 below) are hereby granted
the right to purchase, at any time during the four-year period commencing
_____________, 1999, the one year anniversary of the date the Securities and
Exchange Commission (the "Commission") declares the Company's Registration
Statement on Form SB-2 (File No. 333-48701) therein registering the underwriting
warrants and securities issuable thereunder (the "Registration Statement")
effective (the "Effective Date"), until 5:00 p.m., New York City time, on
______________, 2003, the fifth anniversary date of the Effective Date, an
aggregate of 125,000 shares of Common Stock and/or 125,000 Warrants, at an
initial purchase price of $5.625 per share of Common Stock (subject to
adjustment as provided in Section 7 hereof) and $0.125 per Warrant (125% of the
Initial Public Offering price of the Common Stock and Warrants, respectively),
subject to the terms and conditions of this Agreement. In no event, are the
Underwriter's Warrants nor the Warrants issuable thereunder redeemable by the
Company.
2. Warrant Certificates. The warrant certificates (the "Underwriter's
Warrant Certificates") to be delivered pursuant to this Agreement shall be in
the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Recording of the Underwriter's Warrants. The Underwriter's Warrants
shall be numbered and shall be registered on the books of the Company.
2
<PAGE>
4. Exercise of Underwriter's Warrants. The Underwriter's Warrants are
exercisable during the term set forth in Section 1 hereof and the Purchase Price
(as hereinafter defined) is payable by certified or official bank check in New
York Clearing House funds. Upon surrender of an Underwriter's Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Purchase Price for the shares of Common Stock or
Warrants issuable upon exercise thereof (and such other amounts, if any, arising
pursuant to Section 4 hereof) at the Company's principal office in New York
(presently located at 320 Broad Hollow Road, Farmingdale, New York 11735) or
other reasonably designated place, the registered holder of an Underwriter's
Warrant Certificate ("Holders" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock or Warrants so
purchased. The purchase rights represented by each Underwriter's Warrant
Certificate are exercisable at the option of the Holders thereof, in whole or in
part, as to the whole number of shares of Common Stock or Warrants purchasable
therewith (but not as to fractions thereof). In the case of the purchase of less
than all the shares of Common Stock or Warrants purchasable upon the exercise of
the Underwriter's Warrants represented by an Underwriter's Warrant Certificate,
the Company shall cancel the Underwriter's Warrant Certificate represented
thereby upon the surrender thereof and shall execute and deliver a new
Underwriter's Warrant Certificate of like tenor for the number of Underwriter's
Warrants which have not been exercised.
5. Issuance of Certificates. Upon the exercise of the Underwriter's
Warrants and payment of the Purchase Price therefor, the issuance of
certificates representing the shares of Common Stock or Warrants issuable upon
exercise thereof, shall be made forthwith (and in any event within five (5)
business days thereafter) without further charge to the Holder thereof, and such
3
<PAGE>
certificates shall (subject to the provisions of Sections 6 and 8 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder, and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance 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. The Underwriter's
Warrant Certificates and the certificates representing the shares of Common
Stock or Warrants (and such other securities, property or rights as may be
represented by certificates) issuable upon exercise thereof shall be executed on
behalf of the Company by the manual or facsimile signature of the then Chairman
or Vice Chairman of the Board of Directors, Chief Executive Officer, President
or Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the then Secretary or
Assistant Secretary or Treasurer or Assistant Treasurer of the Company.
Underwriter's Warrant Certificates shall be dated the date of issuance thereof
by the Company upon initial issuance, transfer or exchange, or in lieu of
mutilated, lost, stolen or destroyed Underwriter's Warrant Certificates.
6. Restriction On Transfer of Underwriter's Warrants. The Holder of an
Underwriter's Warrant Certificate (and its Permitted Transferees, as defined
below), by its acceptance thereof, covenants and agrees that the Underwriter's
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Underwriter's Warrants may be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, to any
person (a "Permitted Transferee"), provided such transfer, assignment,
hypothecation or other disposition
4
<PAGE>
is made in accordance with the provisions of the Securities Act of 1933, as
amended (the "Act"); and provided, further, that until ____________, 1999 only
officers and partners of the Underwriters, or any selling group member in the
Initial Public Offering and their respective officers and partners, shall be
Permitted Transferees.
7. Exercise Price. The initial exercise price of the Underwriter's Warrants
shall be $5.625 per share of Common Stock (the "Common Stock Exercise Price")
and $0.125 per Warrant. The Common Stock Exercise Price shall be subject to
adjustment in accordance with the provisions of Section 9 of the Warrant
Agreement, which provisions are hereby incorporated by reference herein and made
a part hereof.
8. Registration Rights.
(a) Demand Registration.
(1) At any time during the period commencing on the one-year
anniversary of the Effective Date expiring on the fifth anniversary
date of the Effective Date, the Holders of a majority (as hereinafter
defined) of the shares of Common Stock purchased and purchasable upon
exercise of the Underwriter's Warrants and the Warrants purchasable
therewith shall have the right, exercisable by written notice to the
Company, to have the Company at the Company's expense, prepare and
file with the Commission, solely on one (1) occasion, a registration
statement on Form SB-2 (or other appropriate form), and such other
documents, including a prospectus, as may be necessary in the opinion
of both counsel for the Company and counsel for the Holders, in order
to comply with the provisions of the Act, so as to permit a public
offering and sale for a period of nine (9) months of the shares of
Common Stock and Warrants purchased or purchasable by such Holders and
any other Holders of the Underwriter's Warrants upon
5
<PAGE>
exercise of the Underwriter's Warrants and the Warrants purchasable
thereunder (such shares of Common Stock and Warrants being hereinafter
referred to as the "Registrable Securities"). The Holders of the
Underwriter's Warrants may demand registration without exercising the
Underwriter's Warrants, and are never required to exercise same.
(2) The Company covenants and agrees to give written notice of
any registration request under this Section 8(a) to all other
registered Holders of the Underwriter's Warrants and the Registrable
Securities within ten (10) days from the date of the receipt of any
such registration request and upon the written request of any Holder
within fifteen (15) days after receipt of such notice to include in
such registration statement, the Registrable Securities of such
Holder.
(3) As used herein, the term "Majority" in reference to the
Holders of the Underwriter's Warrants shall mean in excess of fifty
percent (50%) of the shares of Common Stock issued or issuable upon
exercise of the Underwriter's Warrants and the Warrants purchasable
thereunder that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith. or (ii) have not been resold to
the public pursuant to a registration statement filed with the
Commission under the Act.
(b) Piggyback Registration. If, at any time within the six-year period
commencing on the one-year anniversary date of the Effective Date and
expiring on the seventh anniversary date of the Effective Date, the Company
should file a registration statement with the Commission under the Act
(other than in connection with a merger or other business combination
transaction or pursuant to Form S-8 or a comparable registration statement)
it will give written notice by registered mail, at least thirty (30)
calendar days prior to the filing of each such registration
6
<PAGE>
statement, to Network 1 Financial and to all other Holders of the
Underwriter's Warrants and the shares of Common Stock and Warrants
purchased or purchasable upon exercise thereof of its intention to do so.
If the Holders of the Registrable Securities notify the Company within
twenty (20) calendar days after receipt of any such notice of its or their
desire to include any Registrable Securities in such proposed registration
statement, the Company shall afford the Holders of the Registrable
Securities the opportunity to have such Registrable Securities included in
such registration statement, unless the underwriters for each proposed
registration statement objects to the inclusion of the Registrable
Securities in such registration statement. To the extents a subsequent
underwriter agrees to register a portion of the Underwriter's Warrants and
the shares of Common Stock and Warrants purchasable thereunder, such
inclusion shall be on a pro-rata basis to the holders thereof without
penalty to the unregistered holders. However, in such event, the Company
will, within six (6) months of completion of such underwritten offering,
file at the expense of the Company, a registration statement so as to
permit a public offering and sale of the Registrable Securities so excluded
for a period of nine (9) months, which shall be in addition to any
registration statement required to be filed pursuant to Section 8(b).
Notwithstanding the provisions of this Section 8(b) and the provisions of
Section 8(c), the Company shall have the right at any time after it shall
have given written notice pursuant to this Section 8(b) (irrespective of
whether a written request for inclusion of any such securities shall have
been made) to elect not to file any such proposed registration statement,
or to withdraw the same after the filing but prior to the effective date
thereof.
7
<PAGE>
(c) Covenants of the Company With Respect to Registration. In
connection with any registrations under Sections 8(a) and 8(b) hereof, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a registration
statement within ninety (90) calendar days of receipt of any demand
therefor pursuant to Section 8(a); provided, however, that the Company
shall not be required to produce audited or unaudited financial
statements for any period prior to the date such financial statements
are required to be filed in a report on Form 10-KSB or Form 10-QSB, as
the case may be. The Company shall use its best efforts to have any
registration statement declared effective at the earliest possible
time, and to maintain the effectiveness of such Registration Statement
for nine (9) months thereafter or until the registered securities are
sold, whichever is earlier, and shall furnish each Holder desiring to
sell Registrable Securities such number of prospectuses as shall
reasonably be requested.
(2) The Company shall pay all costs (excluding fees and expenses
of Holders' counsel and any underwriting discounts or selling fees,
expenses or commissions), fees and expenses in connection with any
registration statement filed pursuant to Sections 8(a) and 8(b) hereof
including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section 8(c), the Company
shall, in addition to any other equitable or other relief available to
the Holders, be liable for any or all incidental and special damages
sustained by the Holders requesting registration of their Registrable
Securities.
(3) The Company will take all necessary action which may be
required to qualify or register the Registrable Securities included in
a registration statement for
8
<PAGE>
offering and sale under the securities or blue sky laws of such states
as reasonably are requested by the Holders, provided that the Company
shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(4) The Company shall indemnify the Holders of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under
the Act, the Exchange Act or otherwise, arising from such registration
statement, but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify each
member of the Syndicate contained in Section 8 of the Underwriting
Agreement, and the Holders shall indemnify the Company to the same
extent and with the same effect as the provisions pursuant to which
the members of the Syndicate have agreed to indemnify the Company
contained in Section 8 of the Underwriting Agreement.
(5) The Holders of the Registrable Securities to be sold pursuant
to a registration statement, and their successors and assigns, shall
indemnify the Company, its officers and directors 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, against all loss,
claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which they may become subject under the Act,
the
9
<PAGE>
Exchange Act or otherwise, arising from information furnished by or on
behalf of such Holders, or their successors or assigns, for specific
inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the members of the Syndicate
have agreed to indemnify the Company.
(6) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Underwriter's Warrants (or the
Warrants purchasable upon exercise thereof) prior to the initial
filing of any registration statement or the effectiveness thereof.
(7) The Company shall not be entitled to include any securities
other than the Registrable Securities in any registration statement
filed pursuant to Section 8(a) hereof without the prior written
consent of the Holders of a Majority of the Registrable Securities.
(8) The Company shall furnish to a designated representative of
the Holders participating in the offering and to each underwriter, if
any, a signed counterpart, addressed to such Holder or underwriter of
(i) an opinion of counsel to the Company, dated the effective date of
such registration statement (and if such registration relates to an
underwritten public offering, an opinion dated the date of the closing
under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration relates to an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed
by the independent public accountants who have issued a report on the
Company's financial statements included in such registration statement
(the "Accountants"), in each case covering substantially the same
matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the Accountants'
"cold comfort" letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions
10
<PAGE>
of issuer's counsel and in "cold comfort" letters delivered to
underwriters in underwritten public offerings of securities.
(9) The Company shall as soon as practicable after the effective
date of the registration statement make "generally available to its
security holders" (within the meaning of Rule 158 under the Act) an
earnings statement (which need not be audited) complying with Section
11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration
statement.
(10) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described
below and any managing underwriters copies of all correspondence
between the Commission and the Company, its counsel or Accountants
with respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of
Securities Dealers, Inc. ("NASD"). Such investigation shall include
access to books, records and properties and opportunities to discuss
the business of the Company with its officers and representatives of
the Accountants, all to such reasonable extent and at such reasonable
times and as often as any such Holder shall reasonably request.
(11) The Company shall enter into an underwriting agreement with
the managing underwriters selected for such underwriting by Holders
holding a Majority of the Registrable Securities requested to be
included in such underwriting; provided, however, that (i) such
managing underwriters shall be reasonably acceptable to the Company,
except that in connection
11
<PAGE>
with an offering for which the Holders have piggyback rights, the
Company shall have the sole right to select the managing underwriters,
and (ii) the Holders shall be responsible for any selling fees or
commissions in connection with such underwriting. Such underwriting
agreement shall be satisfactory in form and substance to the Company,
a Majority of such Holders and such managing underwriters, and shall
contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of
that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale
of their Registrable Securities and may, at their option, require that
any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made
to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements
with the Company or the underwriters except as they may relate to such
Holders and their intended methods of distribution.
(d) Further Registrations. The Company will cooperate with the Holders
of the Registrable Securities in preparing and signing any registration
statement, in addition to the registration statements discussed above,
required in order to sell or transfer the Underwriter's Securities and will
supply all information required therefor, but such additional registration
statement expenses or offering statement expenses will be prorated between
the Company and the Holders of the Registrable Securities according to the
aggregate sales price of the securities being issued. The provisions of
Section 8(c) shall apply to any such registration statement.
9. Obligations of Holders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 8 hereof that
each of the selling Holders shall:
12
<PAGE>
(a) Furnish to the Company such information regarding themselves, the
Registrable Securities held by them, the intended method of sale or other
disposition of such securities, the identity of and compensation to be paid
to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required
to effect the registration of their Registrable Securities.
(b) Notify the Company, at any time when a prospectus relating to the
Registrable Securities covered by a registration statement is required to
be delivered under the Act, of the happening of any event with respect so
such selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an 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 in the
light of the circumstances then existing.
10. Exchange and Replacement of Warrant Certificates. Each Underwriter's
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holders at the principal executive office of the Company for a
new Underwriter's Warrant Certificate of like tenor and date representing in the
aggregate the right to purchase the same number of shares of Common Stock and/or
Warrants in such denominations as shall be designated by the Holders thereof at
the time of such surrender. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Underwriter's Warrant Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Underwriter's Warrant Certificates, if mutilated, the
Company will make and deliver a new Underwriter's Warrant Certificate of like
tenor, in lieu thereof.
13
<PAGE>
11. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Underwriter's Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests; provided, however, that if a Holder
exercises all Underwriter's Warrants held of record by such Holder, the
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock.
12. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Underwriter's Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of Underwriter's Warrants and payment of the Purchase Price
therefor, all shares of Common Stock, Warrants and Common Stock issuable upon
the exercise hereof shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any stockholder voting trust,
agreement or indenture. The Company further covenants and agrees that as long as
the Underwriter's Warrants shall be outstanding, the Company shall use its best
efforts to cause the Common Stock and Warrants to be listed (subject to official
notice of issuance) on all securities exchanges on which the Common Stock and
the Warrants issued in the Initial Public Offering may then be listed or quoted.
13. Notices to Underwriter's Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If,
14
<PAGE>
however, at any time prior to the expiration of the Underwriter's Warrants and
their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend, or the issuance of
any convertible or exchangeable securities, or subscription rights, options
or warrants, or any proposed dissolution, liquidation, winding up or sale.
15
<PAGE>
14. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holders of the Underwriter's Warrants, to the
address of such Holders as shown on the books of the Company; or
(b) If to the Company to the address set forth in Section 4 hereof or
to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and Network 1 Financial may
from time to time supplement or amend this Agreement without the approval of any
Holders of Underwriter's Warrant Certificates (other than Network 1 Financial)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and Network 1 Financial may deem necessary or desirable and
which the Company and Network 1 Financial deem shall not adversely affect the
interests of the Holders of Underwriter's Warrant Certificates.
16. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, Network 1 Financial, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of business on
the later of the expiration of the Underwriter's Warrants or the registration
rights contained in Section 8 hereof.
16
<PAGE>
18. Governing Law; Submission to Jurisdiction. This Agreement and each
Underwriter's Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said state without giving effect to
the rules of said state governing the conflicts of laws. The Company, Network 1
Financial and the Holders hereby agree that any action, proceeding or claim
against it arising out of, or relating in any way to, this Agreement shall be
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company,
Network 1 Financial and the Holders hereby irrevocably waive any objection to
such exclusive jurisdiction or inconvenient forum. Any such process or summons
to be served upon any of the Company, Network 1 Financial and the Holders (at
the option of the party bringing such action, proceeding or claim) may be served
by transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement, to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and thereof. Subject to Section 15, this Agreement may not
be modified or amended except by a writing duly signed by the Company and the
Holders of a Majority of the Registrable Securities.
17
<PAGE>
20. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and
Network 1 Financial and any other registered Holders of the Underwriter's
Warrant Certificates or Registrable Securities any legal or equitable right,
remedy or claim under this Agreement, and this Agreement shall be for the sole
and exclusive benefit of the Company and Network 1 Financial and any other
Holders of the Underwriter's Warrant Certificates or Registrable Securities.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
24. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company, Network 1 Financial and their respective successors and
assigns and the Holders from time to time of the Underwriter's Warrant
Certificates.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
By: _____________________________________
Andrew Franzone
Chief Executive Officer
NETWORK 1 FINANCIAL SECURITIES, INC.
By: _____________________________________
Name:
Title:
19
<PAGE>
EXHIBIT A
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
WARRANT CERTIFICATE
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING ____________, 1999 THROUGH
5:00 P.M., NEW YORK CITY TIME ON ____________, 2003
No. UW-1 125,000 Warrants
This Warrant Certificate certifies that Network 1 Financial Securities,
Inc., ("Network 1 Financial") or registered assigns, is the registered holder of
125,000 Warrants to purchase initially, at any time from _________, 1999 until
5:00 p.m., New York City time on ________, 2003 (the "Expiration Date"), 125,000
fully paid and non-assessable shares of Common Stock, $.001 par value (the
"Common Stock"), of International Plastic Technologies, Inc., a Delaware
corporation (the "Company") at a purchase price of $5.625 per share (the "Common
Stock Purchase Price"), and/or 125,000 Redeemable Common Stock Purchase Warrants
("Warrants") of the Company at the purchase price of $0.125 per Warrant (the
"Warrant Purchase Price"), upon the surrender of this Warrant Certificate and
payment of the applicable Purchase Price at an office or agency of the Company,
but subject to the conditions set forth herein and in that certain warrant
agreement, dated as of _______, 1998, between the Company and Network 1
Financial Securities, Inc. (the "Warrant Agreement"). Payment of the applicable
Purchase Price shall be made by certified or official bank check in New York
Clearing House Funds.
No Warrant may be exercised after 5:00 p.m., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
A-1
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement between
the Company and Network 1 Financial, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the respective Purchase Prices and the type and/or number of the Company's
securities issuable upon the exercise of this Warrant, may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of the
holder, issue a new Warrant Certificate evidencing the adjustment in the
Purchase Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate this
________________ 1998.
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
By: ____________________________________
Andrew Franzone
Chief Executive Officer
ATTEST
By: ____________________________
Harry Goodman
Secretary
[SEAL]
A-3
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint his or its attorney-in-fact
to transfer the within Warrant Certificate on the books of International Plastic
Technologies, Inc., with full power of substitution.
Dated:
Signature ________________________________
(Signature must conform in all respects to
the name of holder as specified on the
face of the Warrant Certificate.)
------------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
A-4
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right represented by
this Warrant Certificate to purchase:
__________ shares of Common Stock
__________ Redeemable Common Stock Warrants
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House funds payable to the order of
International Plastic Technologies, Inc. in the amount of $___________, all in
accordance with the terms hereof. The undersigned requests that certificates for
such securities be registered in the name of whose address is and that such
certificates be delivered to ________________________________________________
whose address is _________________________________________________________.
Dated:
Signature ________________________________
(Signature must conform in all respects to
the name of holder as specified on the
face of the Warrant Certificate.)
--------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
A-5
<PAGE>
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the ______ day
of __________, 1998 between Network 1 Financial Securities, Inc, a New Jersey
corporation ("Network 1" or the "Consultant"), and International Plastic
Technologies, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"). All references to the Company shall include any and
all subsidiaries thereof in existence on date hereof and to be formed within
the term specified in Paragraph 2 hereof.
In consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Purpose: The Company hereby engages Network 1 for the
term specified in Paragraph 2 hereof to render advice to the Company as an
investment banker relating to financial and similar matters upon the terms and
conditions set forth herein.
2. Term: Except as otherwise specified in Paragraph 4
hereof, this Agreement shall be effective for a twenty-four-month period,
commencing on the closing date (the "Closing Date") of the Company's initial
public offering of securities pursuant to an effective Registration Statement
on Form SB-2 (File No.: 333-48701) (the "Registration Statement").
3. Duties of Network 1: During the term of this Agreement,
Network 1 shall, upon the request of the Company, provide the Company with
corporate finance and related financial advisory services, advice with respect
to potential acquisitions and other business transactions and advice with
respect to stockholder relations matters. The Consultant shall devote such
time and effort
<PAGE>
to the performance of its duties hereunder as the Consultant shall determine
is reasonably necessary. The Consultant may look to such others for such
factual information, investment recommendations, economic advice and/or
research, upon which to base its advice to the Company hereunder, as it shall
deem appropriate. The Company recognizes that Network 1 now renders and may
continue to render financial and other advisory services to other companies
which may or may not have policies and conduct activities similar to those of
the Company, and acknowledges that Network 1 shall be free to render advice
and to perform those services for such other companies.
4. Compensation: In consideration for the services rendered
by Network 1 to the Company pursuant to this Agreement (and in addition to the
expenses provided for in Paragraph 5 hereof), the Company shall pay Network 1
a non-refundable fee of One Hundred Twenty-Thousand Dollars ($120,000),
payable in advance on the Closing Date. In addition, if any Transaction (as
defined below) occurs during the term of this Agreement or within 12 months
thereafter, the Company shall pay fees to Network 1 as follows:
Consideration Fee
------------- ---
First $1,000,000 5% of First $1,000,000
Second $1,000,000 4% of Second $1,000,000
Third $1,000,000 3% of Third $1,000,000
Fourth $1,000,000 2% of Fourth $1,000,000
In excess of the fourth 1% of Consideration in excess of the
$1,000,000 fourth $1,000,000
For the purposes of this Agreement, a "Transaction" shall mean (i) any
transaction originated by Network 1, other than in the ordinary course of
trade or business of the Company, whereby, directly or indirectly, control of,
or a material interest in, the Company and its subsidiaries or the business
2
<PAGE>
or assets of the Company and its subsidiaries is transferred for
Consideration, or (ii) any transaction originated by Network 1 whereby the
Company acquires any other company, or the assets of any other company or an
interest in any other company; and "Consideration" shall mean the total market
value on the day of the closing of stock, cash, assets and all other property
(real or personal) exchanged or received, directly or indirectly by the
Company or any of its security holders in connection with any Transaction. Any
co-broker retained by Network 1 shall be paid by Network 1. All Transaction
fees to be paid pursuant to this Agreement, except as otherwise specified, are
due and payable to Network 1 in cash at the closing or closings of a
Transaction. In the event that this Agreement shall not be renewed, or is
terminated for any reason, notwithstanding any such non-renewal or
termination, Network 1 shall be entitled to the entire fee provided in this
Paragraph 4 for any Transaction for which the discussions were initiated
during the term of this Agreement and which is consummated within a period of
12 months after non-renewal or termination of this Agreement. Nothing herein
shall impose any obligation on the part of the Company to enter into any
Transaction.
5. Expenses of Network 1: In addition to the fees payable
hereunder and regardless of whether any Transaction is proposed or
consummated, the Company shall reimburse Network 1 for the reasonable fees and
disbursements of Network 1's counsel and Network 1's reasonable travel and
out-of-pocket expenses incurred in connection with the services performed by
Network 1 pursuant to this Agreement and at the request of the Company,
including without limitation, hotels, food and associated expenses and
long-distance telephone calls. Such expenses shall not exceed $10,000 without
the prior written consent of the Company, which shall not be unreasonably
withheld.
3
<PAGE>
6. Liability of Network 1: In furnishing the Company with
advice and other services as herein provided, neither Network 1 nor any
officer, director or agent thereof shall be liable to the Company or its
creditors for errors of judgment or for anything, except for the Consultant's
gross negligence or intentional or willful misconduct in the performance of
its duties under this Agreement.
(a) It is further understood and agreed that
Network 1 may rely upon information furnished to it reasonably believed to be
accurate and reliable and that, except as herein provided, Network 1 shall not
be accountable for any loss suffered by the Company by reason of the Company's
action or inaction on the basis of any advice, recommendation or approval of
Network 1, its partners, employees or agents.
(b) The Company acknowledges that all opinions and
advice (written or oral) given by Network 1 to the Company in connection with
Network 1's engagement are intended solely for the benefit and use of the
Company in considering the transaction to which they relate, and the Company
agrees that no person or entity other than the Company shall be entitled to
make use of or rely upon the advice of Network 1 to be given hereunder, and no
such opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to Network 1, or use
Network 1's name in any annual reports or any other reports or releases of the
Company without Network 1's prior written consent.
(c) The Company acknowledges that Network 1 makes
no commitment whatsoever as to making a market in the Company's securities or
to recommending or advising its clients to purchase the Company's securities,
except as otherwise provided for in that certain
4
<PAGE>
Underwriting Agreement between the Company and Network 1 in connection with
the Company's Registration Statement. Research reports or corporate finance
reports that may be prepared by Network 1 will, when and if prepared, be done
solely on the merits based upon an analysis performed by Network 1 and its
corporate finance personnel.
7. Company Information:
(a) The Company shall furnish to the Consultant all
data, material and other information relevant to the performance by the
Consultant of its obligations under this Agreement, or particular projects as
to which the Consultant is acting as advisor, which will permit the Consultant
to know all facts material to the advice to be rendered, and all material or
information reasonably requested by the Consultant. The Company acknowledges
and agrees that in performing its services under this engagement, Network 1
may rely upon the data, material and other information supplied by the Company
without independently verifying the accuracy, completeness or veracity of
same. In the event that the Company fails or refuses to furnish any such data,
material or information reasonably requested by the Consultant, and thus
prevents or impedes the Consultant's performance hereunder, any inability of
the Consultant to perform shall not be a breach of its obligations hereunder.
(b) Except as contemplated by the terms hereof or
as required by applicable law, Network 1 shall keep confidential all
non-public information provided to it by the Company and shall not disclose
such information to any third party without the Company's prior written
consent, other than to such of its employees and advisors as Network 1
determines in its sole judgment need to have access thereto. Notwithstanding
the foregoing, the Consultant shall not be required to maintain
confidentiality with respect to information (i) which is or becomes part of
the
5
<PAGE>
public domain; (ii) of which it had independent knowledge prior to disclosure;
(iii) which comes into the possession of the Consultant or its employees or
agents in the normal and routine course of its own business from and through
independent non-confidential sources; or (iv) which is required to be
disclosed by the Consultant pursuant to legal process or in accordance with
governmental or regulatory requirements. If the Consultant is requested or
required (by oral questions, interrogatories, requests for information or
document subpoenas, civil investigative demands, or similar process) to
disclose any confidential information supplied to it by the Company, or the
existence of other negotiations in the course of its dealings with the Company
or its representatives, the Consultant shall, unless prohibited by law,
promptly notify the Company of such request(s) so that the Company may seek an
appropriate protective order.
8. Indemnification: The Company agrees to indemnify and hold
harmless the Consultant, its partners, employees, agents, representatives and
controlling persons (and the officers, directors, employees, agents,
representatives and controlling persons of each of them) from and against any
and all losses, claims, damages, liabilities, costs and expenses (and all
actions, suits, proceedings or claims in respect thereof) and any legal or
other expenses in giving testimony or furnishing documents in response to a
subpoena or otherwise (including, without limitation, the costs of
investigating, preparing or defending any such action, suit, proceeding or
claim, whether or not in connection with any action, suit, proceeding or claim
in which the Consultant is a party), as and when incurred, directly or
indirectly, caused by, relating to, based upon or arising out of the
Consultant's service pursuant to this Agreement. The Company further agrees
that the Consultant shall incur no liability to the Company or any other party
on account of this Agreement or any acts or omissions arising out of or
related to the actions of the Consultant relating to this Agreement or
6
<PAGE>
the performance or failure to perform any services under this Agreement,
except for the Consultant's gross negligence or intentional or willful
misconduct. Notwithstanding anything contained herein to the contrary, the
Company shall not indemnify Network 1, and shall incur no liability to Network
1, for any losses, claims, changes, liabilities, costs and expenses arising
out of or related to the Consultant's violation of any rules or regulations
promulgated by the Securities and Exchange Commission. The obligations of the
Company under the Section shall survive the termination of this Agreement.
9. Independent Contractor: Network 1 shall perform its
services hereunder as an independent contractor and not as an employee of the
Company or an affiliate thereof. It is expressly understood and agreed to by
the parties hereto that Network 1 shall have no authority to act for,
represent or bind the Company or any affiliate thereof in any manner, except
as may be agreed to expressly by the Company in writing from time to time.
10. Miscellaneous:
(a) This Agreement between the Company and Network
1 constitutes the entire agreement and understanding of the parties hereto and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or
required hereunder shall be in writing and shall be deemed sufficiently given
if hand-delivered or sent (i) postage prepaid by registered mail. return
receipt requested, or (ii) by facsimile, to the respective parties as set
forth below, or to such other address as either party may notify the other in
writing:
7
<PAGE>
If to the Company, to: International Plastic Technologies, Inc.
320 Broad Hollow Road
Farmingdale, New York 11735
Attn.: Andrew Franzone, President
Telecopy No.: (516) 752-1971
with a copy to: Carl Seldin Koerner, Esq.
Koerner Silberberg & Weiner, LLP
112 Madison Avenue
New York, New York 10016
Telecopy No.: (212) 689-3077
If to Network 1, to: Network 1 Financial Securities, Inc.
One Financial Galleria
2 Bridge Avenue
Red Bank, New Jersey 07701
Attn.: Virginia Sourlis, Esq.
Telecopy No.: (732) 758-6671
with a copy to: Philip Magri, Esq.
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 735-8708
(c) This Agreement shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors,
legal representatives and assigns.
(d) This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
original document.
(e) No provision of this Agreement maybe amended,
modified or waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance
with and governed by the laws of the State of New York, without giving effect
to conflict of law principles. The parties hereby agree that any dispute which
may arise between them arising out of or in connection with this
8
<PAGE>
Agreement, shall be adjudicated before a court located in New York City, and
they hereby submit to the exclusive jurisdiction of the courts of the State of
New York located in New York, New York and of the Federal District Court for
the Southern District of New York with respect to any action or legal
proceeding commenced by any party, and they irrevocably waive any objection
they now or hereafter may have respecting the venue of any such action or
proceeding brought in such a court or respecting the fact that such court is
an inconvenient forum, relating to or arising out of this Agreement, and
consent to the service of process in any such action or legal proceeding by
means of registered or certified mail, return receipt requested, in care of
the address set forth in Section 10(b) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
INTERNATIONAL PLASTIC
TECHNOLOGIES, INC.
By:
--------------------------------------
Andrew Franzone
President
NETWORK 1 FINANCIAL SECURITIES, INC.
By:
--------------------------------------
William R. Hunt
President
9
<PAGE>
A 185 Blumberg's Improved Gilsey Form Lease 12-78 JULIUS BLUMBERG, INC.
PUBLISHER, NYC 10013
This Agreement BETWEEN
K&G Realty Associates, 320 Broad Hollow Road, Farmingdale, New York
as Landlord
and
Electronic Hardware Corp., 320 Broad Hollow Rd., Farmingdale, New York
as Tenant
WITNESSETH: The Landlord hereby leases to the Tenant the following
premises: the entire building known as 320 Broad Hollow Rd., Farmingdale, NY
for the term of
to commence from the 1st day of January 1990 and
to end on the 31st day of December 1995 to be used and
occupied only for manufacturing and related activities only
upon the conditions and covenants following:
1st. That the Tenant shall pay the annual rent of $ 132,000.00 per year
said rent to be paid in equal monthly payments in advance, on the
1st day of each and every month
during the term aforesaid, as follows:
$11,000.00 per month
2nd. That the Tenant shall take good care of the premises and shall, at
the Tenant's own cost and expense make all repairs as set forth more fully in
paragraph 28.
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. that the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall
not assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unuseable. If part of the Premises cant not be used, Tenant must
pay rent for the useable part. Landlord need only repair the damaged structural
parts of the Premises. Landlord is not required to repair or replace any
equipment, fixtures, furnishings or decorations unless originally installed by
Landlord. Landlord is not responsible for delays due to setting insurance
claims, obtaining estimates, labor and supply problems or any other cause not
fully under Landlord's control.
If the fire or other casualty is caused by an act or neglect of
Tenant, Tenant's employees or invitees, or at the time of the fire or casualty
Tenant is in default in any term of this Lease, then all repairs will be made at
Tenant's expense and Tenant must pay the full rent with no adjustment. The cost
of the repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there
is substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
the substantial fire or casualty by giving Tenant notice of Landlord's intention
to demolish or rebuild. The Lease will end 30 days after Landlord's cancellation
notice to Tenant. Tenant must deliver the Premises to Landlord on or before the
cancellation date in the notice and pay all rent due to date of the fire
or casualty. If the Lease is canceled Landlord is not required to repair the
Premises or Building. The cancellation does not release Tenant of liability in
connection with the fire or casualty. This Section is intended to replace the
terms of New York Real Property Law Section 227.
[end of page 1]
<PAGE>
6th. The said Tenant agrees that the said Landlord and the Landlord's
agents and other representatives shall have the right to enter into and upon
said premises, or any part thereof, at all reasonable hours for the purpose of
examining the same, or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's
agents to show the premises to persons wishing to hire or purchase the same; and
the Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hindrance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or
become vacant during said term, or if any default be made in the payment of the
said rent or any part thereof, or if any default be made in the performance of
any of the covenants herein contained, the Landlord or representatives may
re-enter the said premises by force, summary proceedings or otherwise, and
remove all persons therefrom, without being liable to prosecution therefor, and
the Tenant hereby expressly waives the service of any notice in writing of
intention to re-enter, and the Tenant shall pay at the same time as the rent
becomes payable under the terms hereof a sum equivalent to the rent reserved
herein, and the Landlord may rent the premises on behalf of the Tenant,
reserving the right to rent the premises for a longer period of time than fixed
in the original lease without releasing the original Tenant from any liability,
applying any moneys collected, first to the expense of resuming or obtaining
possession, second to restoring the premises to a rentable condition, and then
to the payment of the rent and all other charges due and to grow due to the
Landlord, any surplus to be paid to the Tenant, who shall remain liable for any
deficiency.
9th. Landlord way, replace, at the expense of Tenant, any and all broken
glass in and about the demised premises. Landlord may insure, and keep insured,
all plate glass in the demised premises for and in the name of Landlord. Bills,
for the premiums therefor shall be rendered by Landlord to Tenant at such times
as Landlord may elect, and shall be due from, and payable by Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid as,
additional rental. Damage and injury to the said premises, caused by the
carelessness, negligence or improper conduct on the part of the said Tenant or
the Tenant's agents or employees shall be repaired as speedily as possible by
the Tenant at the Tenant's own cost and expense.
10th. That the Tenant shall neither encumber nor obstruct the sidewalk in
front of, entrance to, or halls and stairs of said premises, nor allow the same
to be obstructed or encumbered in any manner.
11th. The Tenant shall neither place, or cause or allow to be placed, any
sign or signs of any kind whatsoever at, in or about the entrance to said
premises or any other part of same, except in or at such place or places as may
be indicated by the Landlord and consented to by the Landlord in writing. And in
case the Landlord or the Landlord's representatives shall deem it necessary to
remove any such sign or signs in order to paint the said premises or the
building wherein same is situated or make any other repairs, alterations or
improvements in or upon said premises or building or any part thereof, the
Landlord shall have the right to do so, providing the same be removed and
replaced at the Landlord's expense, whenever the said repairs, alterations or
improvements shall be completed.
12th. That the Landlord is exempt from any and all liability for any damage
or injury to person or property caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of said
building or from any damage or injury resulting or arising from any other cause
or happening whatsoever unless said damage or injury be caused by or be due to
the negligence of the Landlord.
13th. That if default be made in any of the covenants herein contained,
then it shall be lawful for the said Landlord to reenter the said premises, and
the same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in
respect to any mortgages that are now on or that hereafter may be placed against
said premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of canceling this lease without
incurring any expense or damage and the term hereby granted is expressly
limited accordingly.
15th. The Tenant has this day deposited with the Landlord the sum of
$ as security for the full and faithful performance by the Tenant
of all the terms, covenants and conditions of this lease upon the Tenant's part
to be performed, which said sum shall be returned to the Tenant after the time
fixed as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendee for the
benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant agrees
to look to the new Landlord solely for the return of the said security, and it
is agreed that this shall apply to every transfer or assignment made of the
security to a new Landlord.
16th. That the security, deposited under this lease shall not be mortgaged,
assigned or encumbered by the Tenant without the written consent of the
Landlord.
17th. It is expressly understood and agreed that in case the demised
premises shall be deserted or vacated, or if default be made in the payment of
the rent or any part thereof as herein specified, or if, without the consent of
the Landlord, the Tenant shall sell, assign, or mortgage this lease or if
default be made in the performance of any of the covenants and agreements in
this lease contained on the part of the Tenant to be kept and performed, or if
the Tenant shall fail to comply with any of the statutes, ordinances, rules,
orders, regulations and requirements of the Federal, State and Local Governments
or of any and all their Departments and Bureaus, applicable to said premises, or
if the Tenant shall file or there be filed against Tenant a petition in
bankruptcy or arrangement, or Tenant be adjudicated a bankrupt or make an
assignment for the benefit of creditors or take advantage of any insolvency act,
the Landlord may, if the Landlord so elects, at any time thereafter terminate
this lease and the term hereof, on giving to the Tenant five days' notice in
writing of the Landlord's intention so to do, and this lease and the term hereof
shall expire and come to an end on the date fixed in such notice as if the said
date were the date originally fixed in this lease for the expiration hereof.
Such notice may be given by mail to the Tenant addressed to the demised
premises.
18th. Tenant shall pay to Landlord the rent or charge, which may, during
the demised term, be assessed or imposed for the water used or consumed in or on
the said Premises, whether determined by meter or otherwise, as soon as and when
the same may be assessed or imposed and will also pay the setting of a water
meter in the said premises should the latter be required. Tenant shall pay
Tenant's proportionate part of the sewer rent or charge imposed upon the
building. All such rents or charges or expenses shall be paid as additional rent
and shall be added to the next month's rent thereafter to become due.
19th. That the Tenant will not nor will the Tenant permit undertenants or
other persons to anything in said premises, or bring anything into said
premises, or permit anything to be brought into said premises or to be kept
therein, which will in any way increase the rate of fire insurance on said
demised premises, nor use the demised premises or any part thereof, nor suffer
or permit their use for any business or purpose which would cause an increase in
the rate of fire insurance on said building, and the Tenant agrees to pay on
demand any such increase.
20th. The failure of the Landlord to insist upon a strict performance of
any of the terms, conditions and covenants herein, shall not be deemed a waiver
of any rights or remedies that the Landlord may have, and shall not be deemed a
waiver of any subsequent breach or default in the terms, conditions and
covenants herein contained. This instrument may not be changed, modified,
discharged or terminated orally.
21st. If the whole or any part of the demised premises shall be acquired
or condemned by Eminent Domain for any public or quasi public use or purpose,
then and in that event, the term of this lease shall cease and terminate from
the date of title vesting in such proceeding and Tenant shall have no claim
against Landlord for the value of any unexpired term of said lease. No part of
any award shall belong to the Tenant.
[end of page 2]
<PAGE>
22nd. If after default in payment of rent or violation of any other
provision of this lease, or upon the expiration of this lease, the Tenant moves
out or is dispossessed and fails to remove any trade fixtures or other property
prior to such said default, removal, expiration of lease, or prior to the
issuance of the final order or execution of the warrant, then and in that event,
the said fixtures and property shall be deemed abandoned by the said Tenant and
shall become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease
or terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by the ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State
of New York.
25th. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in nowise be affected, impaired or excused because Landlord
is unable to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make, or is delayed in making any,
repairs, additions, alterations or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of governmental preemption in connection with a
National Emergency or in connection with any rule, order or regulation of any
department or subdivision thereof of any governmental agency or by reason of the
condition of supply and demand which have been or are affected by war or other
emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the various "services," if any, herein expressly or impliedly agreed
to be furnished by the Landlord to the Tenant, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies or labor
for the maintenance of such "service" or to some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making of repairs, improvements or decorations to
the demised premises after the date above fixed for the commencement of the
term, it being understood that rent shall, in any event, commence to run at such
date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
additional provisions contained in Rider.
And the said Landlord doth covenant that the said Tenant on paying
the said yearly rent, and performing the covenants aforesaid, shall and may
peacefully and quietly have, hold and enjoy the said demised premises for the
term aforesaid, provided however, that this covenant shall be conditioned upon
the retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and
agreements contained in the within lease shall be binding upon the parties
hereto and upon their respective successors, heirs, executors and
administrators.
In Witness Whereof, the parties have interchangeably set their
hands and seals (or caused these presents to be signed by their proper corporate
officers and caused their proper corporate seal to be hereto affixed) this 19th
day of December 1989.
Signed, sealed and delivered K&G Realty Associates
in the presence of By: /s/ Harry Goodman L.S.
-----------------------------
Electronic Hardware Corporation
By: /s/ Andrew Franzone L.S.
-----------------------------
L.S.
-----------------------------
[end of page 3]
<PAGE>
State of New York )
) ss:
County of )
On the ________________ day of ____________________________ 19__,
before me personally came _________________ to me known and known to me to be
the individual described in, and who executed, the foregoing instrument,
and ___________________________________________ acknowledged to me that he
executed the same
State of New York )
) ss:
County of )
On the day of 19 , before me personally came ______________________ to
me known, who, being by me duly sworn, did depose and say that he resides at
No.______
_______________________________________________________________________________
that he is the ______________________ of ________________________ the
corporation mentioned in, and which executed, the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of
_______________________________ of said corporation; and that he signed his name
thereto by like order.
In Consideration of the letting of the premises within mentioned
to the within named Tenant and the sum of $1.00 paid to the undersigned by the
within named Landlord, the undersigned do hereby covenant and agree,
to and with the Landlord and the Landlord's legal representatives, that if
default shall at any time be made by the said Tenant in the payment of the rent
and the performance of the covenants contained in the within lease, on the
Tenant's part to be paid and performed, that the undersigned will well and truly
pay the said rent, or any arrears thereof, that may remain due unto said
Landlord, and also pay all damages that may arise in consequence of the
non-performance of said covenants, or either of them, without requiring notice
of any such default from the said Landlord. The undersigned hereby waives all
right to trial by jury in any action or proceeding hereinafter instituted by the
Landlord, to which the undersigned may be a party.
In Witness Whereof, the undersigned ha set hand and seal
this ______ day of _____________________, 19___
WITNESS
L.S.
-------------------
<PAGE>
RIDER TO LEASE AGREEMENT BETWEEN K & G REALTY ASSOCIATES,
AS LANDLORD, AND ELECTRONIC HARDWARE CORP.,
AS TENANT, DATED THE 1st DAY OF January 1990
28th. Tenant shall, at its own expense, make all necessary repairs and
replacements to the leased property and to the pipes, heating system, plumbing
system, window glass or fixtures and all other appliances and appurtenances
belonging thereto, all equipment, used in connection with the leased property,
and the sidewalks, curbs and vaults adjoining or appurtenant to the leased
property. Such repairs and replacements, interior and exteriors ordinary as well
as extraordinary, and structural as well as nonstructural, shall be made
promptly, as and when necessary. All repairs and replacements shall be in
quality and class equal to the original work. On default of Tenant in making
such repairs or replacements, Landlord may, but shall not be required to, make
such repairs and replacements for Tenant's account, and the expense thereof
shall constitute and be collectible as additional rent.
[LANDLORD AND]
29th. Tenant shall not assign or sublet the whole nor any part of the
demised premises.
30th. If the Landlord or Tenant or any successor in interest shall be an
individual, joint venture, tenancy in common, firm, or partnership, general or
limited, there shall be no personal liability on such individual or on the
members of such joint venture tenancy in common, firm, or partnership or on such
joint venture, tenancy in common, firm, or partnership, in respect to any of the
covenants or conditions of this lease. The Landlord and the Tenant shall look
solely to the equity of the Landlord in the property or to the Tenant's interest
in the leasehold estate for the satisfaction of the remedies of the Landlord or
the Tenant, as the case may be, in the event of a breach by the Landlord or the
Tenant of any of the covenants or conditions of this lease.
31st. (a) It is the intention of the parties that the Landlord shall
receive the rents, additional rents, and all sums payable by the Tenant under
this lease free of all taxes, expenses, charges, damages, and deductions of any
nature whatsoever and the Tenant covenants and agrees to pay all sums which
except for this lease would have been chargeable against the leased property and
payable by the Landlord. The Tenant shall, however, be under no obligation to
pay interest on any mortgage on the fee of the leased property, any franchise or
income tax payable by the Land lord, or any gift, inheritance, transfer, estate,
or succession tax by reason of any present or future law which may be enacted
during the term of this lease.
(b) All taxes, charges, costs, and expenses which the Tenant is
required to pay hereunder, together with all interest and penalties that may
accrue thereon in the event of the Tenant's failure to pay such amounts, and all
damages, costs, and expenses which the Landlord may incur by reason of any
default of the Tenant or failure on the Tenant's part to comply with the terms
of this leases shall be deemed to be additional rent and, in the event of
nonpayment by the Tenant, the Landlord shall have all the rights and remedies
with respect thereto as the Landlord has for the nonpayment of the basic rent.
32nd. Throughout the term of this lease, the Tenant shall pay premiums
for insurance coverage on the leased property, including fire and windstorm
insurance, in such amounts and with such companies, as now maintained by the
Landlord.
33rd. In the event the Real Property taxes for the demised premises are
increased at any time during the term hereof, over and above the total taxes
allowable to the calendar year 1990 -1995 which is in the amount of $26,600.00,
then the difference representing the increase shall be paid by the tenant
immediately upon receipt of the tax bill.
ELECTRONIC HARDWARE CORPORATION
By: /s/ A Franzone
-----------------------------
K&G Realty Associates
By: /s/ Harry Goodman
-----------------------------
<PAGE>
ELECTRONIC HARDWARE CORPORATION
320 Broad Hollow Road, Farmingdale, New York 11735
(516) 752-1950 o Fax: (516) 752-1971
March 16, 1995
K&G Realty Associates and Electronic Hardware
Corporation hereby agree that the lease dated
December 19, 1989, concerning the property know
as 320 Broad Hollow Road, Farmingdale, NY, be
extended for 10 years, until December 31, 2005 under
the exact same terms as shown on the lease.
/s/ Harry Goodman
------------------------------
K & G Realty Associates
/s/A. Franzone
-------------------------------
Electronic Hardware Corporation
<PAGE>
RIDER
THIS LEASE RIDER, made as of this 1st day of March, 1998, by and
between K&G REALTY ASSOCIATES, a New York general partnership ("Landlord") and
ELECTRONIC HARDWARE CORP. ("Tenant").
WHEREAS, by a Lease dated the 19th day of December, 1989, Landlord
leased unto Tenant, certain premises designated as 320 Broadhollow Road,
Farmingdale, New York 11735, as more particularly described in said Lease; and
WHEREAS Landlord and Tenant now desire to amend and modify the Lease
in certain respects;
NOW THEREFORE, in consideration of the mutual agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is mutually agreed
by and among the parties as follows:
1. (a) The annual rent provided for in Paragraph 1st of the Lease shall
be increased to $137,000 per year (the "Base Rent"), payable in equal monthly
installments on the 1st day of each month during the term of the Lease. The
Base Rent shall be increased each year by an amount equivalent to the increase
in the Consumer Price Index (as defined below).
(b) To compute the annual increase attributable to the Consumer Price
Index, the Consumer Price Index as of January, 1998 (the "Base Price Index")
shall be compared with the Consumer Price Index for each successive January of
the Term. In the event the Consumer Price Index for January in any calendar
year during the Term reflects an increase over the Base Price Index, then the
Base Rent hereunder shall be multiplied by the percentage difference between
the Consumer Price Index for such January and the Base Index, and shall be
payable as additional rent beginning January of each year of the Term. Such
additional rent shall thereafter be payable hereunder, in equal monthly
installments, until it is readjusted pursuant to the terms of this Rider.
(c) For purposes of this Section, the Consumer Price Index shall mean
the Consumer Price Index for All Urban Consumers, All-Items, for New
York-Northeast New Jersey-Long Island, NY-NJ-CT (1982-84=100) published by the
United States Bureau of Labor Statistics, Department of Labor, or its
successor then in effect. If publication of the Consumer Price Index is
discontinued, the parties hereto shall accept comparable statistics on the
cost of living adjustment for New York City as computed and published by an
agency of the United States or by a responsible financial periodical or
recognized authority to be selected by the parties.
2. Paragraph 33rd of said Lease is hereby deleted in its entirety, and in its
place and stead is substituted the following:
"In the event the Real Property taxes for the demised
premises are increased at any time during the term hereof,
over and above the total taxes allocable to the calendar
year 1990-1991 which is in the amount of $26,000, then the
difference representing the increase shall be paid by the
Tenant within twenty (20) days of
<PAGE>
receipt of the tax bill."
3. Except as herein modified, all other terms, covenants and
conditions of the aforesaid Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Rider on
the date first written above
K&G REALTY ASSOCIATES
By: /s/ David L. Kassel
David L. Kassel
ELECTRONIC HARDWARE CORP.
By: /s/ Andrew Franzone
Andrew Franzone
<PAGE>
RIDER
THIS LEASE RIDER, made as of this 14th day of May, 1998, by and
between K&G REALTY ASSOCIATES, a New York general partnership ("Landlord") and
ELECTRONIC HARDWARE CORP. ("Tenant").
WHEREAS, by a Lease dated the 19th day of December, 1989 (the
"Lease"), Landlord leased unto Tenant, certain premises designated as 320
Broadhollow Road, Farmingdale, New York 11735, as more particularly described
in said Lease; and
WHEREAS Landlord and Tenant executed a Rider to said Lease on March
1, 1998 (the "Initial Rider"); and
WHEREAS Landlord and Tenant now desire to amend and modify the Lease
and the Initial Rider in certain respects;
NOW THEREFORE, in consideration of the mutual agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is mutually
agreed by and among the parties as follows:
1. The Base Rent shall be increased each year by an amount equal to the
greater of five percent (5%) or the increase in the Consumer Price Index (as
calculated in Section 1 of the Initial Rider).
2. Except as herein modified, all other terms, covenants and conditions of the
aforesaid Lease and Initial Rider shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Rider on
the date first written above
K&G REALTY ASSOCIATES
By: /s/ Harry Goodman
-------------------------
Harry Goodman
ELECTRONIC HARDWARE CORP.
By: /s/ Andrew Franzone
-------------------------
Andrew Franzone
<PAGE>
LICENSE AGREEMENT
This Agreement entered into as of this 1st day of March, 1998, by and
between INCH, Inc., a corporation of the State of Delaware having a regular
place of business at 553 8th Street, Brooklyn, New York 11215 (hereinafter
referred to as "INCH"); and
COMPACT DISC PACKAGING CORP. a corporation of the State of Delaware having
a regular place of business at c/o Koerner Silberberg & Weiner, LLP, 112 Madison
Avenue, New York, New York 10016 (hereinafter referred to as "CDP").
WHEREAS, INCH is the owner of the United States Letters Patent No.
5,383,554, issued January 24, 1995, entitled "CONTAINER FOR STORING AND
DISPLAYING AN ARTICLE" (hereinafter referred to as the "Patent");
WHEREAS, INCH has developed a compact disc packaging system including a
novel package or "box" for compact discs and methods of manufacturing the same,
that embodies and implements the method and apparatus disclosed in the Patent,
which compact disc packaging system constitutes and comprises proprietary trade
secret information known only to INCH (which information is hereinafter referred
to as "CD Technology");
WHEREAS, INCH is the owner of the trademark
INCH PACK
for use in connection with a CD package and INCH intends to file a United States
Trademark Application for registration of such trademark (hereinafter referred
to as the "Trademark");
WHEREAS, CDP desires to obtain an exclusive license under the Patent, said
CD Technology and said Trademark, to make, use, and sell a compact disc
packaging system incorporating the CD Technology and using the Trademark;
<PAGE>
WHEREAS, CDP desires to obtain the right to sublicense third parties
("Third Parties") under the Patent, said CD Technology and said Trademark, to
permit such Third Parties to make, use, and sell a compact disc packaging system
incorporating the CD Technology and using the Trademark;
WHEREAS, INCH is willing to grant such a licenses to CDP under the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
mutually acknowledged, the parties hereto agree as follows:
ARTICLE I - Grant of License
Section 1.1 - Subject to the terms of this Agreement, INCH hereby grants to
CDP the exclusive license and right to make, have made, use, market, and sell
compact disc packages coming within the scope of the invention disclosed and
claimed in said U.S. Letters Patent No. 5,383,554, issued January 24, 1995, and
any and all modifications and derivations thereof, and any and all corresponding
Letters Patent, domestic and foreign, which may issue throughout the world
(hereinafter referred to as the "Territory"), together with the right to sue and
recover for infringement of said Letters Patent, and together with the right to
grant sublicenses to Third Parties who are not affiliated with CDP, from and
after the date of this Agreement until the termination thereof as hereinafter
provided. For purposes of this Agreement, a Third Party is not "affiliated" with
CDP if neither CDP, its parent or subsidiary companies, or the stockholders of
CDP, its parent or subsidiary companies, or the
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respective owners of such stockholders, or their relatives, own(s) a controlling
equity interest in the Third Party.
Section 1.2 - Subject to the terms of this Agreement, INCH hereby grants
CDP the exclusive license and right to make, have made, use, market, and sell
compact disc packages embodying the CD Technology throughout the Territory,
together with the right to sue and recover for misappropriation of the trade
secrets embodied therein, and together with the right to grant sublicenses to
Third Parties who are not affiliated with CDP, from and after the date of this
Agreement until the termination thereof as hereinafter provided.
Section 1.3 - Subject to the terms of Agreement, INCH hereby grants CDP the
exclusive license and right to sell compact disc packages embodying the, CD
Technology throughout the Territory under the Trademark "INCH PACK" in both
block letters and in stylized form, together with the right to grant sublicenses
to Third Parties who are not affiliated with CDP, from and after the date of
this Agreement until the termination thereof as hereinafter provided.
Section 1.4 - The licenses herein granted CDP shall extend to parent and
subsidiary companies of CDP, subject to payment of royalties at the rate herein
provided. CDP shall be responsible for payment of royalties due from its parent
and subsidiary companies. A subsidiary of CDP, is defined for purposes of this
Agreement as a corporation, a majority of the voting stock of which is owned
directly or indirectly by CDP; a parent company is defined as any legal entity
which is a controlling stockholder of CDP.
Section 1.5 - CDP agrees to mark all compact disk packages incorporating
the CD Technology licensed herein in accordance with the patent statutes of the
United States and all other countries of the Territory with the words "U.S.
Patent No. 5,383,55411 or their equivalent.
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<PAGE>
Section 1.6 - CDP may, but shall not be required to mark, have marked, and
to require its sublicensees to mark, all products, sales literature, technical
documentation and advertisements relating to compact disk packaging
incorporating the CD Technology with the following trademark:
INCH PACK
CDP and its sublicensees shall identify such Trademark with a superscript "TM"
or, if registered, with a superscript "(R)" when used.
Section 1.7 - In the event INCH develops a new package design that is not
covered by the Patent, these new designs will be considered part of the CD
Technology. In such event, INCH shall make its best efforts to obtain a patent
for the new package design and CDP shall reimburse INCH for all reasonable
expenses incurred thereof.
ARTICLE II - Royalties and other Payments
Section 2.1 - In consideration of the rights granted by this License
Agreement, CDP shall (i) pay INCH a royalty of two percent (2%) of the
Cumulative Net Sales (as defined below) for each calendar quarter year, of the
CD packages which are sold by CDP, its parent and subsidiary companies, and
which embody or include the invention claimed in the Patent Application and any
patents which may issue therefrom and/or embody or include the CD Technology,
throughout the Territory; (ii) pay INCH twenty-five percent (25%) of any royalty
or other fees received by CDP from any sublicenses (the "Prescribed
Percentage"), which shall be paid to INCH within thirty (30) days of receipt by
CDP together with a copy of any associated royalty report or fee statement
received from the sublicensee; and (iii) reimburse INCH $30,000 for the
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<PAGE>
expenses incurred by INCH in obtaining the Patent, including, but not limited to
legal fees and filing fees.
Section 2.2 - The term "Cumulative Net Sales" shall mean the gross sales of
CD packages during the specified term less any returns, credits and allowances
during this period. A "CD package" shall be considered to be "sold" by CDP, or
its parent and subsidiary companies, when shipped, billed and paid for.
Section 2.3 - CDP, its parent and subsidiary companies and its
sublicensees, shall keep accurate records of all sales of CD Packages, which
records shall be open to inspection, upon thirty (30) days written notice from
INCH to CDP, its parent and subsidiary companies and its sublicensees,
respectively, during normal business hours by a Certified Public Accountant
provided by INCH for the sole purpose of verifying the royalty payments to be
rendered hereunder. CDP, its parent and subsidiary companies and sublicensees,
are not obligated to retain such records longer than three years from the due
date of the respective royalty or Prescribed Percentage payment to INCH,
provided that such royalties or Prescribed Percentage are duly paid.
Section 2.4 - Royalties shall be computed on a calendar year quarterly
basis commencing from the date hereof, and the amount due shall be paid within
the thirty (30) days immediately following the end of the quarter year period in
which they accrue. Each payment shall be accompanied by full and true statements
setting forth the total number of CD Packages sold, the selling price thereof
and the number and selling price of any CD Packages returned during such
preceding three (3) months. CDP shall report royalties on its own operations as
well as the operations of its parent and subsidiary companies and sublicensees.
CDP shall be responsible for
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<PAGE>
payment of royalties due from its parent and subsidiary companies, whether or
not timely payments have been received from such companies. CDP shall use its
best efforts to collect royalties from its sublicensees and may cancel the
sublicense to any sublicensee who fails to report and make payment of any
royalty or fee within ninety (90) days of the date required by the sublicense.
Section 2.5 - If the total royalties paid to INCH by CDP, its parent and
subsidiary companies, (the "Royalties"), does not equal or exceed a minimum
total of Thirty Thousand Dollars ($30,000) for the period from January 31, 1999
to February 1, 2000, Forty Thousand Dollars ($40,000) for the twelve (12) month
period thereafter, and Fifty Thousand Dollars ($50,000) for each twelve month
period thereafter (the periodic threshold dollar amounts are collectively
referred to as the "Minimum Royalties"), or if CDP does not obtain a cash
capital investment in the amount of One Million Dollars ($1,000,000) within
twenty-four (24) months of the date of this Agreement, INCH shall have the
option to terminate this exclusive license upon written notice to CDP within
thirty (30) days of the end of the respective period (the "Notice").
Notwithstanding the foregoing, if within thirty (30) days of receipt of such
Notice CDP pays the difference between the Minimum Royalty due for the period
covered by the Notice and the Royalties for such period, then CDP shall retain
this exclusive license and the Notice will be null and void. In the event of a
loss of this exclusive license, CDP shall continue to hold a non-exclusive
license, under the terms of this Agreement at the same royalty rate as set forth
in Section 2.1 above. At such time as CDP shall obtain a non-exclusive license,
CDP's right to sue third parties for patent, copyright or trademark infringement
and CDP's right to grant additional sublicenses to Third Parties, shall cease.
CDP shall retain the right to continue to prosecute any
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<PAGE>
lawsuit already commenced and to continue any sublicense already granted.
ARTICLE III - Warranties
Section 3.1 - Each Party does hereby warrant that it has full and sole
power, right and authority to enter into this Agreement, that this Agreement has
been duly and validly authorized and executed, by it and that this Agreement is
the valid and binding obligation of such Party.
Section 3.2 - The CD Technology is licensed as-is. INCH does not warrant
that the CD Technology is capable of industrial realization or commercial
exploitation, the risks of which are being assumed solely by CDP, and INCH shall
have no responsibility for the consequence of any such failure of industrial
realization or commercial exploitation. It is understood that INCH is not
making, and expressly disclaims, any warranties or representations with respect
to the validity or enforceability of any patent rights which may relate to the
CD Technology nor is it making any representations or warranties that the
manufacture, use or sale of any product involving the practice thereof and will
not infringe the patents of any third party. INCH makes no other warranty or
guarantee of any kind whatsoever, either express or implied, including without
limitation any warranties of merchantability or fitness for a particular
purpose. In no event will INCH be liable for any incidental, special, or
consequential damages arising out of or relating in any way to this License
Agreement, the CD Technology or licensee's use of the same. In no event will
INCH be liable for any damages in excess of the royalties received by INCH from
CDP.
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<PAGE>
Section 3.3 - CDP warrants and covenants that: (a) with the exception of
the sale of CD Packages, CDP will not accept any purchase order or contract that
will by its terms or by the operation of law abridge INCH's rights in and to the
CD Technology; (b) CDP will obtain any required export licenses to implement
this Agreement in foreign countries, including but not limited to submission of
an international import certificate and a statement as to ultimate consignee or
purchaser; and (c) CDP has all legal right to conduct its activities as
contemplated by this Agreement, including but not limited to all necessary
rights to produce and sell CD Packages, which include and contain substantial
technology in addition to the CD Technology.
ARTICLE IV - Rights and Obligations of Parties
Section 4.1 - In consideration of CDP's control over the manufacture,
marketing and use of CD Packages, CDP hereby agrees to indemnify and hold INCH
harmless against all damages awarded or liabilities imposed by reason of, or
arising out of any product liability or breach of warranty claim concerning the
products manufactured hereunder, including all expenses and attorneys' fees
incurred in CDP's defense, but only to the extent of the cumulative royalties
earned and/or paid during the term of this Agreement. INCH and its officers and
counsel, warrant and assert that they presently have no knowledge of any prior
art or defect in the Patent which would render it unenforceable.
Section 4.2 - In the event that suit should be instituted against CDP by
any third party charging the CD Packages which include the CD Technology made
and/or sold by CDP, its parent and subsidiary companies and/or its sublicensees,
to be an infringement of any patent or patents by virtue of the CD Technology
licensed or sold hereunder being dominated by a third
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<PAGE>
party patent, CDP shall have the right to withhold payment of the royalties
accruing hereunder. CDP agrees to pay 50% of said royalties so withheld into an
interest-bearing escrow account nominated by INCH for CDP's protection against
any and all loss or expense resulting from or incident to such suit. In such
event, royalty payments to INCH will not be resumed until such suit or suits
shall have been terminated and until CDP shall have been reimbursed in full, but
only from withheld royalties, which sums shall have been paid to escrow or
retained by CDP, for all costs, expenses, attorneys' fees and damages incurred
or suffered by it directly or indirectly on account of or by reason of such suit
or suits. INCH shall have the right to be represented in any such suit by
counsel of its own selection at its own expense.
Section 4.3 - During the term of the exclusive license granted hereunder,
CDP has the right but not the obligation to sue a third party in its own name
for infringement of the Patent and may join INCH as the title holder. In the
event that CDP intends to institute suit against a third party for infringement
of the Patent rights licenced hereunder, CDP shall notify INCH at least thirty
(30) days in advance of commencing suit. During this period of thirty (30) days,
INCH shall have the option of joining CDP as a co-plaintiff (or, if a
declaratory judgment action has been filed by the third party, as a
co-defendant) in the suit. If CDP elects to sue for infringement of said Patent
rights, CDP and INCH shall share equally in any and all damages which may be
recovered from a third party. In the event that CDP elects not to sue for
infringement within sixty (60) days after due notice of such infringement has
been given CDP by INCH, INCH shall have the exclusive right to sue and recover
damages for infringement of said Patent rights without accounting to CDP.
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<PAGE>
Section 4.4 - CDP shall not settle any infringement suit in connection with
the Patent rights licensed hereunder by granting a sublicense to a third party
without the prior written approval of INCH, which approval shall not be
unreasonably withheld. Similarly, neither INCH nor CDP shall obtain a license
from a third party, in settlement of an infringement suit by such third party in
connection with the Patent rights licensed hereunder without first obtaining the
prior written approval of the other party hereof, which approval shall not be
unreasonably withheld.
Section 4.5 - INCH agrees that it will promptly notify CDP of and
communicate to CDP full information in writing covering any improvements,
developments, inventions, changes or innovations in the CD Technology disclosed
in the Patent No. 5,383,554 of any size or type or part thereof, which INCH may
develop or acquire. INCH further agrees that if such improvements, developments,
inventions, changes or innovations shall involve or include patentable subject
matter, then if INCH files or secures any patent thereon in any country, INCH
shall grant to CDP a full time license to make, use and sell CD packages covered
by any such patents.
ARTICLE V - Quality Control
Section 5.1 - In the event CDP sells or offers for sale products under the
trademark "INCH PACK", CDP shall produce, and shall require its parent and
subsidiary companies and its sublicensees to produce, CD packages which meet the
quality standards conventional in the "jewel box" industry, as regards
dimensional tolerances, flatness and optical clarity. In the event of a failure
by CDP to comply with these quality standards, or should any of the CD Packages
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<PAGE>
not comply with such quality standards for any reason, then upon notice given by
INCH to CDP, including an in-plant notice given by INCH's quality control
representatives of this failure, CDP, and/or its parent and subsidiary companies
and/or its sublicensees, shall immediately cease all further production and
shipment of the subject CD Packages until the failure is corrected and, if
requested by INCH, CDP will recall or require the recall of any substandard
product at CDP's sole expenses
Section 5.2 - In the event CDP sells or offers for sale products under the
trademark "INCH PACK", CDP shall comply promptly with the quality control
sampling and reporting procedures prescribed by INCH. INCH's representatives
shall be permitted to enter and inspect at reasonable times during business
hours, without prior notice, those plants and warehouses where the CD Packages
are being manufactured, packaged or stored.
ARTICLE VI - Consultancy
Section 6.1 - INCH will supply consulting services to CDP in the area of
the design and manufacture of CD Packages at such times and at such places as
CDP shall designate. Such consulting services shall be provided by or at the
direction of David Cowan, President of INCH.
Section 6.2 - INCH is an independent contractor as regards the services
rendered under this Agreement. Neither INCH nor CDP are an agent or
representative of the other and have no right or authority, expressed or
implied, to assume or create any obligation on behalf of the other.
Section 6.3 - INCH agrees to provide CDP free of charge an initial transfer
of all information, currently known, relevant to the design, manufacture and
marketing of the CD Technology. INCH believes that this initial information
transfer is expected to require not more
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<PAGE>
than two (2) man days. After completion of the initial information transfer, CDP
will pay INCH for consulting services requested of INCH by CDP in writing prior
to performance at the rate specified below:
During Phase I (prior to the sale and delivery of the
first 10,000 units): $50/hr.
During Phase II (after the sale and delivery of the
first 10,000 units): $110/hr.
INCH will invoice CDP not more often than weekly and CDP will make payment
within 30 days after invoicing.
ARTICLE VII - Term and Termination
Section 7.1 - This license becomes effective on the date first hereinabove
appearing and shall remain in force for a minimum of five (5) years and a
maximum of the life of the U.S. Patent No. 5,383,554 and any corresponding
patents which may issue in other countries, unless terminated in accordance with
the provisions hereinafter set forth.
Section 7.2 - This Agreement may be terminated at the election of INCH if
CDP is adjudged bankrupt or makes a composition with creditors or if a receiver
of its affairs is appointed.
Section 7.3 - Either INCH or CDP may terminate this Agreement at its
election in the event of breach or default by the other, without waiver of any
other remedy, by serving notice of termination on the other effective not less
than two (2) months after service and specifying the particulars of the breach
or default. If, within the two (2) month period following such notice, the
breach or default is remedied, this Agreement shall continue in full force and
effect, otherwise it shall terminate in accordance with such notice.
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<PAGE>
ARTICLE VIII - Assignability and Construction
Section 8.1 - CDP may assign this Agreement only in connection with the
transfer, merger or sale of its entire business relative to this Agreement. INCH
may assign this Agreement, but no such assignment shall operate to defeat any
present licenses to CDP granted hereunder.
Section 8.2 - All notices provided for in this Agreement shall be given in
writing and shall be effective when either served by personal delivery or
deposited postage-paid via Certified Mail addressed to the parties at the
addresses given above or such addresses as the parties may later fix by notice.
Section 8.3 - This Agreement constitutes the complete Agreement between the
parties relative to the subject matter hereof and no modification shall be
binding upon either party hereto unless it is in writing referring to this
Agreement and executed by both parties.
Section 8.4 - This Agreement is made in, and shall be construed in
accordance with the laws of the State of New York. Jurisdiction is conferred
upon the federal and state courts in the State of New York.
Section 8.5 - Any portion or provision of this Agreement which in any way
contravenes the law of any state or country in which the Agreement is effective
shall in such state or country to the extent of such contravention of law be
deemed separable and shall not effect the other provisions of this Agreement.
Section 8.6 - Termination of this Agreement shall not effect any
contractual rights or duties which by terms of this Agreement are intended to
survive termination of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the dates indicated below.
Dated: March 13, 1998 INCH, INC.
----------------------------
By /s/ David Cowan
-----------------------------
Name: David Cowan
Title: President
Dated: March 15, 1998 COMPACT DISC PACKAGING, CORP.
----------------------------
By: /s/ David Kassel
----------------------------
Name: David Kassel
Title: President
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<PAGE>
LICENSE AGREEMENT
This License Agreement entered into as of this 1st day of February, 1998,
by and between Dr. Richard Deutsch, residing at 8 Bayview Avenue, Islip, New
York 11751 ("Deutsch"), and Duralogic Technologies, Inc., a New York corporation
having its principal place of business at 320 Broad Hollow Road, Farmingdale,
New York 11735 ("Duralogic")
WHEREAS, Deutsch is the owner of the United States Letters Patent No.
5,097,828, issued March 24, 1992, entitled "Thermoelectric Therapy Device"; and
WHEREAS, Deutsch has developed a novel thermoelectric massager which
embodies and implements the method and apparatus disclosed in the Patent, which
massager constitutes and comprises proprietary trade secret information known
only to Deutsch (which information is hereinafter referred to as the
"Technology"); and
WHEREAS, Deutsch is the owner of the registered trademark "Ultratherm" for
use in connection with the massager (the "Trademark"); and
WHEREAS, Duralogic desires to obtain an exclusive license under the Patent,
the Technology and the Trademark, to use, manufacture, market, and sell a
thermoelectric massager as described in the Patent, with the exception of the
embodiment shown in Figure 6 of Patent No. 5,097,828 (the "Massager");
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually agreed by and among
the Parties as follows:
1. License
(a) Subject to the terms of this Agreement, Deutsch hereby grants to
Duralogic the exclusive, unlimited, worldwide license and right (i) to make,
have made, use, market, and sell the Massager coming within the scope of the
invention disclosed and claimed in said U.S. Letters
<PAGE>
Patent No. 5,097,828, issued March 24, 1992, and any and all corresponding
Letters Patent, domestic and foreign, which may issue throughout the world (the
"Patent"), (ii) under the registered Trademark "Ultratherm", (iii) together with
the right to sue and recover for infringement of the Patent and misappropriation
of the trade secrets embodied therein, from and after the date of this Agreement
until the termination thereof as hereinafter provided. The exclusive license
granted hereunder shall not include the subject matter of the claims numbered 11
and 19-22 in the Patent (the "Excluded Claims"), in which Deutsch reserves the
exclusive rights to make, use and sell products coming within the scope thereof.
(b) The exclusive license and rights herein granted shall apply to all
inventions, improvements, patent applications and letters patent, which Deutsch
now owns or controls, or hereafter may own or control which relate to the
Technology, and to all information and documents which Deutsch now owns or
controls, or hereafter may own or control, which relates to the Technology (the
"Documents"). Notwithstanding the foregoing, Deutsch's obligations under this
subsection 1(b) shall not apply to U.S. Patent No. 5,209,227, European Patent
No. 0 552 397 B1, or the Excluded Claims.
(c) The exclusive license and rights herein granted shall extend to parent
and subsidiary companies of Duralogic, subject to the terms of this Agreement. A
subsidiary of Duralogic is defined for purposes of this Agreement as a
corporation, a majority of the voting stock of which is owned directly or
indirectly by Duralogic; a parent company is defined as any legal entity which
is a controlling stockholder of Duralogic.
(d) In consideration of the payments made by Duralogic pursuant to Sections
5(a)(ii) and 5(a)(iii), Duralogic shall receive all rights, title and interest
in currently available, relevant tooling, schematics, drawings and customer
lists relating to the manufacturing of the Massager.
2. Manufacture and Distribution Requirements
The Massagers sold under the Trademark shall be manufactured and
distributed in accordance with specifications and standards of construction and
quality consistent with the standards maintained by the industry with respect to
merchandise of this type. A sample of each type of Massager and the package and
any advertising therefor bearing the Trademark shall be
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provided to Deutsch for approval, which approval shall not be unreasonably
withheld. Deutsch's failure to send written notice of disapproval within ten
(10) working days after his receipt of such sample(s) shall be deemed to be a
granting of approval.
3. Information
Deutsch shall furnish to Duralogic all Documents in his possession required
by Duralogic to commercialize and exploit the Technology. Deutsch shall not
reveal the Technology or the Documents to any other person without the written
consent of Duralogic.
4. Maintenance of the Patents and Trademark
During the Term, Deutsch shall, at Duralogic's sole cost and expense, pay
all filing, examination, maintenance, and renewal fees, file all documents and
instruments, and take all other such actions as may be commercially reasonable
to maintain and protect the Patents and Trademark; provided however, that upon
an assignment of the Trademark pursuant to Section 5(c), Duralogic shall be
solely responsible for taking all actions which may be necessary to maintain and
protect the Trademark.
5. Royalties and Other Consideration
(a) In consideration of the exclusive license and rights granted by this
License Agreement, Duralogic shall (i) pay Deutsch a royalty of five percent
(5%) of the Net Sales (as defined below), of the Massagers which are sold by
Duralogic and Duralogic's parent or subsidiaries; (ii) pay Deutsch One Hundred
Thousand Dollars ($100,000) immediately following the effective date of an
initial public offering of securities in a newly formed corporation,
International Plastic Technologies, Inc. (the "Effective Date"), or by September
15, 1998, whichever is earlier; (iii) pay Deutsch One Thousand Two Hundred
Dollars ($1,200) per week, commencing February 1, 1998 and terminating on the
Effective Date, as reimbursement for tooling costs; and (iv) forgive any
financial obligations which may be owed by Deutsch to EHC.
(b) The term "Net Sales" shall mean the gross sales of the Massager, less
any returns,
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<PAGE>
credits, discounts (exclusive of promotions), allowances and shipping expenses.
A Massager shall be considered sold by Duralogic when shipped, billed and paid
for.
(c) Deutsch shall assign the Trademark, including the goodwill associated
with the Trademark to Duralogic, upon receiving the payment under Section
5(a)(ii). Duralogic's obligations under Section 2 shall cease upon such
assignment.
6. Payment of Royalties
(a) Duralogic shall at all times keep accurate records of all sales of
Massagers which are the subject of this Agreement, which records shall be open
to inspection during normal business hours by a Certified Public Accountant or
other representative provided by Deutsch for the sole purpose of verifying the
royalty payments to be rendered hereunder, upon reasonable notice from Deutsch
to Duralogic.
(b) Royalties shall be computed on a monthly basis commencing from the
Effective Date, and the amount due shall be paid on the tenth (10th) day of the
month immediately following the end of the month in which they accrue. Each
payment shall be accompanied by full and true statements setting forth the total
number of Massagers sold, the selling price thereof, less any returns, credits,
discounts (excluding promotions), allowances, and shipping expenses, if any.
(c) If the total royalties or other compensation paid to Deutsch by
Duralogic (the "Royalties"), does not equal or exceed a minimum total of
Seventy-Five Thousand Dollars ($75,000) for the twelve month period immediately
following the Effective Date, and Fifty Thousand Dollars ($50,000) for each
twelve (12) month period thereafter, (the periodic threshold dollar amounts are
collectively referred to as the "Minimum Royalties"), Deutsch may terminate the
exclusivity of this license on written notice to Duralogic within (30) days of
the end of the respective period. Notwithstanding the foregoing, if Duralogic
pays the difference between the Minimum Royalties and the Royalties within
thirty (30) days of receipt of such notice from Deutsch, then Duralogic will
retain the exclusive license and rights herein granted and the notice will be
null and void. In the event of a termination of this exclusive license,
Duralogic shall continue to hold a non-exclusive license, under the terms of
this Agreement at the same royalty
-4-
<PAGE>
rate as set forth in Section 5 above.
(d) Notwithstanding anything contained herein to the contrary, in the event
Duralogic fails to make the payment referred to in Section 5(a)(ii), this
Agreement shall immediately be null and void and Deutsch may demand the return
of any tooling or Documents in Duralogic's possession.
7. Infringement of the Patents or Trademark
(a) Deutsch and Duralogic shall immediately notify the other of any actual
or threatened infringement of the Patents or Trademark.
(b) During the Term, Duralogic has the right but not the obligation to sue
a third party in its own name for infringement of the Patents and/or the
Trademark and may join Deutsch as the title holder. In the event that Duralogic
intends to institute suit against a third party for infringement of the rights
licenced hereunder, Duralogic shall notify Deutsch at least thirty (30) days in
advance of commencing suit. During this period of thirty (30) days, Deutsch
shall have the option of joining Duralogic as a co-plaintiff (or, if a
declaratory judgment action has been filed by the third party, as a
co-defendant) in the suit. If Duralogic elects to sue for infringement of said
rights, all money damages recovered in the prosecution or settlement of any such
infringement action (the "Recovery") shall be applied first to the repayment of
the costs and expenses, including attorneys' fees, incurred by Duralogic in
connection therewith. Duralogic shall retain the remaining amount of the
Recovery and shall pay Deutsch five percent (5%) of any such amount.
(c) In the event that Duralogic elects not to sue for infringement within
sixty (60) days after due notice of such infringement has been given Duralogic
by Deutsch, Deutsch shall have the exclusive right to sue and recover damages
for infringement of said rights without accounting to Duralogic.
8. Representations, Warranties and Covenants
(a) Deutsch hereby represents and warrants to Duralogic that:
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<PAGE>
(i) Deutsch, individually, has the unrestricted right, power and
authority to execute and deliver this Agreement.
(ii) Deutsch is the sole owner of the Patent and the Trademark, free
and clear of all security interests, liens, claims, and encumbrances of any
kind.
(iii) The Patent constitutes all patents, copyrights, trade secrets,
and other intellectual or intangible property rights covering or related to
the Massager in which Deutsch has any right or interest, except for
Deutsch's rights and interests in U.S. Patent No. 5,209,277 and European
Patent No. 0 552 397 B1.
(iv) To the best of Deutsch's knowledge, the Patent and the Trademark
do not infringe upon or violate any patents, copyrights, trade secrets, or
other intellectual or intangible property rights or interests of or
belonging to any other person, and Deutsch has not received any notice of
the assertion by any person of any claim for the infringement or violation
of the same.
(v) To the best of Deutsch's knowledge, no person is infringing upon
or violating, and there is no basis for the assertion against any person of
any claim for the infringement or violation of, the Patent or the
Trademark.
(b) Deutsch covenants that he will promptly notify Duralogic of and
communicate to Duralogic full information in writing covering any improvements,
developments, inventions, changes or innovations in the Technology or the Patent
as they relate to the Massager which Deutsch may develop or acquire.
(c) Deutsch further agrees that in the event any such improvements,
developments, inventions, changes or innovations shall involve or include
patentable subject matter, he shall make his best efforts to obtain a patent for
the new subject matter, and Deutsch shall grant to Duralogic an exclusive
license to make, use and sell Massagers covered by any such patent.
9. Insurance/Indemnity
(a) Duralogic shall maintain at its own expense, with a recognized and
responsible insurance carrier licensed to do business in the State of New York,
a public liability insurance policy including products liability coverage with
limits of liability of at lease Two Million Dollars ($2,000,000) per accident or
occurrence (with a deductible of not more than Ten
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<PAGE>
Thousand Dollars ($10,000)) with respect to the Massagers and this Agreement.
Such policy shall be in such form or duration as shall insure against all
accidents or occurrences happening at any time which Massagers are being sold or
used regardless of when claims may be made. Such policy shall be written for the
benefit of and shall name as coinsured Deutsch. Duralogic shall deliver a
certificate of such insurance to Deutsch promptly upon issuance of said
insurance policy and shall, when appropriate, furnish to Deutsch evidence of the
maintenance of such insurance policy.
(b) Duralogic agrees to indemnify and hold harmless Deutsch against all
claims, liabilities and expenses (including reasonable attorneys' fees) arising
out of Duralogic's exercise of its rights hereunder, out of any defect in a
Massager, or arising from personal injury or any infringement of any rights of
any person by manufacturer, use or sale of the Massagers.
(c) Deutsch shall indemnify and hold harmless Duralogic, and its directors,
officers, employees and agents, against and with respect to any loss, cost, or
expense, including reasonable attorneys' fees, suffered or incurred by them as a
result of (i) the breach by Deutsch of any covenant, agreement, representation
or warranty contained herein; or (ii) claims for infringement of the patents,
copyrights, trademarks and other intellectual or intangible property rights of
any third party which arise out of or relate to Duralogic's exercise of the
rights licensed pursuant to this Agreement.
10. Term
(a) This Agreement and the license and rights granted hereunder become
effective on the date first hereinabove appearing and shall remain in force for
the life of Patent No. 5,097,828 and any corresponding patents which may issue
in other countries, unless terminated in accordance with the provisions
hereinafter set forth.
(b) Either Deutsch or Duralogic may terminate this Agreement at its
election in the event of breach or default by the other, without waiver of any
other remedy, by serving notice of termination on the other effective not less
than two (2) months after service and specifying the particulars of the breach
or default. If, within the two (2) month period following such notice, the
breach or default is remedied, this Agreement shall continue in full force and
effect,
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<PAGE>
otherwise it shall terminate in accordance with such notice.
(c) Duralogic shall assign the Trademark and the goodwill associated with
the Trademark to Deutsch promptly upon termination.
11. Miscellaneous
(a) Duralogic may assign this Agreement only (i) in connection with the
transfer, merger or sale of its entire business or (ii) with the prior written
consent of Deutsch.
(b) All notices provided for in this Agreement shall be given in writing
and shall be effective when either served by personal delivery or deposited
postage-paid via Certified Mail addressed to the parties at the addresses given
above or such addresses as the parties may later fix by notice.
(c) This Agreement constitutes the complete agreement between the parties
relative to the subject matter hereof and no modification shall be binding upon
either party hereto unless it is in writing referring to this Agreement and
executed by both parties.
(d) This Agreement is made in, and shall be construed in accordance with
the laws of the State of New York. Jurisdiction is conferred upon the federal
and state courts in the State of New York.
(e) Any portion or provision of this Agreement which in any way contravenes
the law of any state or country in which the Agreement is effective shall in
such state or country to the extent of such contravention of law be deemed
separable and shall not effect the other provisions of this Agreement.
(f) Termination of this Agreement shall not affect any contractual rights
or duties which by terms of this Agreement are intended to survive termination
of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the dates indicated below.
Dated: 3/24/98 /s/ Dr. Richard Deutsch
---------------------- -------------------------------
Name: Dr. Richard Deutsch
Dated: 3/24/98 Duralogic Technologies, Inc.
----------------------
By: /s/ Andrew Franzone
----------------------------
Name: Andrew Franzone
Title: President
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<PAGE>
COLLECTIVE BARGAINING AGREEMENT
By and Between
LOCAL 531, INTERNATIONAL BROTHERHOOD OF
TEAMSTERS, AFL-CI0
-and-
ELECTRIC HARDWARE CORPORATION
May 10, 1995 -through- May 9, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
ASSIGNABILITY ....................................... 34 ...................... 17
BULLETIN BOARD ...................................... 30 ...................... 16
CHECK-OFF ........................................... 4 ...................... 2-3
COLLECTIVE BARGAINING ............................... 27 ...................... 15
DEATH-IN-FAMILY ..................................... 31 ...................... 16
DISCHARGE ........................................... 13 ...................... 10-11
DISCOVERY ........................................... 29 ...................... 16
DURATION ............................................ 36 ...................... 17
DRUG TESTING ........................................ 44 ...................... 21
EFFECTIVE DATE ...................................... 35 ...................... 17
EXISTING PRACTICES .................................. 18 ...................... 13
GOOD FAITH .......................................... 1 ...................... 1
GRIEVANCE PROCEDURES ................................ 14 ...................... 11-12
GUARANTEED WORK ..................................... 21 ...................... 14
HOLIDAYS ............................................ 8 ...................... 4-5
HOURS OF WORK ....................................... 5 ...................... 3
JURY DUTY ........................................... 32 ...................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
LEAVE-OF-ABSENCE .................................... 20 ...................... 14
LIABILITY ........................................... 25 ...................... 15
LIE DETECTOR TEST ................................... 23 ...................... 14
NON-DISCRIMINATION .................................. 16 ...................... 13
NO STRIKE, NO LOCKOUT................................ 12 ...................... 10
NOTICE TO UNION ..................................... 9 ...................... 5-6
OVERTIME ............................................ 6 ...................... 3-4
PART-TIME EMPLOYEES ................................. 43 ...................... 20-21
PRE-HIRING REQUIREMENTS ............................. 38 ...................... 17-18
PROMOTIONS .......................................... 28 ...................... 15
PROTECTION OF RIGHTS ................................ 33 ...................... 16-17
RECOGNITION.......................................... 2 ...................... 1
REHIRE OF EMPLOYEES ................................. 24 ...................... 15
SAFETY & SANITARY CONDITIONS ........................ 17 ...................... 13
SENIORITY ........................................... 15 ...................... 12-13
SEPARABILITY ........................................ 26 ...................... 15
SICK & MATERNITY LEAVE .............................. 42 ...................... 20
SUB-CONTRACTING ..................................... 37 ...................... 17
TRIAL PERIOD ........................................ 22 ...................... 14
UNIFORMS ............................................ 39 ...................... 18
UNION AS THE PARTY AT INTEREST ...................... 10 ...................... 7
UNION RIGHTS ........................................ 7 ...................... 4
UNION SECURITY ...................................... 3 ...................... 1-2
VACATIONS ........................................... 41 ...................... 19
VISITATIONS ......................................... 19 ...................... 14
WAGE & WAGE INCREASES ............................... 40 ...................... 18
WELFARE FUND (MEDICAL COVERAGE) ..................... 11 ...................... 7-9
</TABLE>
[END PAGE]
<PAGE>
THIS AGREEMENT, made and entered into this day of 1995,
by and between ELECTRONIC HARDWARE CORPORATION located at 320 Broad Hollow
Road., Farmingdale, New York 11735, herein designated as the EMPLOYER or
COMPANY, and LOCAL 531 INTERNATIONAL BROTHERHOOD OF TEAMSTERS, A.F.L. - C.I.O.,
located at 372 McLean Avenue, Yonkers, New York 10705, herein designated as the
UNION.
WHEREAS the Union represents the majority of the employees of the
Employer.
NOW, THEREFORE, in consideration of mutual promises herein assumed and
made, the parties hereby agree as follows:
GOOD FAITH:
ART. 1. The Employer and the Union hereby agree that they will in good
faith live up to the provisions of this Agreement, and that this Agreement is
entered into by the Union and the Employer on behalf of the employees of the
Employer, now employed, or hereafter to be employed, in the bargaining unit as
defined in ARTICLE 2.
RECOGNITION:
ART. 2. a) The Employer agrees to and does hereby recognize the Union
as sole and exclusive bargaining agent for all employees, excluding office
employees guards, professional employees and supervisors as defined in the
National Labor Relations Act of 1947 as amended, and agrees that no unit work
shall be performed by employees who are not among the included classification
herein.
b) This Agreement shall cover all future plants which the
Employer may operate during the term of this Agreement or any extension thereof,
including all plants operated as the result of expansion or change within 225
miles of the Employer's current location.
UNION SECURITY:
ART. 3. a) All employees who are members of the Union on the effective
date of this subsection or on the date of execution of this Agreement, whichever
is the later, shall remain members of the Union in good standing as a condition
of employment. All
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<PAGE>
present employees who are not members of the Union and all employees who
are hired hereafter shall become and remain members in good standing of
the Union as a condition of employment, by the 31st day following the
effective date of this subsection or by the 31st day following the date of their
employment, whichever is the later. This provision shall be made and become
effective as of such time as it may be made and become effective under the
provision of the National Labor Relations Act of 1947 as amended, but not
retroactively.
b) The failure of any person to become a member of the Union as
required shall obligate the Employer, upon written notice from the Union to such
effect, and to the further effect that Union membership was available to such
person on the same terms and conditions generally available to other members, to
forthwith discharge such person. Further, the failure of any person to maintain
his Union membership in good standing as required herein shall, upon written
notice to the Employer by the Union to such effect, obligate the Employer to
discharge such person.
c) In the event of any change in the law during the term
of this Agreement, the Employer agrees that the Union will be entitled to
receive the maximum Union security which may be lawfully permissible.
d) No provision of this Article shall apply in any state to
the extent that it may be prohibited by State Law. If, under applicable State
Law, additional requirements must be met, before any such provision may become
effective such additional, requirements shall first be met.
e) If any provisions of this Article are invalid under the law
of any state wherein this Agreement is executed, such provisions shall be
modified to comply with the requirements of State Law or shall be renegotiated
for the purpose of adequate replacement. If such negotiations shall not result
in a mutually satisfactory agreement, the Union shall be permitted all legal or
economic recourse.
CHECK-OFF:
ART. 4. a) The Employer agrees to deduct, on the 1st payday of each
month, from the salary or wages of the employees covered by this Agreement, such
union dues and initiation fees as the Union, by written notice, advises the
Employer and regularly due as such from the employees, and will turn such monies
over to the Union on or before the
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<PAGE>
tenth (10th) day of each month, covering such month in advance, together with a
listing of employees and amounts from whom such monies have been deducted,
provided, however, that the Employer will make such deductions only
from the wages of those employees who submit individual written
authorization to the Employer directing and authorizing the Employer to
make such deductions.
b) Any monies deducted from the employees are to remain the
property of the Union and in no event shall the Employer be permitted to
use said monies for any other purpose.
HOURS OF WORK:
ART. 5. a) Each regular shift shall consist of not more than eight (8)
hours per day, and shall constitute a regular work day, excluding a real period.
b) The regular work week shall consist of five (5)
consecutive days,
MONDAY THROUGH FRIDAY
c) The Employer my not require employees hired prior to July,
15, 1992, to work a 2nd or 3rd shift. In the event of a lay-off, a 1st shift
employee shall be given the option to work the 2nd or 3rd shift or accept a
lay-off.
OVERTIME:
ART. 6. a) Work performed in excess of eight (8) hours per day and/or
forty (40) hours per week shall be considered as overtime work and shall be paid
for at the rate of time-and-one-half (1-1/2) the regular rate of pay. Work
performed on the 7th working day shall be paid for at the rate of twice their
regular rate of pay.
b) In any week during which a holiday occurs, the holiday shall
be regarded as a regular day worked and overtime shall commence after thirty-two
(32) hours of work for that week.
c) All overtime shall be voluntary, and no employee shall be
discharged or discriminated against for refusing to work overtime.
d) The Employer will make every reasonable effort to distribute
overtime equally among its employees in their respective classifications.
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<PAGE>
e) The Employer agrees to rake available to the Union, a record
of such overtime work for examination by the Union Representative.
UNION RIGHTS:
ART. 7. a) If any money owed by the Employer to the Union and/or
any Fringe Benefit Fund is in arrears thirty (30) days or more from the
1st day of the month when due, the Union shall notify the Employer of his
delinquency in writing, by certified mail. In the event the Employer does
not pay said money to the Union and/or any Fringe Benefit Fund within ten
(10) days of receipt of notice, the Union shall have the right to take
economic action. In such event, the Employer shall pay each employee or
employees on strike, or work stoppage, his regular rate of pay for such
time not worked.
b) If the Employer disputes the delinquency claimed by the
Union, the Employer may advise the Union of such dispute in writing, by
certified mail, within five (5) days of receipt of the delinquency notice and
agree to deposit the amount in dispute in escrow with the Union's Counsel. Upon
the receipt and collection of such deposit in escrow, the Union is precluded
from taking any economic action arising from said dispute.
HOLIDAYS:
ART. 8. a) The Employer shall not require its employees to work on the
following holidays:
NEW YEAR'S DAY LABOR DAY
GOOD FRIDAY THANKSGIVING DAY
MEMORIAL DAY CHRISTMAS DAY
JULY 4TH EMPLOYEE'S BIRTHDAY
Work performed on WASHINGTON'S BIRTHDAY and MARTIN LUTHER KING'S
BIRTHDAY, shall be paid at time-and-one-half (1-1/2) the
employee's regular rate of pay.
FOUR (4) PERSONAL DAYS AND/OR FLOATING HOLIDAYS: Employees shall
receive four (4) Personal Days and/or Floating-Holidays, pro-rated,
per Contract Year. Personal Days may be taken with Employer's
consent, and the Employer shall not unreasonably withhold
consent. Employees must give the Employer at least 48 hours'
prior notice of intention to take a Personal Day. If the
Employer wishes to designate a Floating Holiday, he must give at
least 48 hours' prior notice to the Union and to the employees.
All unused, pro-rated, Personal Days and/or Floating Holidays
shall be payable at the end of the Contract Year.
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<PAGE>
b) To be eligible for holiday pay, the employee must work the
employee's scheduled day before and the employee's scheduled day after the said
holiday, unless that employee is absent due to illness or absent with the
Employer's consent and such absence does not exceed six (6) continuous weeks.
c) Employees who do not work on the aforementioned holidays
shall be paid for eight (8) hours at their regular rate of pay for such
holiday.
d) Employees who do work on the aforementioned holidays shall
be paid at the regular rate of pay for work performed and shall be paid at their
regular rate of pay for the holiday.
e) If any of the said holidays shall fall on a Saturday, at the
Employer's option, the Friday before may be designated as the holiday or the
Employer may elect to pay the employees for eight (8) hours at their regular
rate of pay for such holidays and such payment is to be included in the
employee's next paycheck.
f) If any of the said holidays fall on a Sunday, the Monday
following shall be designated as the holiday, and even though no work shall have
been performed by the employee or employees, they shall be paid for that day at
their regular rate of pay.
g) If any governmental agency changes the day of observance of
any of the aforementioned holidays, then the changed date shall become the
holidays. If there is any controversy as to the governmental change, then in
such event, the Employer can pick the day of observance.
h) If any of the above holidays shall fall within the
employee's vacation period, the Employer must include such holiday pay in the
first paycheck received after the employee's return to work.
i) Employees absent because of a compensable illness or injury
shall be entitled to full holiday pay at their regular rate of pay, less
what they receive in compensation, provided illness is temporary and does
not exceed six (6) continuous weeks.
NOTICE TO UNION:
ART. 9. a) Effective MAY 10, 1995 all Employers located in New York
State shall transmit, upon written request, to the Union, copies of the
following documents within ten (10) days of the receipt of such request:
(1) FORM #IA5 (New York State Unemployment Insurance Report); and
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<PAGE>
(2) FORM #WT-4-B (New York State Wage Reporting System Return)
b) All Employers shall transmit, upon written request, to the
Union, FORM #941 (Employees' Quarterly Federal Tax Rate) within ten (10)
days of the receipt of such request.
c) Remittance Sheets, including ranges, new employees, starting
dates, employees' termination dates, gross wages earned for the preceding month,
for each employee the amounts of dues and initiation checked-off, contributions
to Fringe Benefit Funds and for what monthly periods, shall be remitted
once-a-month, within ten (10) days after the 1st day of each month, together
with checks made payable to the proper Fringe Benefit Fund and Dues and
Initiation to Local Union 531.
d) All necessary cards to the Fringe Benefit Funds, properly
signed from a new employee, must be submitted with the remittance sheet.
e) For failure to submit the remittance sheet within ten (10)
days after it is due, the Union, at their option, may take economic action until
it is submitted, and the Employer shall pay to employees for all time on strike
or work stoppage their regular rate of pay.
f) Should the Employer fail to notify the Union of the hiring
of a new employee and/or the rehiring of an employee, the Employer shall be
responsible from the 1st day due, for all monies as if he collected same, to the
Union for Dues, Initiations, and contributions to all Fringe Benefit Funds as
described herein.
g) For failure to remit monies due to the Union for dues,
initiations, contributions to any Fringe Benefit Fund together with the
remittance sheet on/or before the 30th day of accrual, the Union shall
charge a bookkeeping fee of two (2%) percent per month or any part
thereof until it is submitted and/or collected.
h) Should the Employer fail for any reason to notify the Union
of the termination of an employee, the Employer shall be responsible for
all monies as if he collected same, to the Union for dues, initiations
and contributions to all Fringe Benefit Funds, if any, as described
herein.
i) The Employer must sign all remittance sheets sent to the
Union.
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<PAGE>
UNION AS THE PARTY AT INTEREST:
ART. 10. a) The Union shall require the employees to comply with the
terms of this Agreement. The parties agree that the maintenance of a peaceable
and constructive relationship between the Employer and the employees requires
the establishment and cooperative use of the machinery provided in the
discussion and determination of grievances and disputes and that it could
detract from this relationship if individual employees or a group of employees
would, either as such individuals or groups, seek to interpret or enforce the
Contract on their initiative or responsibility. It is therefore agreed that this
Contract shall not vest or create in any employee or group of employees covered
thereby, any rights or remedies which they, or any of them, can enforce either
at law, equity, or otherwise it being understood and agreed, on the contrary,
that all of the rights and privileges created or implied from this shall be
enforceable only by the parties hereto and only in the manner established by
this Contract, and at law.
b) The Employer shall show no discrimination against or
favoritism among its employees for Union activities or otherwise. This
Agreement may not be modified by the Employer or group of employees without
the joint written consent of the Union and the Employer.
c) The Employer shall, at all times, adhere to any governmental
agency rules regarding working conditions, facilities and equipment as it
respects all aspects of the Employer's operations.
WELFARE FUND:
ART. 11. In order to protect and promote the health and welfare of
employees, the Union has formed the SICK & WELFARE FUND, LOCAL 531 which is
administrated under a Declaration of Trust adopted by its members.
a) 1. The Employer, effective as of JUNE 1, 1995 shall pay, in advance
monthly or any part thereof, to the Sick & Welfare Fund the sum of $160.00 for
each employee covered by this Agreement. (CLASS I - FAMILY OR INDIVIDUAL PLAN)
2. The Employer, effective as of DECEMBER 1, 1995 shall pay, in
advance monthly or any part thereof, to the Sick & Welfare Fund the sum of
$175.00 for each employee covered by this Agreement. (CLASS I - FAMILY OR
INDIVIDUAL PLAN)
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<PAGE>
3. The Employer, effective as of JUNE 1, 1996 shall pay, in advance
monthly or any part thereof, to the sick & Welfare Fund the sum of $190.00 for
each employee covered by this Agreement. (CLASS I - FAMILY OR INDIVIDUAL PLAN)
4. The Employer, effective as of JUNE 1, 1997 shall pay, in advance
monthly or any part thereof, to the Sick & Welfare Fund the sum of $210.00 for
each employee covered by this Agreement. (CLASS I - FAMILY OR INDIVIDUAL PLAN)
b) The monies so contributed shall be used for the purpose of
obtaining benefits that the Trustees deem necessary for such employees,
employees of the Union and the employees of all Fringe Benefit Funds in
accordance with the Trust Agreement covering such Fund.
c) Such payments shall not be in lieu of any other payments required
to be made by the Employer, such as New York Disability payments, New York
Unemployment Insurance, Social Security, Workmen's Compensation, etc.
d) The Employer shall continue to contribute to the Welfare Fund
for a period, not to exceed two (2) months, for each employee who is absent due
to sickness, injury, leave-of-absence, or termination of employment except for
just cause.
e) The Employer shall forfeit all rights under this Agreement and the
employee my cease to work if the Employer fails to pay its contributions after
the 60th day as provided above and/or the matter may be treated as a grievance
hereunder, except as may be otherwise provided for herein.
f) With its monthly remittance, the Employer will forward to the
Sick & Welfare Fund, Local 531, the names of the employees covered and such
information and signed cards as may be required by the Trustees of
the Fund for the administration of the Fund.
g) The Arbitrator may schedule a Hearing for any date on or
after the expiration of twenty-four (24) hours' notice sent by the Union to the
Employer and the Arbitrator shall render an award as quickly as possible. If the
Employer fails to appear, the Arbitrator shall proceed without the Employer
being present. In the absence of proof by the Employer, who shall bring to such
Hearing all books and records pertaining to the matter to be heard, the
Arbitrator shall determine the amount to the Fund on the petition of the Union
or the Fund, as to the amounts due and payable. In
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the absence of other proof by the Employer, all Welfare Fund payments due shall
be based on two (2) times the greatest number of employees as reflected in the
reports thereof submitted by the Employer to the Union during the two (2) year
period preceding.
h) In the event of default by the Employer in the payment of
contributions to the Funds mentioned in this Agreement, the Trustees may take
legal action to obtain payment, including, but not limited to, the commencement
of Arbitration Proceedings for such purposes before an Arbitrator, such
Arbitrator being Mr. George Sabatella. All expenses thereof, including, but not
limited to, the fee and expenses of the Arbitrator and any filing or other
administrative fees plus reasonable attorney's fees fixed at twenty (20%)
percent of the indebtedness, together with interest at a reasonable rate on any
monies determined to be due, shall be chargeable to and an obligation of the
contributing Employer against whom such suit is brought or such Arbitration
Proceedings is commenced. The Arbitrator may schedule a Hearing on twenty-four
(24) hours notice by certified mail.
i) The Union may elect not to proceed before the Arbitrator and
may proceed in any other manner provided for by law, as if the provisions of
ARTICLE 14 were not contained in this Agreement. In such event, the amounts due
and payable shall be determined in such other proceedings in the same manner as
is provided for above in determining such amounts before the Arbitrator, in the
absence of the Employer from such Hearing.
j) The "Welfare Fund" may audit the Employer's payroll books and
records after giving reasonable notice to the Employer, and if contributions are
significantly incorrect, the Employer shall pay the cost of such audit.
k) During the life of this Agreement, the Employer shall increase his
contributions above the effective increases as stated above, to the exact amount
that the insurance carrier will increase the premium to the Welfare Fund. The
increases in premium shall be based on the Family Plan. The Welfare Fund shall
furnish proof of such increase.
l) For failure to remit contributions to the Fund before the 30th day
after accrual, there shall be a one (1%) percent charge for every month, or any
part thereof, until such contributions are collected.
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NO STRIKE - NO LOCKOUT:
ART. 12. a) During the term of this Agreement, the Employer agrees
that they will not declare or authorize a lockout unless the Union fails
to comply with an arbitration award within forty-eight (48) hours after
the award has been made, and the Union agrees that no strike shall take
place except as otherwise provided herein unless the Employer fails to
comply with an arbitration award within forty-eight (48) hours after the
award has been made on the grievance procedure. Neither the Union nor its
Officers, Agents, or Representatives shall be liable for any acts of
person or any workers participating in any strike or work stoppage unless
such act or strike or work stoppage has been expressly authorized by the
Union and in conformance with the provisions of the Constitution of the
Union and the provisions of the International Union Constitution. The
parties further agree that any strike, slow-down, or work stoppage not
authorized as herein specified shall not be deemed a violation of this
Agreement.
b) In the event of an unauthorized slow-down or work stoppage,
the Union agrees within twenty-four (24) hours after receipt of notice thereof
from the Employer solely to endeavor in good faith to bring about a return to
work of its members who stopped work. Upon failure of the employees to return to
work within the said twenty-four (24) hours, the Employer may take appropriate
action with respect to such employee or employees. Compliance by the Union in
good faith herewith shall be deemed full compliance with the Union's obligation
hereunder.
DISCHARGE:
ART. 13. a) No employee shall be discharged or disciplined without just
and sufficient cause.
b) The Employer may, at his discretion, take action short of
discharge without prejudice to his right to discharge, provided, however, that
any disciplinary procedure shall be subject to the grievance procedures hereof.
c) If the Employer is found wrong in the discharge or
disciplinary suspension of an employee, the Arbitrator may award, but is not
obligated to award, compensation for lost time.
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d) Whenever the Union disputes and/or disagrees with the
justification for the discharge or discipline of any employee, the dispute
and/or disagreement shall thereupon be adjusted between the parties in the
manner provided for in ARTICLE 14 of this Agreement; provided, however, it shall
not be necessary to commence with steps (a) or (b) but institution of
arbitration may be accomplished by immediate recourse to Section (1) of said
article, and any employee who has been discharged and subsequently reinstated as
a result of arbitration shall be entitled to all remedies prescribed by the
Arbitrator.
e) The Employer must notify the Shop Steward and the Union in
writing, within three (3) working days of a discharge and/or disciplinary
action of an employee covered hereunder.
GRIEVANCE PROCEDURES:
ART. 14. SECTION 1.
A grievance is hereby jointly defined to be any controversy,
complaint, misunderstanding, or dispute.
Any grievance arising between the Employer and the Union or an
employee represented by the Union shall be settled in the following manner:
a) The aggrieved employee or employees must present the
grievance to the Shop Steward within five (5) working days after the
reason for the grievance has occurred, except that no time limit shall
apply in case of violation of wage provisions of this Agreement. If a
satisfactory settlement is not affected with the foreman within five (5)
days, the Shop Steward and employee shall submit such grievance to the
Union's Business Representative.
b) The Business Representative shall then take the matter up
with a representative of the Employer with authority to act upon such
grievance. A decision must be made within five (5) working days.
c) Saturday, Sunday, and holidays shall not be considered working days
for the purposes hereof.
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SECTION 2.
Any Shop Steward shall be permitted to leave his work for a
reasonable time to investigate and adjust the grievance of any employee
within his or her jurisdiction after notification to his or her Supervisor.
Employees shall have the Shop Steward or a Representative of the Union present
during discussion of any grievance with a representative of the Employer.
SECTION 3.
a) The parties agree that all disputes shall be arbitrated hereunder
by the Arbitrator selected by the Welfare Fund, in accordance with ARTICLE 11,
paragraph (h), except that within five (5) days of the receipt of notice of
intention to conduct an arbitration, should either party object to the dispute
being heard by said Arbitrator, then in such event, the matter shall be
submitted to a panel member of the New York State Mediation Board.
b) Expense of the Arbitrator selected or appointed shall be borne
equally by the Employer and the Union unless determined otherwise by the
Arbitrator.
c) If the Employer fails to comply with any settlement of the
grievance or fails to comply with the procedures of this Article, the Union
has the right to take all legal and economic action to enforce its demands.
d) Both parties agree to accept the decision of the Arbitrator
as final and binding.
SECTION 4.
The Arbitrator shall not have the authority to amend or modify this
Agreement or establish new terms and conditions under this Agreement. The
Arbitrator shall determine any question of arbitrability.
SENIORITY:
ART. 15. a) The Employer recognizes the principle of seniority.
Seniority for the purpose of lay-off shall be by department (molding, finishing,
fabrication). Employees, however, who are capable, shall have seniority in other
departments, in that the last employee hired shall be the first employee
laid-off, and the last employee laid- off shall be the first employee rehired.
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b) It is agreed by the Employer and the Union, that all Shop Stewards
and Officers of the Union have seniority over all employees in the plant,
provided they can do the work that is to be done.
c) Any employee who is absent due to lay-off, sickness, and/or
injury for six (6) consecutive months shall lose his seniority.
d) The rights of seniority in re-employment shall be accorded to a
laid-off employee prior to a new employee being hired, provided such laid-off
employee, within two (2) working days after notice to return to work has been
received by such employee, advises the Employer of the employee's availability
and willingness to return to work within seven (7) working days of the date said
notice to return to work was received by the employee. For the purpose of this
Article, such notice will be deemed received three (3) days after such notice is
sent to the employee by certified mail, return receipt requested, to the
employee's last known address.
e) Preference in assignment to shift work and choice of new jobs shall
be given to employees having higher seniority, providing they can do the work.
NON-DISCRIMINATION:
ART. 16. No employee or employees shall be discriminated against,
directly or indirectly because of their membership in or activity on behalf of
the Union nor will the Employer, directly or indirectly, discourage membership
in the Union, and the provisions of this Agreement shall apply to all employees
without discrimination as to sex, color, race, creed or national origin.
SAFETY & SANITARY CONDITIONS:
ART. 17. The Employer shall furnish and maintain safe and healthful
sanitary conditions.
EXISTING PRACTICES:
ART. 18. All benefits of employment in existence at the effective
date of this Agreement and not modified by the Agreement, shall be continued
without modification.
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VISITATIONS:
ART. 19. Union Representatives shall be given the right to enter
the plant premises at all reasonable times for the purpose of investigating
grievances and to secure the enforcement of the Contract and for such other
purposes as may be necessary; provided, however, that prior to entering the
plant property they shall first advise the front office of their presence and
intentions to enter the plant property.
LEAVE-OF-ABSENCE:
ART. 20. Any employee, upon application in writing, shall be granted
a leave-of-absence without pay, not to exceed one (1) month because of official
Union business, except that the Employer's consent is required for such leaves
other than official Union business and such consent will not be unreasonably
withheld. The Employer has the right to request verification of
leave-of-absence.
GUARANTEED WORK:
ART. 21. Employees regularly scheduled for full shift work shall
be given four (4) hours work or the monetary equivalent thereof unless notified
on the previous day not to report, except in cases of a utility company power
failure, Acts-of-God, or other such circumstances beyond the Employer's control.
TRIAL PERIOD:
ART. 22. All employees hired after MAY 10, 1995 shall be deemed
probationary employees on a trial period for the first sixty (60) days following
the 1st day of employment. A probationary employee may be discharged by the
Employer for any reason without such discharge being subject to the grievance
machinery as described in ARTICLE 14. After the completion of the employee's
trial period, the probationary employee shall be considered a regular employee
and his seniority shall date back to the date of original hiring. The Employer
may request, in writing, an additional thirty (30) days prior to the expiration
of the original sixty (60) days.
LIE DETECTOR TEST:
ART. 23. The Employer shall not require, request, or suggest that a
covered employee take a polygraph or any other form of lie detector test.
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REHIRE OF EMPLOYEES:
ART. 24. a) An employee rehired within one (1) year after last
termination of employment shall not have a trial period.
b) The Employer must contribute to all Fringe Benefit Funds from
the 1st day of the month following rehiring.
c) All periods of employment shall be dovetailed for the purpose
of seniority.
LIABILITY:
ART. 25. The Employer, by his Executive Officers, shall deduct the
regular monthly Dues and Initiation fees, and shall hold the same personally in
trust for the Union. These fees, together with all the contributions of all
Fringe Benefit Funds, shall become the personal responsibility, jointly and
severally, of each of the Executive officers and/or persons responsible for
making such deductions and contributions, and did not make same.
SEPARABILITY:
ART. 26. It is understood and agreed that if any provision of this
Agreement, or the application of such provision to any person or circumstances
shall be held invalid, the remainder of this Agreement or the application of
such provision to other persons or circumstances shall not be affected thereby.
COLLECTIVE BARGAINING:
ART. 27. The Employer agrees that it will negotiate with the Union
during the term of this Agreement concerning any matter involving the wages,
hours, and working conditions of the employees, which is not specifically
provided for in this Agreement and which is not the subject of any grievance.
PROMOTIONS:
ART. 28. An employee shall have the right to refuse a promotion out of
the bargaining unit.
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DISCOVERY:
ART. 29. a) In the event the Employer raises any grievance against an
employee, upon written request from the Union, the Employer shall disclose to
the Union any and all facts and material relevant to such grievance. The
Employer's failure to comply herewith shall preclude the introduction of any
such non-disclosed data at any and all future Arbitrations, Hearings,
Proceedings or Trials, and such failure to disclose are grounds for the
dismissal of such grievance.
b) In the event of any grievance raised by the Employer against an
employee, matters which have arisen within one (1) year immediately preceding
such grievance may be introduced in support of such grievance.
BULLETIN BOARD:
ART. 30. The Employer shall place a bulletin board in a conspicuous
and convenient place in order to post Union notices and Union literature.
DEATH-IN-FAMILY:
ART. 31. a) Each employee shall be entitled to THREE (3) working
days off, with pay, at his regular rate of pay, in the event of a death in his
immediate family (legal child, grandchild, legal guardian, mother, father,
sister, brother, or legal spouse).
b) The Employer has the right to ask for proof of death.
JURY DUTY:
ART. 32. In the event an employee is required to serve on Jury Duty,
the Employer shall pay the employee's regular rate of pay less what he receives
as a juror, not to exceed ten (10) working days, and only once during the life
of this Agreement.
PROTECTION OF RIGHTS:
ART. 33. a) Picket Line: It shall not be a violation of this Agreement,
and shall not be cause for discharge or disciplinary action, in the event an
employee: refuses to enter upon any property of his Employer or others involved
in a lawful primary picket line at his Employer's place of business, including
picket lines of union parties to this Agreement.
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b) Struck Goods: It shall not be a violation of this Agreement and it
shall not be a cause for discharge or disciplinary action if any employees:
refuse to perform any service which his Employer undertakes to perform as an
ally of an Employer or person whose employees are on strike, and which service,
but for such strikes, would be performed by the employees of the Employer or
person on strike.
ASSIGNABILITY:
ART. 34. This Agreement shall be binding upon the parties hereto,
their successors and assigns.
EFFECTIVE DATE:
ART. 35. All the terms and conditions of this Agreement shall be
effective as of MAY 10, 1995 except as otherwise indicated.
DURATION:
ART. 36. This AGREEMENT shall be effective as of the 10th DAY OF
MAY, 1995, and shall remain and continue in full force and effect until midnight
MAY 9, 1998, and from year to year thereafter unless either party gives written
notice to the other by certified mail, return receipt requested, at least sixty
(60) days prior to the date of expiration of this AGREEMENT or annual renewal
thereof that they desire to modify or amend or renegotiate same.
SUB-CONTRACTING:
ART. 37. The Employer shall not sub-contract work without first
offering such work to bargaining unit employees.
PRE-HIRING REQUIREMENTS:
ART. 38. a) The Employer shall require of each individual before they
are hired that they produce bona fide evidence of such individual's citizenship
status. In the event such individual is an alien, he must be required to produce
satisfactory proof of both his legal alien status and of his right to work.
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b) The Employer shall not employ any individual who cannot produce
either proof of U.S. Citizenship or of his right to work as an alien. The Union
may take economic action, despite any provision contrary hereof, should the
Employer not comply herewith.
UNIFORMS:
ART. 39. Each covered employee shall receive a Uniform Maintenance
Allowance of $8.00 per month.
WAGE & WAGE INCREASE:
ART. 40. a) Effective as of MAY 10, 1995 there shall be a general wage
increase of .30(cent) per hour based on a forty (40) hour week for all employees
covered by this Agreement.
b) Effective as of MAY 10, 1996 there shall he a general wage increase
of .25(cent) per hour based on a forty (40) hour week for all employees covered
by this Agreement.
c) Effective as of MAY 10, 1997 there shall be a general wage increase
of .20(cent) per hour based on a forty (40) hour week for all employees covered
by this Agreement.
d) The Employer agrees to establish a committee of Union employees and
management to address how to initiate incentive programs in departments that do
not participate in incentive programs currently.
e) Employees who shall not actually be working as of or on the
effective date of the wage increase provided herein shall be entitled to receive
such increases on their return or recall to work.
f) Should the Employer pay a newly hired employee after thirty
(30) days of employment, a rate which is above the then-scheduled rate for such
employee's category, then in such event, all other employees in the same
category shall receive an increase equivalent to their difference of pay
immediately. All other scheduled raises shall be granted in addition to such
increases.
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VACATIONS:
ART. 41. a) The Employer shall grant vacation, with pay, at their
regular rate of pay, for all its employees in accordance with the provisions of
this paragraph as set forth below.
All employees shall receive not less than their pro-rated vacation
provided they have the following eligibility:
AFTER 1 YEAR OF EMPLOYMENT BUT LESS THAN 2 YEARS............... 1 WEEK
AFTER 2 YEARS OF EMPLOYMENT BUT LESS THAN 5 YEARS.............. 2 WEEKS
AFTER 5 YEARS OF EMPLOYMENT BUT LESS THAN 6 YEARS--2 WEEKS PLUS 3 DAYS
AFTER 6 YEARS OF EMPLOYMENT BUT LESS THAN 7 YEARS--2 WEEKS PLUS 4 DAYS
AFTER 7 YEARS OF EMPLOYMENT.................................... 3 WEEKS
Employees hired August 1, 1992 and after shall receive a maximum of
two (2) weeks vacation.
EMPLOYEES MUST NOTIFY THEIR EMPLOYER, BY MAY 1ST, OF THEIR INTENTION
TO TAKE VACATION TIME. THE EMPLOYER SHALL CONFIRM, IN WRITING, THAT
SUCH VACATION TIME IS GRANTED TO SUCH EMPLOYEE NO LATER THAN MAY 10TH.
IN THE EVENT OF A DISPUTE, SENIORITY SHALL, PREVAIL. THE EMPLOYER HAS
THE RIGHT TO REFUSE GRANTING VACATION TIME TO AN EMPLOYEE SHOULD IT
CAUSE A SHORTAGE IN A PARTICULAR DEPARTMENT.
b) Vacation period to fall between JANUARY 1ST -AND- DECEMBER 31ST.
c) The Employer shall pay, to each employee, his vacation pay at his
regular rate of pay prior to the employee's going on his or her vacation.
d) Employees who have been employed for one (1) year or more and are
laid-off or discharged for any reason at any time during the term of this
Agreement, shall be paid a pro-rated vacation at the time of their job
severance. Such pro-rated vacation shall be based upon the vacation provisions
above set forth. Employees who voluntarily terminate (QUIT) their employment
must give the Employer at least two (2) weeks' prior notice in order to receive
their pro-rated vacation pay.
e) In order to compute vacation credit, THE DATE OF HIRE shall be the
credit date.
f) Employees enjoying a vacation that is more than two (2) weeks may,
at the Employer's option, split said vacation time (i.e. part summer and part
winter), but each such vacation period cannot be for less than one (1) week.
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SICK & MATERNITY LEAVE:
ART. 42. a) Sick Leave for the purpose of various privileges and benefits
of this Agreement, including leaves granted by the Employer, including Maternity
Leaves, shall be deemed periods of employment. Leaves shall not exceed a total
of four (4) months. No later than three (3) months after a leave begins,
employees must give the Employer notice of when they are returning to work. The
Employer shall give an employee suitable work available in accordance with their
condition.
b) Each employee covered by this Agreement shall receive, on a
pro-rated basis THREE (3) days per contract year as Sick Leave.
c) Beginning with the 3rd year of the employee's employment, he shall
receive one (1) additional Sick Leave day for each additional year employed, not
to exceed SEVEN (7) Sick Leave days.
d) At the end of the contract year, each employee covered by this
Agreement shall receive pay, at their regular rate of pay, for all unused Sick
Leave days.
e) Upon termination of an employee's employment by the Employer
for any reason, such an employee shall receive his regular rate of pay for all
earned unused Sick Leave days. Employees who voluntarily terminate (QUIT) their
employment, must give their Employer at least two (2) weeks' prior notice in
order to receive their pro-rated Sick Leave pay.
f) An employee shall notify his Employer, where practicable and
within a reasonable time, should such an employee require Sick Leave.
Employees shall notify their Employer, where practicable, when he or she
will be able to return to work.
g) If an employee is out sick more than TWO (2) days, then in such
event, the employer may request a medical certificate. The Employer, at his cost
and upon notice may send a doctor to examine the employee on Sick Leave and such
an employee must allow such an examination.
PART-TIME EMPLOYEES:
ART. 43. a) For purposes of this Agreement, a part-time employee shall
be defined as an employee who is regularly scheduled to work thirty-nine (39)
hours or less in a work week. Employees who work twenty (20) hours or less per
week shall not be entitled to receive vacation days, sick days, holidays and
personal days.
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b) Part-time employees, who are regularly scheduled to work more than
twenty (20) but less than forty (40) hours per week, shall receive pro-rated
vacation days, sick days, holidays and personal days.
c) Dues and initiation fees shall be deducted for part-time
employees in accordance with ARTICLE 4 hereof.
d) The Employer shall not contribute to the LOCAL 531 SICK &
WELFARE FUND for part-time employees who are regularly scheduled to work
twenty (20) hours or less per week.
e) No regularly full-time employee shall be laid-off while part-time
employees are employed.
f) Part-time employees cannot exceed 15% of the Employer's employees.
g) Employees who are regularly scheduled to work more than twenty (20)
hours per week but less than forty (40) hours shall receive pro-rated vacation
days, sick days, holidays and personal days.
h) The Employer shall contribute to the LOCAL 531 SICK & WELFARE FUND
for employees who are scheduled to work more than twenty (20) hours per week.
DRUG TESTING:
ART. 44. The Employer shall have the right to require prospective
employees to submit to a Drug Test.
LOCAL 531, INTERNATIONAL BROTHERHOOD ELECTRONIC HARDWARE CORPORATION
OF TEAMSTERS, A.F.L.-C.I.O.
By: /s/ Kevin Watts By: /s/ S. Franzone
-------------------------------- --------------------------
Kevin Watts, Secretary-Treasurer Andrew Franzone, President
Dated: /s/ 8/23/95 Dated: /s/ 10-24-95
----------------------------- -----------------------
NEGOTIATING COMMITTEE
illegible illegible
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illegible illegible
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EXTENSION AGREEMENT
-------------------
It is hereby stipulated, consented to and agreed that the Collective
Bargaining Agreement by and between LOCAL 531, IBT, and Electronic Hardware
Corporation due to expire on May 9, 1998 is extended through and including June
9, 1998.
All terms and conditions contained in the current Collective Bargaining
Agreement shall remain in full force and effect during this extension period.
Any and all changes and/or modifications of the current Collective Bargaining
Agreement which are contained in the successor Collective Bargaining Agreement
shall be applied retroactively to May 9, 1998.
AGREED TO:AGREED TO:
By /s/ K. WattsBy /s/ Andrew Franzone
------------------------------- ------------------------------
LOCAL 531, I. B. of T. EMPLOYER
Dated: 5/8/98Dated: 5/8/98
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<PAGE>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of the day immediately preceding the
effective date of the initial public offering of the Company, by and among David
L. Kassel ("Kassel"), residing at 145 West 67th Street, Apt. 40D, New York, New
York 10023, Harry Goodman ("Goodman"), residing at 24 Ardsley Place, Rockville
Centre, New York 11570, Andrew Franzone ("Franzone"), residing at Box 651,
Strathmore Court, Remsenburg, New York 11960 and International Plastic
Technologies, Inc., a Delaware corporation with its principal place of business
at 320 Broad Hollow Road, Farmingdale, New York 11735 (the "Company"). All of
the parties to this Agreement are collectively referred to as the Parties.
Kassel, Goodman and Franzone are collectively referred to as the "Stockholders"
and individually as a "Stockholder".
WHEREAS, the Stockholders and the Company wish to provide for various
matters affecting the interests of the Stockholders as stockholders of the
Company and enter into this Agreement in order to effectuate such purpose; and
WHEREAS, each Stockholder is the owner of common stock of the Company,
par value $.001 per share (the "Common Stock");
WHEREAS, each of the Stockholders owns the number of shares of Common
Stock set forth in Schedule "A" to this Agreement; and
WHEREAS, all shares of Common Stock of the Company now held by a
Stockholder or any Permitted Transferee (as defined in Section 3)(collectively,
the "Stockholders Shares") shall be subject to this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and the terms and conditions set forth in this Agreement, the Parties
hereto agree as follows:
<PAGE>
1. Representations and Warranties.
Each of the Stockholders represents and warrants that:
(a) Ownership of Common Stock. He owns the number of shares of Common
Stock ascribed to him in Schedule "A" to this Agreement.
(b) Authorization. He has full right, power and authority to execute
this Agreement and to perform fully the obligations hereunder; he has duly
executed and delivered this Agreement, and this Agreement constitutes his legal,
valid and binding obligation, enforceable against him in accordance with its
terms.
(c) Conflicts. This Agreement does not and will not conflict with or
result in the breach of any term or provision of, or constitute a default under
any agreement or instrument to which he is a party or by which he is bound, or
any law, rule, regulation, order, judgment or decree of any court or
governmental authority applicable to him.
(d) Consents. Except as expressly contemplated by this Agreement, no
consent, approval, authorization, registration, declaration or filing with any
governmental authority is required to be obtained or made in connection with the
execution, delivery or performance of this Agreement.
2. General Restrictions on Disposition of Common Stock.
(a) None of the Stockholders nor any of their successors in interest
shall, directly or indirectly, sell, transfer, assign, pledge, option, mortgage,
hypothecate or otherwise dispose of or encumber any Stockholder Shares
(including, without limitation, transfers to any other Stockholder, dispositions
by gift, or other dispositions by operation of law), all of which acts shall be
deemed included in the term "transfer" as used in this Agreement, unless:
(i) such transfer is made in accordance with the provisions
of Sections 3 and
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4 of this Agreement;
(ii) such transferee agrees to be bound by this Agreement as
if named as a Stockholder herein, executes a counterpart hereof and executes
such further documents as may be necessary, in the opinion of the Company, to
make it a party hereto; and
(iii) such transfer is made pursuant to either (A) an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), and any applicable state securities laws, or (B) an
available exemption from the registration requirements of the Securities Act and
applicable state securities laws and, prior to any such transfer, the person
proposing the transfer provides to the Company a written opinion of legal
counsel which is reasonably satisfactory in form and substance to the Company
and its counsel to the effect that the proposed transfer may be effected without
registration under the Securities Act and any applicable state securities laws.
(b) Improper Transfer Ineffective. Any purported transfer of
Stockholder Shares in violation of this Agreement shall be null and void and the
Company shall refuse to recognize any such transfer for any purpose and shall
not reflect in its records any change in ownership of Stockholder Shares
pursuant to any such purported transfer.
3. Certain Permitted Transfers. The Company acknowledges that any of
the following transfers of Stockholder Shares by a Stockholder are subject only
to the restrictions contained in Sections 2(a)(ii) through 2(a)(iii) hereof (and
each of the persons or entities to whom a transfer is made pursuant to this
Section 3 is herein called a "Permitted Transferee"):
(a) a transfer upon or consequent to the death of a Stockholder or a
Permitted Transferee to the executors, administrators, personal representatives,
testamentary trustees, legatees or beneficiaries of a Stockholder or a
Stockholder's Permitted Transferee;
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<PAGE>
(b) a transfer made to a Stockholder's spouse, parent or issue or a
Stockholder's Permitted Transferee, or to a trust, all of the beneficiaries of
which, or to a corporation, all of the stockholders of which include only a
Stockholder or a Stockholder's spouse, parents or issue or a Stockholder's
Permitted Transferee, or a trust for the sole benefit of one or more of the
foregoing;
(c) in the case of a Stockholder or a Stockholder's Permitted
Transferee which is a corporation, a transfer to an Affiliate (as hereinafter
defined) of such corporation; and, in the case in which a Stockholder or
Permitted Transferee is a trust, a transfer to any other trust or entity which
is controlled by the currently existing trustee of such trust and, in the case
of a grantor trust, to such grantor or his issue; provided, however, that, if a
transferee specified in this paragraph (c) ceases to be controlled by the
designated partner, trustee or grantor, or ceases to be owned by the transferor
corporation, Stockholder's Shares held by the transferee shall either be
transferred back to the Stockholder or to another Permitted Transferee; and
(d) a transfer by a Permitted Transferee of a Stockholder to a
Stockholder or to any other Stockholder's Permitted Transferee.
For purposes of this Section 3, "Affiliate" shall mean with respect to
a Stockholder, any Person (as hereinafter defined) that, directly or indirectly
controls, or is controlled by, or is under common control with a Stockholder.
For purposes of this Section 3, "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust or
unincorporated organization.
4. Purchase Upon A Stockholder's Death.
In the event of the death of any Stockholder, the deceased
Stockholder's estate may take the following actions with respect to the
Stockholder's Shares owned by the Stockholder at the time of his death:
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(a) Immediately upon the Stockholder's death, cause the Company to
redeem 250,000 shares of the Stockholder's Shares for $500,000, payable [in
lump sum]. (the "Initial Redemption")
(b) For each three (3) months' period after the Initial Redemption, the
estate of the deceased Stockholder may sell a number a number of shares of the
Stockholder's Shares in accordance with Rule 144 of the Securities Act of 1933,
as amended; provided, however that in no event shall the estate of a deceased
Stockholder be permitted to sell more than 25,000 shares of the Stockholder's
Shares within any three month period.
5. Incidental Registration Rights.
(a) If the Company at any time proposes to register any shares of
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"), by registration on Forms SB-1, SB-2 or any successor or similar form(s),
whether or not for sale for its own account (other than registrations of
securities in connection with an employee benefit plan, Company stock option or
dividend reinvestment plan or in connection with the acquisition of assets or
shares of or merger or consolidation with another corporation), and the
registration form to be used may also be used for the registration of shares of
Stockholder Shares (an "Incidental Registration"), the Company shall each such
time notify the Stockholders at least 30 days prior to the filing of any
registration statement with respect thereto. Upon the receipt of a written
request of any Stockholder made within 10 days after such notice (which request
shall specify the Common Stock intended to be disposed of by each holder and the
intended method of disposition thereof), the Company will use its best efforts,
subject to the limitations set forth below, to include in such registration all
such Stockholder Shares with respect to which the Company has received a written
request for inclusion by any Stockholder, provided that the Company shall not be
obligated to register in an Incidental Registration Stockholder Shares
constituting less than five percent (5 %) of the total number of shares of
Common Stock then outstanding, unless the Company shall be registering all of
the shares of Common Stock held by such Stockholder. Each request shall also
contain an undertaking from the Stockholders to provide all information and
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material and to take all actions as may be required by the Company in order to
permit the Company to comply with all applicable federal and state securities
laws. For the purposes of this subsection (a), "best efforts" shall not require
the Company to reduce the amount or sale price of the securities it proposes to
register.
(b) Each selling Stockholder shall pay all sales commissions or other
similar selling charges with respect to Stockholder Shares sold by such
Stockholder pursuant to a registration. The Company shall pay all registration
and filing fees, fees and expenses for compliance with federal and state
securities laws, printing expenses, messenger and delivery expenses, fees and
disbursements of counsel and accountants for the Company and fees and expenses
of one counsel for all selling Stockholders in connection with an Incidental
Registration, to be selected by the selling Stockholders holding a majority of
the Stockholder Shares to be sold in such registration, unless the applicable
state securities laws require that stockholders whose securities are being
registered pay their pro rata share of such fees, expenses and disbursements, in
which case each Stockholder participating in the registration shall pay its pro
rata share of all such fees, expenses and disbursements based on his pro rata
share of the total number of shares being registered.
(c) If an Incidental Registration is an underwritten registration, only
shares of Common Stock which are to be distributed by the underwriters may be
included in the registration. If the managing underwriters advise the Company in
writing that in their opinion the number of shares of Common Stock requested to
be included in such registration exceeds the number which can be sold in such
offering or will have a material adverse effect on the price of the shares of
Common Stock to be sold, the Company will include in such registration (i)
first, the shares of Common Stock which the Company proposes to register and
shares of Common Stock of any other holders of shares of Common Stock or
options, warrants or other securities convertible into Common Stock who are
entitled to incidental registration rights prior to those which the Stockholders
propose to register, allocated among the Company and such holders in accordance
with any agreement among the Company and such holders; and (ii) second,
Stockholder Shares which the Stockholders propose to register and shares of
Common Stock any
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other holders of shares of Common Stock or options, warrants or other securities
convertible into Common Stock who are entitled to incidental registration rights
on a par with that which the Stockholders propose to register, in proportion to
the number of shares of Common Stock such Stockholders and other holders propose
to include in the Incidental Registration. The managing underwriters for a
registration pursuant to this Section shall be chosen by the Company.
(d) Notwithstanding the foregoing, if at any time after giving written
notice to the Stockholders of its intention to register any shares of Common
Stock pursuant to subsection (a) of this Section 5 and prior to the effective
date of the Registration Statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to each
Stockholder and thereupon shall be relieved of its obligation to register any
Stockholder Shares in connection with such registration (but not from its
obligation to pay certain expenses in connection therewith as provided in
subsection (b) above).
(e) The Company may suspend its obligation to register Stockholder
Shares pursuant to this Section 5 if, in the opinion of counsel to the Company,
the Stockholder Shares proposed to be sold pursuant to this Section 5 can be
sold in the same volume and manner as they are proposed to be sold by such
Stockholder in a transaction exempt from registration pursuant to the Securities
Act and similar state securities laws.
(f) Each Stockholder agrees not to sell or offer for sale any of his
Stockholder Shares within seven (7) days prior to or ninety (90) days after the
effective date of any registration (except as part of such registration).
6. Registration Upon Request.
(a) Request for Registration. At any time after the Company has
completed an initial public offering of common stock and warrants (the "IPO")
and shall no longer be restricted from commencing a second registration pursuant
to applicable law, one or more Stockholders holding
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in the aggregate at least 7% of the shares of outstanding Common Stock (each an
"Initiating Holder") may request in writing that the Company effect pursuant to
this Section 6 the registration of any of such Initiating Holders' Stockholder
Shares under the Securities Act (a "Demand Registration"). The Initiating
Holder's request shall specify the Stockholder Shares requested to be
registered, the proposed amounts thereof, and the intended method of disposition
by such Initiating Holders. Upon receipt of the initiating Holder's written
request, the Company shall promptly give written notice of such requested
registration to all Stockholders, and thereupon the Company will, as
expeditiously as reasonably possible, use its best efforts to effect the
registration of: (i) the Stockholder Shares which the Company has been so
requested to register by the Initiating Holder, for disposition in accordance
with the intended method of disposition stated in such request, and (ii) all
other Stockholder Shares owned by Stockholders, the holders of which shall have
made a written request to the Company for registration thereof (which request
shall specify the Stockholder Shares requested to be registered, the proposed
amounts thereof and the intended method of disposition by such Stockholder)
within thirty (30) days after the receipt of such written notice from the
Company, all to the extent requisite to permit the disposition by the holders of
the securities constituting Stockholder Shares so to be registered, provided
that the Company shall not be required to effect any registration pursuant to
this Section 6 if it is a registration with respect to which the Company is not
required to pay expenses pursuant to Section 6(b)(i) unless the Company shall
have received assurances satisfactory to it that the Initiating Holder will bear
the expenses of registration.
(b) Limitations on Registrations. The registration rights granted to
the Initiating Holders pursuant to this Section 6 are subject to the following
limitations:
(i) Each selling Stockholder shall pay all sales
commissions or other similar selling charges with
respect to his Stockholder Shares sold pursuant to a
registration. In connection with one Demand
Registration pursuant to this Section 6, at the
request of the Initiating Holder, the Company shall
pay all registration and filing fees, fees and
expenses of compliance with federal
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and state securities laws, printing expenses,
messenger and delivery expenses, fees and
disbursements of counsel and accountants for the
Company and fees and expenses of one counsel,
selected by the selling Stockholders holding a
majority of the Stockholder Shares to be sold in such
registration, for all selling Stockholders in
connection with a Demand Registration, unless the
applicable state securities laws require that
stockholders whose securities are being registered
pay their pro rata share of such fees, expenses and
disbursements, in which case each Stockholder
participating in the registration shall pay his pro
rata share of all such fees, expenses and
disbursements based on his pro rata share of the
total number of shares being registered. In all other
instances, the selling Stockholders shall pay all
expenses of a Demand Registration.
(ii) Initiating Holders holding a majority of the shares
of Common Stock held by all Initiating Holders shall
determine (A) whether such Demand Registration shall
be the one Demand Registration in which the Company
pays expenses pursuant to clause (i) of this section,
(B) the method of distribution of the securities to
be registered and (C) if an underwritten offering,
shall select the managing underwriter of such
offering;
(iii) the Company shall be entitled to postpone for a
reasonable time not exceeding one hundred twenty
(120) days the filing of any registration statement
under this Section 6 if, at the time it receives a
request for a Demand Registration pursuant thereto,
the Board of Directors of the Company shall determine
in good faith that such offering will interfere with
a pending financing, merger, sale of assets,
recapitalization or other corporate action which the
Company is actively pursuing and is material to the
business of the Company; and
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(iv) a Registration Statement that does not become
effective or does not remain effective for the period
specified in Section 7(b) shall be deemed not to
constitute a Registration Statement filed pursuant to
this Section 6, provided that, if such Registration
Statement does not become effective or -------- does
not remain effective for such period solely by reason
of the Initiating Holders' refusal to proceed, it
shall be deemed to constitute a Registration
Statement filed pursuant to this Section 6, unless
the Initiating Holders shall have elected to pay all
expenses in connection with such registration as
aforesaid.
(c) If any registration pursuant to this Section 6 involves an
underwritten offering and the managing underwriter requests that the
participants in such offering grant the underwriters an over-allotment or "green
shoe" option for the purpose of covering over-allotments that may be made by the
underwriters in connection with such offering, then a percentage of the shares
proposed to be sold by each selling Stockholder, which portion shall not exceed
the maximum amount then permitted by the rules of the National Association of
Securities Dealers, Inc. and shall equal the percentage of the shares proposed
to be sold by other sellers in the offering that is applied to the same purpose,
shall be made subject to such over-allotment option, unless otherwise agreed in
the underwriting agreement relating thereto. Each of the Initiating Holders and
the other sellers may withdraw from any Demand Registration pursuant to this
Section 6 by giving written notice to the Company, the managing underwriter, if
any, and the other Stockholders prior to the effective date of such Registration
Statement.
(d) The Company may suspend its obligation to register shares of Common
Stock by a Stockholder pursuant to this Section 6 if, in the opinion of counsel
to the Company, the shares of Common Stock proposed to be sold by such
Stockholder pursuant to this Section 6 can be sold in the same volume and manner
as they are proposed to be sold by such Stockholder in a transaction exempt from
registration pursuant to the Securities Act, as amended, and similar state
securities laws.
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(e) Each Stockholder agrees not to sell or offer for sale any of such
Stockholder's shares of Common Stock within seven (7) days prior to or ninety
(90) days after the effective date of any registration (except as part of such
registration).
7. Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Stockholder Shares under
the Securities Act as provided in this Agreement, the Company will promptly:
(a) prepare and file with the Securities Exchange Commission (the
"SEC") a Registration Statement with respect to such securities and use its best
efforts to cause such Registration Statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such Registration
Statement, but in no event for a period of more than four (4) months after such
Registration Statement becomes effective;
(c) furnish to counsel (if any) selected by the selling Stockholders
holding a majority of the Stockholder Shares to be sold in such registration,
copies of all documents proposed to be filed with the SEC in connection with
such registration, which documents will be subject to the review of such counsel
prior to filing with the SEC;
(d) furnish to each seller of securities such number of conformed
copies of such Registration Statement and of each amendment and supplement
thereto (in each case including all exhibits, except that the Company shall not
be obligated to furnish any seller of securities
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with more than 2 copies of such exhibits), such number of copies of the
prospectus comprised in such Registration Statement (including each preliminary
prospectus and any summary prospectus), in conformity with the requirements of
the Securities Act, and such other documents, as such seller may reasonably
request in order to facilitate the disposition of the securities owned by such
seller;
(e) use its best efforts to register or qualify such securities covered
by such Registration Statement under such other securities or blue sky laws of
such jurisdictions as may apply, and do any and all other acts and things which
may be necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to consent to general service of process in any such jurisdiction;
(f) in connection with an underwritten offering only, furnish to each
seller copies of: (i) an opinion of counsel for the Company, dated the effective
date of the Registration Statement, and (ii) a "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in the Registration Statement, each covering substantially
the same matters with respect to the Registration Statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's letters delivered to
the underwriters in underwritten public offerings of securities;
(g) notify each seller of any such securities covered by such
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, or the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an 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
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not misleading in the light of the circumstances then existing, and at the
request of any such seller prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(h) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering the period of at least
twelve (12) months, but not more than eighteen (18) months, beginning with the
first month after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of section 11(a) of the
Securities Act; and use its best efforts to list such securities on any
securities exchange on which the Common Stock is then listed, if such securities
are not already so listed and if such listing is then permitted under the rules
of such exchange, and to provide a transfer agent and registrar (which, in each
case, may be the Company) for such Stockholder Shares not later than the
effective date of such registration statement.
The Company may require each seller of any securities as to which any
registration is being affected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing and as shall be required by law in
connection therewith.
Each Stockholder hereby agrees that upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 7(g),
such holder will promptly discontinue such holder's disposition of Stockholder
Shares pursuant to the Registration Statement covering such Stockholder Shares
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 7(g), and, if so directed by the Company,
will deliver to the Company (at the Company's expense) all copies, other than
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permanent file copies, then in such holder's possession of the prospectus
covering such Stockholder Shares current at the time of receipt of such notice.
In the event the Company shall give such notice, the period mentioned in Section
7(b) shall be extended by the number of days during the period from and
including the date when each seller of any Stockholder Shares covered by such
Registration Statement shall have received the notice of the event of the kind
described in Section 7(g) to but not including the date when each such seller
receives copies of the supplemented or amended prospectus contemplated by
Section 7(g).
8. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any Stockholder Shares under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless, in the case of any
Registration Statement filed pursuant to Section 5 or 6 hereof, each
Stockholder, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Stockholder Shares were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and the Company will reimburse each Stockholder for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by or on behalf of such Stockholder specifically stating that it is
for use in the preparation thereof. Such
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indemnity shall remain in full force regardless of any investigation made by or
on behalf of a Stockholder.
(b) Indemnification by Selling Stockholders. As a condition to
including any Stockholder Shares in any Registration Statement, the Company
shall have received an undertaking satisfactory to it from each Stockholder so
including his Stockholder Shares in such Registration Statement, to indemnify
and hold harmless ( in the same manner and to the same extent as set forth in
subdivision (a) of this Section 8) the Company, and each director of the
Company, each officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Stockholder specifically
stating that it is for use in the preparation of such Registration Statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that the liability of a Stockholder under this
Section 8(b) shall be limited to the amount of proceeds received by such
indemnifying party in the offering giving rise to such liability. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer, or controlling Person
and shall survive the transfer of such securities by a Stockholder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this Section 8, except to the
extent that the indemnifying party is actually
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prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party shall be entitled to
participate in and, unless in such indemnified party's reasonable judgement a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, to assume the defense thereof jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent (which consent shall
not be unreasonably withheld). No indemnifying party shall, without the consent
of the indemnified party (which consent shall not be unreasonably withheld),
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation.
(d) Contribution. If the indemnification provided for in this Section 8
shall for any reason be held by a court to be unavailable to an indemnified
party under paragraph (a) or (b) hereof in respect of any loss, claim, damage,
or liability, or any action or proceeding in respect thereof, then, in lieu of
the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified
party and the indemnifying party under subparagraph (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages, and liabilities (including
legal or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect the relative fault of
the Company and the Stockholders covered by the Registration Statement which
resulted in such loss, claim, damage or liability, or action in respect thereof,
with respect to the statement or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable consideration, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable
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law, in such proportion as shall be appropriate to reflect the relative benefits
received by the Company from the offering of the securities covered by such
Registration Statement. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be unreasonably
withheld.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subdivisions of this Section 8 (with appropriate
modifications) shall be given by the Company and the Stockholders proposing to
offer and sell Stockholder Shares with respect to any required registration or
other qualification of securities under any federal or state law or regulation
of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 8 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage, or liability is incurred.
(g) Additional Rights. Any indemnification agreements contained herein
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party.
9. Books, Records and Reports.
Within one hundred twenty (120) days of the end of each fiscal year,
the Company shall mail to each of the Stockholders a report setting forth an
audited balance sheet at the end of such fiscal year and audited statements of
income and source and use of funds for such fiscal year of the Company, and any
other information the Company deems necessary or desirable. If
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requested by a Stockholder, the Company will furnish quarterly financial
statements to such Stockholder as soon as they become available.
10. Stock Certificate Legend.
A copy of this Agreement shall be filed with the Secretary of the
Company and kept with the records of the Company. Each certificate representing
Stockholder Shares shall bear upon its face substantially the following legend,
in addition to any other legends that may be required:
(i) THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, ("THE
SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE SECURITIES ACT, AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS IN THE OPINION OF
COUNSEL, SATISFACTORY TO THE ISSUER, SUCH SALE OR TRANSFER
IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE
WITH THE SECURITIES ACT.
(ii) THE SALE, TRANSFER OR ENCUMBRANCE OF THE SHARES OF COMMON
STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED AND
SUBJECT TO THE TERMS OF A STOCKHOLDERS' AGREEMENT, DATED AS OF
THE DAY IMMEDIATELY PRECEDING THE EFFECTIVE DATE OF THE
INITIAL PUBLIC OFFERING OF THE COMPANY, COPIES OF WHICH ARE ON
FILE AT THE OFFICE OF THE COMPANY.
The certificate representing Stockholder Shares for sale pursuant to an
effective Registration Statement under the Securities Act or pursuant to Rule
144 (to the extent permitted hereby) shall be replaced, at the expense of the
Company, with certificates without the legend required by subsection 10(i)
above.
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11. Certificate of Incorporation; By-Laws; Restrictions on Other
Agreements; No Circumvention; etc.
Each Stockholder shall vote his shares of Common Stock, at any regular
or special meeting of stockholders of the Company or in any written consent
executed in lieu of such a meeting of stockholders, and shall take all other
actions necessary to ensure that the certificate of incorporation and by-laws of
the Company do not, at any time, conflict with the provisions of this Agreement.
No Stockholder may do indirectly, that which he is not permitted to do by this
Agreement. In the event that any stock or other securities are issued in respect
of, in exchange for, or in substitution of, any shares of Common Stock by reason
of any reorganization, recapitalization, reclassification, merger,
consolidation, spinoff, partial or complete liquidation, stock dividend, stock
split or revere stock split, sale of assets, distribution to stockholders or
combinations of the shares of Common Stock or any other change in the Company's
capital structure, such capital stock or other securities shall be deemed
subject to this Agreement, and appropriate adjustments shall be made in the
percentages specified in this Agreement and as otherwise may be necessary to
fairly and equitably preserve, as far as practicable, the original rights and
obligations of the parties.
12. Participation in Underwritten Registrations.
No Stockholder may participate in any underwritten registration
hereunder unless such Stockholder (i) agrees to sell such Stockholder's
securities on the basis provided in any underwriting arrangements approved by
the Stockholders entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements or this Agreement.
13. Termination.
This Agreement shall terminate on the earlier of: (i) ten (10) years
from the date of this Agreement or (ii) the date on which neither Kassel,
Goodman nor Franzone own any Common Stock.
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14. Binding Effect.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective heirs, legal representatives,
and successors.
15. Notices.
Notices and other communications required or permitted to be given
under this Agreement shall be in writing and shall be deemed duly given when
delivered personally or sent by mail (certified or registered mail, postage
prepaid, return receipt requested), as follows:
If to David L. Kassel:
145 West 67th Street, Apt. 40D
New York, New York 10023
If to Harry Goodman:
24 Ardsley Place
Rockville Centre, New York 11570
If to Andrew Franzone:
Box 651, Strathmore Court
Remsenburg, New York 11960
If to International Plastic Technologies, Inc.:
320 Broadhollow Road
Farmingdale, New York 11735
With a copy to:
Koerner Silberberg & Weiner, LLP
112 Madison Avenue, Third Floor
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
or at such other address as such party shall have furnished to the other parties
in writing.
-20-
<PAGE>
16. Entire Agreement; Amendments.
This Agreement embodies the entire agreement and understanding between
the Parties relating to the subject matter hereof. Neither this Agreement nor
any provision hereof may be changed, discharged or terminated without an
instrument in writing signed by the Company and each of the Stockholders at the
time owning shares of Common Stock.
17. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware regardless of the law that
might be applied under principles of conflicts of law.
18. Headings.
All headings are inserted herein for convenience only and do not form a
part of this Agreement.
19. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
-21-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered on the date first above written.
INTERNATIONAL PLASTIC TECHNOLOGIES,
INC.
By: /s/ Andrew Franzone
------------------------------
Andrew Franzone, President
/s/ David L. Kassel
------------------------------
David L. Kassel
/s/ Harry Goodman
------------------------------
Harry Goodman
/s/ Andrew Franzone
------------------------------
Andrew Franzone
-22-
<PAGE>
AMENDMENT NO. 1 TO THE
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
SHAREHOLDERS' AGREEMENT
This Amendment, effective as of the day immediately preceding the effective
date of the initial public offering of the Company, by and among David L.
Kassel, Harry Goodman, Andrew Franzone (collectively referred to as the
"Stockholders") and International Plastic Technologies, Inc. (the "Company").
WHEREAS, the Stockholders and the Company entered into a Stockholders'
Agreement dated as of the day immediately preceding the effective date of the
initial public offering of the Company (the "Agreement"); and
WHEREAS, it is the desire of the parties hereto to amend the Agreement; and
WHEREAS, Paragraph 16 of the Agreement requires that any change to the
Agreement be made in writing signed by the Company and each of the Stockholders
then owning shares of common stock.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and the terms and conditions set forth in this Amendment, the parties hereto
agree as follows:
1. Capitalized terms shall have the meaning ascribed to them in the Agreement.
2. Paragraph 4 is hereby amended by adding the following subsection (c):
(c) The obligation of the Company to purchase shares of a deceased
Stockholder upon an Initial Redemption shall be only to the extent that the
Company receives proceeds from life insurance policies on the life of such
Stockholder.
3. Except as specifically amended above, the terms and conditions of the
Agreement are hereby ratified and confirmed and remain in full force and
effect.
4. This Amendment may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed and delivered on the date first above written.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
----------------------------------
Andrew Franzone, President
/s/ David L. Kassel
-------------------------------------
David L. Kassel
/s/ Harry Goodman
-------------------------------------
Harry Goodman
/s/ Andrew Franzone
-------------------------------------
Andrew Franzone
<PAGE>
EXH 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 6, 1998 of International Plastic Technologies,
Inc. and subsidiary, Electronic Hardware Corp., and of our report dated March
18, 1998 of Compact Disc Packaging Corp. in the Registration Statement on Form
SB-2, Amendment No.1, and the related Prospectus of International Plastic
Technologies, Inc.
/s/ Feldman Sherb Ehrlich & Co., P.C.
-------------------------------------
FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants
(formerly Feldman Radin & Co., P.C.)
New York, New York
June 3, 1998
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF INTERNATIONAL PLASTIC TECHNOLOGIES, INC. AS OF
MARCH 28, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> MAR-27-1998
<CASH> 253,186
<SECURITIES> 0
<RECEIVABLES> 634,451
<ALLOWANCES> 14,000
<INVENTORY> 1,053,129
<CURRENT-ASSETS> 2,077,905
<PP&E> 4,698,136
<DEPRECIATION> 4,065,214
<TOTAL-ASSETS> 2,934,264
<CURRENT-LIABILITIES> 1,505,504
<BONDS> 706,925
0
0
<COMMON> 1,500
<OTHER-SE> 497,382
<TOTAL-LIABILITY-AND-EQUITY> 2,934,264
<SALES> 1,437,535
<TOTAL-REVENUES> 1,437,535
<CGS> 901,632
<TOTAL-COSTS> 901,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,346
<INCOME-PRETAX> 48,038
<INCOME-TAX> 19,000
<INCOME-CONTINUING> 29,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,038
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF COMPACT DISC PACKAGING CORP. AS OF
MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE
MONTH ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 445
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<INVENTORY> 0
<CURRENT-ASSETS> 445
<PP&E> 0
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<TOTAL-ASSETS> 445
<CURRENT-LIABILITIES> 148,161
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 24,995
<TOTAL-LIABILITY-AND-EQUITY> 445
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<TOTAL-REVENUES> 0
<CGS> 0
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,251)
<INCOME-TAX> 0
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