<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1998.
REGISTRATION NO. 333-48701
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3089
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
11-3423157
(I.R.S. EMPLOYER IDENTIFICATION NO.)
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
320 BROAD HOLLOW ROAD
FARMINGDALE, NEW YORK 11735
(516) 293-0750
(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:
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
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 $ 7.43 $ 928,750
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. 125,000 $ .17 $ 21,250
Common Stock, par value $.001 per share, issuable upon exercise of the
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. 125,000 $ 8.25 $ 1,031,250
Total............................................................. $ 15,781,250
<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................................................ $282
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. $7
Common Stock, par value $.001 per share, issuable upon exercise of the
Redeemable Common Stock Purchase Warrants underlying the Underwriter's
Warrants.............................................................. $313
Total............................................................. $4,675(5)
</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.
(5) Of which $4,471 has been previously paid.
------------------------
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.
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<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 JULY 21, 1998
PROSPECTUS
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
1,250,000 SHARES OF COMMON STOCK [LOGO]
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>
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>
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
================================================================================
[LOGO]
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 a 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(R) and separate projects through
an affiliated company, Allen Field Co., Inc. ("AFC"). There can be no assurance
that the Company will be able to consummate any acquisitions, establish
manufacturing relationships in China or achieve any of its growth strategies.
See "Prospectus Summary" and "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, 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 1997. To date, the Company has no written contracts or
arrangements with any manufacturer located in China and there can be no
assurance that the Company will be able to enter into any such contracts or
arrangements on favorable terms, if at all. 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 "Prospectus Summary," "Risk Factors--Risks Relating to
Manufacturing in China" and "Certain Transactions."
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
320 Broad Hollow Road, Farmingdale, NY 11735
1.516.293.0750 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.'
CALIFORNIA RESIDENTS:
(1) This offering was approved by the State of California on the basis of a
limited offering qualification where offers and sales can only be made to
proposed investors based on their meeting certain suitability standards as
described below and the Company did not have to demonstrate compliance with
some or all of the merit regulations of the Department of Corporations as
found in Title 10, California Code of Regulations, Rules 260.140 et seq.
(2) The exemptions provided by Section 25104(h) of the Corporate Securities Law
of 1968, as amended, will be withheld but there may be other exemptions
available.
(3) The securities of the Company will be sold to California residents pursuant
to a limited offering qualification under a suitability standard of a liquid
net worth of not less than $250,000 (a net worth exclusive of home, home
furnishings and automobiles) plus a gross annual income of $65,000 or a
liquid net worth of $500,000; OR a net worth (inclusive) of $1,000,000 or a
gross annual income of $200,000.
<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 a 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'). There can be no assurance, however, that the
Company will be able to consummate any acquisitions, establish manufacturing
relationships in China or achieve any of its growth strategies. 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 1997. To
date, however, the Company has no written contracts or arrangements with any
manufacturer located in China and there can be no assurance that the Company
will be able to enter into any such contracts or arrangements on favorable
terms, if at all. 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)
In March 1998, the Company, through CDP, a wholly-owned subsidiary, entered
into a five-year exclusive worldwide 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 which
in 1993 won the International Design Magazine Award for Packaging. The Pull
Pack(Trademark) utilizes a drawer-like mechanism, avoiding the problems often
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, although there can be 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 31, 1997, 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; No Assurance of Market Acceptance.'
The Ultratherm(Registered)
In February 1998, the Company, through DTI, a wholly-owned subsidiary,
entered into an 11-year exclusive worldwide 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 Product; No Assurance of Market Acceptance.'
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)
293-0750 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, each warrant
entitling the holder to purchase one share of Common Stock at an exercise
price of $5.00 per share. 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 one year
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 one year 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 inventory
purchases and staffing, potential acquisitions, tooling, sales and
marketing, facilities and equipment, research and development, repayment
of debt, dividends to existing stockholders and working capital. 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 to the Underwriter 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 27, 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 27, DECEMBER 28, MARCH 28, MARCH 29, DECEMBER 27,
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 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
BALANCE SHEET DATA:
<CAPTION>
DECEMBER 28,
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 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 $6,228,350
Total Assets........................................ 2,907,820 2,934,264 2,834,709 7,084,709
Current Liabilities................................. 1,447,192 1,505,504 1,505,504 1,505,504
Long Term Debt...................................... 1,009,784 929,878 1,078,039 928,039
Stockholders' Equity................................ 450,844 498,882 251,166 4,651,166
</TABLE>
- ------------------
(1) Reflects the anticipated payment of a $100,000 stockholder dividend to
Andrew Franzone, David L. Kassel and Harry Goodman, executive officers of
the Company, subsequent to March 28, 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 27, 1997 and December 28, 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 27, 1997
and December 28, 1996 and for the period beginning December 28, 1997 up to
the Effective Date of this Offering, the Company had been treated for
federal income tax purposes
(Footnotes continued on next page)
6
<PAGE>
(Footnotes continued from previous page)
as a closely-held corporation under Subchapter S of the Code. Upon the
Effective Date, the Company's 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 of record as of March 28, 1998, 38% of the earnings of the
Company for the period from December 28, 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 a 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 or
any capacity. The Company has a non-exclusive agreement with the Consultant's
company, B.C. China Business Consulting, 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
'Management--Stock Option and Grant Plan' and 'Certain Transactions'.
Internal Political and Other Risks. The Company intends, although with no
assurance, to arrange for the manufacture of 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 relationships 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 and China. Due to such lack
of United States' jurisdiction in China, the Company might not be able to bring
legal
8
<PAGE>
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, although there can be no assurance, to arrange for the
manufacture of 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 policies implemented by the Company in the future will be
9
<PAGE>
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, although there can be no assurance, to arrange for the
manufacture of 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, age 61, Chief Executive Officer and President, David
L. Kassel, age 63, Chairman, Harry Goodman, age 72, 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 $500,000 on the
life of Andrew 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. Furthermore, pursuant to the Stockholders'
Agreement (the 'Stockholders' Agreement') between the Company and Messrs.
Franzone, Kassel and Goodman (collectively, the 'Stockholders'), upon the death
of any Stockholder, his estate may cause the Company to redeem 250,000 shares of
Common Stock for an aggregate purchase price of $500,000; provided, however,
only to the extent that the Company receives proceeds from life insurance
policies on the life of such Stockholder. As of the date of this Prospectus,
only Mr. Franzone has 'key man' life insurance. If Mr. Franzone's estate
exercises such redemption rights, the Company will have to use the proceeds from
Mr. Franzone's 'key man' life insurance to satisfy such obligation, and,
therefore, such proceeds otherwise allocated to the Company will be expended.
Such expenditure may be at a time when the Company is in need of the insurance
proceeds. 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 '--Dependence on Single Consultant;
- --Offering Proceeds to Benefit Officers, Directors and Principal Stockholders,'
'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 August 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 enter into a new
collective bargaining agreement on favorable terms to the Company, if at all, or
that it will negotiate successfully any extension 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.
10
<PAGE>
BROAD UNSPECIFIED DISCRETION OF MANAGEMENT IN APPLICATION OF PROCEEDS OF THE
OFFERING
Approximately 27.3% of the net proceeds of the Offering will not be
allocated for a specific use, but rather for working capital (15.9%) 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' and 'Certain Transactions.'
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. The Long Island
Development Corporation will not release the personal guarantees of Messrs.
Franzone, Kassel and Goodman. Therefore, such officers, directors and principal
stockholders may have various interests differing from those of the investors of
the Offering.
Also, pursuant to the Stockholders' Agreement, the estates of Messrs.
Franzone, Kassel and Goodman are 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, even though at such time the
Common Stock of the Company may have a fair market value at less than $2.00 per
share, resulting in dilution to stockholders and an expenditure of the Company's
capital even if such expenditures would adversely affect the Company's liquidity
and financial resources. At the date of this Prospectus, only Mr. Franzone has
'key man' life insurance in the amount of $500,000. Such amount, if Mr.
Franzone's estate exercises its redemption rights, would be used to redeem Mr.
Franzone's shares of Common Stock at a time when the Company might otherwise
need the proceeds. See '--Dependence on Key Personnel' and 'Certain
Transactions.'
Furthermore, pursuant to the Company's respective employment agreements
with each of Messrs. Franzone, Kassel and Goodman, if any one of such executives
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. Such
expenditure of the Company's capital at such time could adversely effect the
Company's liquidity and financial resources. 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. The
Company will pay the principal amount and accrued interest on such note with the
proceeds of this Offering. In January 1998, CDP issued a promissory note to Mr.
Kassel for the principal amount of $107,500 bearing interest of 10% per annum
and maturing on January 1, 1999 for repayment of loans
11
<PAGE>
advanced to CDP by Mr. Kassel. The Company has guaranteed the repayment of such
promissory note. The Company intends to repay the principal amount and accrued
interest on the note when due with positive cash flow from its operations.
However, in the event such funds are not available at such time, the Company
will use the proceeds of this Offering currently allocated for Working Capital
to satisfy such debt. Although the Company does not anticipate such capital
expenditure in satisfaction of such debt owed to Mr. Kassel to be material, such
expenditure would, nonetheless, divert otherwise allocated funds from this
Offering. See '--Dependence on Key Personnel,' 'Dividend Policy,' 'Use of
Proceeds,' 'Management--Employment Agreements,' 'Certain Transactions' 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. Additionally, the
Company has made sales to AFC, an affiliated company, which resulted in gross
profit margins materially less than the Company's overall margins for the
respective periods. While such sales are materially less advantageous to the
Company than those made to non-affiliates, the Company attributes such
difference to the type of products manufactured on behalf of the affiliate,
which does not require any additional assembly or marking. 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 PROPOSED EXPANSION
The Company intends, although with no assurance, 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 'Use of Proceeds' and 'Business.'
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 net proceeds of this Offering 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 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
12
<PAGE>
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.'
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.'
DIFFICULTIES IN INTEGRATING CDP INTO THE COMPANY
Immediately prior to the Effective Dates the Company will enter into an
agreement to acquire CDP, a company with a five-year exclusive worldwide
licensing agreement dated March 1, 1998 to arrange for the manufacture,
marketing, sale and sublicensing of 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--Products--The
Pull Pack(Trademark).'
LACK OF PROFITS OF DTI, A WHOLLY-OWNED SUBSIDIARY; INITIAL MANUFACTURING PHASE
OF THE ULTRATHERM(REGISTERED)
DTI, one of the Company's wholly-owned subsidiaries, is in the beginning
stages of manufacturing the Ultratherm(Registered) in China. The
Ultratherm(Registered) will require additional marketing and capital 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 '--Risks
Relating to Manufacturing in China' and 'Business'.
13
<PAGE>
RISKS RELATING TO LICENSING AGREEMENTS
The Company, through its wholly-owned subsidiary, CDP, entered into an
exclusive worldwide license agreement with Inch, Inc. dated as of March 1, 1998
whereby the Company 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, the inventor of the Ultratherm(Trademark), 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, the Company's license
could terminate or become non-exclusive which could result in 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 owns or licenses the technology to 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 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.
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
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<PAGE>
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 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.'
15
<PAGE>
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.
'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
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<PAGE>
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 one year
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, 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
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<PAGE>
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 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.
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.
In addition, pursuant to the Stockholders' Agreement, each of Messrs.
Kassel, Goodman and Franzone (the 'Selling Stockholders'), holders of an
aggregate of 1,900,000 shares of Common Stock (the 'Registrable Shares') at the
date of this Prospectus, are entitled to certain demand and 'piggyback'
registration rights with respect to such Registrable Shares. Pursuant to the
Stockholders' Agreement, any Selling Stockholder holding an aggregate of 7% of
the outstanding shares of Common Stock may request that the Company file a
registration statement under the Securities Act, and subject to certain
conditions, the Company generally will be required to use its best efforts to
effect any such registration. In addition, if the Company proposes to register
any of its securities, either for its own account or for the account of other
stockholders, the Company is required, with certain exceptions, to notify the
Selling Stockholders and, subject to certain limitations, to include in such
registration statement all the Registrable Shares requested to be included by
such Selling Stockholders. The Company is generally obligated to bear the
expenses, other than underwriting discounts and sales commissions, of these
registrations. Each of the Selling Stockholders has waived his 'piggyback' and
demand registration rights for a two-year period, commencing upon the completion
of this Offering, and has entered into an
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agreement with the Underwriter whereby he agrees not to effect any disposition
of his shares of Common Stock for a two-year period, commencing upon the
completion of this Offering, without the prior written consent of the
Underwriter. Notwithstanding, the exercise by one or more of these registration
rights may involve a substantial expense to the Company and may adversely affect
the terms upon which the Company may obtain additional financing. See 'Risk
Factors--Shares Eligible for Future Sale; Registration Rights,' 'Management--
Employment Agreements' and '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.
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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%
Repayment of Debt(5)...................................... $ 150,000 3.4%
Dividends to Existing Stockholders(6)..................... $ 100,000 2.3%
Working Capital(7)........................................ $ 701,000 15.9%
------------------ ------
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) In repayment of a promissory note in the principal amount of $150,000
bearing interest at a rate equal to 6% per annum, issued by the Company to
David L. Kassel, the Company's Chairman of the Board, in consideration for
consulting services rendered to the Company by Mr. Kassel in 1997.
(6) 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 27, 1998. To the extent that the
Company has additional earnings from June 28, 1998 to the Effective Date,
this amount would be increased by 38% of such additional earnings. See
'Dividend Policy.'
(7) Includes the interest payable on the $150,000 promissory note payable to Mr.
Kassel referenced in footnote (5) above. Does not assume the repayment of a
promissory note issued by CDP to Mr. Kassel, which was guaranteed by the
Company, for the principal amount of $107,500 bearing interest at 10% per
annum and maturing on January 1, 1999 for repayment of loans advanced to CDP
by Mr. Kassel. The Company intends to repay the principal amount and
accrued interest on the note when due with positive cash flow from its
operations. However, in the event such funds are not available at such time,
the Company will use the proceeds of this Offering currently allocated for
Working Capital. See 'Risk Factors--Offering Proceeds to Benefit Officers,
Directors and Principal Stockholders' and 'Certain Transactions--Officer
Loans.'
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.
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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.
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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 27, 1998, the Company estimates that as of June 27, 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 the
period from June 28, 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.'
22
<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 28, 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.
23
<PAGE>
CAPITALIZATION
The following table sets forth as of March 28, 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 28, 1998
--------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
---------- ------------ --------------
<S> <C> <C> <C>
Notes payable......................................................... $1,861,698 $2,135,628 $1,985,628
---------- ------------ --------------
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 $2,386,794 $6,636,794
---------- ------------ --------------
---------- ------------ --------------
</TABLE>
- ------------------
(1) Reflects the proposed merger of the Company and CDP and an anticipated
stockholder dividend of $100,000 subsequent to March 28, 1998.
(2) Assumes no exercise of the (i) Warrants; (ii) Underwriter's over-allotment
option; and (iii) Underwriter's Warrants.
24
<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.
25
<PAGE>
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.
26
<PAGE>
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.
27
<PAGE>
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
28
<PAGE>
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. There can be no assurance
that the Company will be able to consummate any acquisitions, establish
manufacturing relationships in China or achieve any of its growth strategies.
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 1997. To date, the Company has no written contracts or arrangements with
any manufacturer located in China and there can be no assurance that the Company
will be able to enter into any such contracts or arrangements on favorable
terms, if at all. 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 EHC, a wholly-owned subsidiary, 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
29
<PAGE>
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, 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 CDP, a wholly-owned subsidiary, 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 1997, 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--Risks Relating to Manufacturing in China' and '-- Developmental
Stage Product; No Assurance of Market Acceptance.'
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 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 developed a pre-production model of the Pull Pack(Trademark) in
June 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
30
<PAGE>
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 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, music chains and catalogs. 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 31, 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 31, 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, although with no assurance, 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
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<PAGE>
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.
The Ultratherm(Registered)
The Company, through DTI, a wholly-owned subsidiary, entered into an
exclusive worldwide license agreement, dated as of February 1, 1998, with Dr.
Richard Deutsch, the inventor of the Ultratherm(Registered), to arrange for the
manufacture, marketing and sale of the Ultratherm(Registered) for the life of
the patent. Pursuant to the license agreement, the Company is obligated to pay
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. 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, 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, although with no assurance, full-scale manufacturing of the
Ultratherm(Registered) at such reduced costs by the end of 1998. See 'Risk
Factors--Developmental Stage Product; No Assurance of Market Acceptance.'
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
32
<PAGE>
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--Lack of Profits of DTI,
a Wholly-Owned Subsidiary; Initial Manufacturing Phase of the
Ultratherm(Registered).'
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.'
If and when 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 in China
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 and through catalogs
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.'
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<PAGE>
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.
PATENTS, TRADEMARKS, LICENSES AND ROYALTY RIGHTS
The Company, through CDP, a wholly-owned subsidiary, 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 payable within 30 days of receipt; 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.
EHC has submitted patent applications on a spring locking release apparatus
and a tactile detent knob. However, there can be no assurance that any patents
will issue.
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<PAGE>
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.'
EMPLOYEES
As of July 1, 1998, the Company had a total of 91 employees. 25 of these
employees work on a part-time basis. 40 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 76 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 August 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. In 1998,
the real estate taxes were approximately $32,000. 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.
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<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. See 'Certain Transactions.'
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. See 'Certain Transactions.'
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. See 'Certain
Transactions.'
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 a 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 a director. Mr.
Koerner has been a practicing attorney since 1976 and is a managing partner in
the law firm of Koerner Silberberg & Weiner, LLP. Mr. Koerner established
Koerner Silberberg & Weiner, LLP, in 1986 and has served as 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 'Certain Transactions' and
'Legal Matters.'
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<PAGE>
Mitchell Solomon joined the Company in 1998 as a 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 directors, Carl Seldin Koerner 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, Mr. Koerner 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 exchange for the
issuance to Mr. Kassel of a promissory note bearing interest at a rate equal
to 6% per annum 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
37
<PAGE>
entitled to full compensation for the remainder of the Term. If the Executive
resigns, his compensation ceases as 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
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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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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the Effective Date 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.
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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 will acquire,
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 the Company's Common Stock 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 effected on May 29, 1998
in return for a nonrecourse promissory note (the '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 (the 'Maturity
Date') or earlier as provided in the Note. None of the principal amount of the
Note has been paid to date and no principal or interest payments are due before
the Maturity Date. Mr. Gillings will not have any voting rights with respect to
the transferred shares prior to the Maturity Date. However, in the event that
Mr. Kassel defaults on the Note by failing to fully pay the principal and
interest due within 30 days after the Maturity Date, Mr. Gillings retains the
right to demand return of the shares and either hold such shares, in which case
he will retain all voting rights thereto, or to sell such shares in a public or
private sale in accordance with all applicable rules and regulations under the
Securities Act.
The Reorganization exchange is an arm's-length transaction acceptable to
each of the parties based upon the above-referenced 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%. Pursuant to a
rider of 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. In 1998, the real estate taxes were approximately
$32,000. 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. See 'Certain Transactions.'
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 provide that upon any default under the Term
Loan, the bank may immediately cause the related note to be due and payable by
the guarantors. See 'Certain Transactions.'
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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 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 guaranteed 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 has stated that it 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 advanced by Mr. Kassel are represented by the following four
notes: (i) a promissory note, dated September 13, 1994, from EHC in favor of
David Kassel Defined Benefit for the principal amount of $125,000, bearing
interest at a rate of 10% per annum, payable in monthly installments of
approximately $2,656 per month, and maturing on September 13, 1999, (ii) a
promissory note, dated August 1, 1996, from EHC in favor of Kassel MGT Defined
Benefit for the principal amount of $219,483, bearing interest at a rate of 10%
per annum, payable in 60 monthly installments of approximately $4,633 per month,
(iii) a promissory note, dated December 31, 1997, from EHC in favor of Mr.
Kassel for the principal amount of $150,000, bearing interest at a rate of 6%
per annum and maturing on January 1, 1999 (the '$150,000 Note') and (iv) a
promissory note, dated January 1, 1998, from CDP in favor of Mr. Kassel for the
principal amount of $107,500, bearing interest at a rate of 10% per annum and
maturing on January 1, 1999 (the '$107,500 Note'). The Company will pay the
principal amount and accrued interest of the $150,000 Note with the proceeds of
this Offering. The Company has guaranteed the repayment of the $107,500 Note.
See 'Risk Factors--Offering Proceeds to Benefit Officers, Directors and
Principal Stockholders,' 'Use of Proceeds' and 'Certain Transactions.'
The loans advanced by Mr. Goodman are represented by the following two
notes: (i) a demand negotiable promissory note, dated September 1, 1994, from
EHC in favor of Mr. Goodman for the principal amount of $125,000, bearing
interest at a rate of 10% per annum and payable over five years and (ii) a
demand negotiable promissory note, dated August 1, 1996, from EHC in favor of
Mr. Goodman, for the principal amount of $175,000 bearing interest at a rate of
10% per annum and payable over five years. See 'Certain Transactions.'
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;
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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 net 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
realized an overall gross profit margin of 37% for the three months ended March
28, 1998 and 30% for the three months ended March 29, 1997, compared with a
gross profit margin for AFC products of 12% for the three months ended March 28,
1998 and 23% 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 net
profit on such sales was $30,000 for the year ended December 27, 1997 and
$20,000 for the year ended December 28, 1996. The Company realized an overall
gross profit margin of 37% for the year ended December 27, 1997 and 32% for the
year ended December 28, 1996, compared with a gross profit margin for AFC
products of 16% for the year ended December 27, 1997 and 13% for the year ended
December 28, 1996. The products sold to AFC during these periods consisted of
custom molded products, which do not require any secondary operations such as
machining, painting, printing and finishing. As a result, manufacturing
operations for such products are reduced or eliminated and the Company earns a
lower gross profit margin.
Ms. Bao-Wen Chen, a director of the Company, also provides consulting
services to the Company on behalf of her company, B.C. China Business
Consulting, 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 on the Effective Date an aggregate amount of (i) 25,000 shares of
unregistered Common Stock to be issued annually in 5,000 share increments,
commencing on the Effective Date and (ii) 25,000 options granted pursuant to the
Grant Plan, vesting annually in 5,000 option increments, exercisable at $4.50
per share, commencing on the Effective Date and terminating on the tenth
anniversary of the Effective Date. 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 and
options are no less favorable to the Company than consideration it would pay to
other third party consultants, as the Consultant's consideration was determined
through arms' length transactions between the Consultant and the Company at a
time when the Consultant was not affiliated in any way with the Company. See
'Management-- Stock Option and Grant Plan.'
Carl Seldin Koerner, a director of the Company, 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. See 'Legal Matters.'
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.
STOCKHOLDERS' AGREEMENT
The Company intends to enter into the Stockholders' Agreement with David
Kassel, Harry Goodman and Andrew Franzone (collectively, the 'Stockholders') the
day immediately preceding the Effective Date. Pursuant to the Stockholders'
Agreement, each Stockholder covenants that he will not, directly or indirectly,
sell, transfer, assign, pledge, option, mortgage, hypothecate or otherwise
dispose of or encumber his respective shares of the Company's Common Stock other
than (i) to a permitted transferee,
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including the Stockholder's estate, immediate family or trust established for
the benefit thereof, and such transferee agrees to be bound by the Stockholders'
Agreement, (ii) pursuant to an effective registration statement under the
Securities Act or (iii) pursuant to an exemption from registration afforded by
the Securities Act. Upon the death of any Stockholder, the estate of such
deceased Stockholder has the right (i) to cause the Company to redeem 250,000
shares of Common Stock of the deceased Stockholder for an aggregate of $500,000
only to the extent that the Company receives proceeds from life insurance
policies on the life of such Stockholder and (ii) to sell a number of shares of
Common Stock of the deceased Stockholder in accordance with Rule 144 promulgated
under the Securities Act; provided, however, that in no event shall the estate
of a deceased Stockholder be permitted to sell more than 25,000 shares of Common
Stock of the Stockholder within any three-month period. Also, the Stockholders
have been granted certain 'piggyback' and demand registration rights with
respect to their shares of Common Stock. Notwithstanding, the Stockholders have
entered into a letter agreement with the Company and Underwriter thereby waiving
their registration rights for a two-year period, commencing upon the completion
of this Offering. See 'Risk Factors--Dependence on Key Personnel; --Offering
Proceeds to Benefit Officers, Directors and Principal Stockholders; --Shares
Eligible for Future Sale; Registration Rights' and 'Description of
Securities--Registration Rights.'
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 $500,000. See 'Risk
Factors--Dependence on Key Personnel;' and '--Offering Proceeds to Benefit
Officers, Directors and Principal Stockholders.'
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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 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
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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 one year 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.
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.
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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 160% 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.'
REGISTRATION RIGHTS
Pursuant to the Stockholders' Agreement between the Company and Messrs.
Kassel, Goodman and Franzone (the 'Selling Stockholders'), holders of an
aggregate of 1,900,000 shares of Common Stock (the 'Registrable Shares'), the
Selling Stockholders have certain 'piggyback' and demand registration rights. If
the Company at any time proposes to register any shares of Common Stock under
the Securities Act by registration on Form S-1, SB-2 or any successor or similar
form(s), whether or not for sale for its own account (other than registration 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 the
Registrable Shares, the Company shall notify the Selling Stockholders and permit
such stockholders to include their Registrable Shares in such registration
statement. If the registration statement is an underwritten offering, only the
Registrable Shares which are to be distributed by the underwriters may be
included in the registration statement, subject to the managing underwriter's
consent. If the underwriter advises the Company that such inclusion would be
disadvantageous to its underwriting effort, the Company will include in such
registration statement (i) first, the 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 'piggyback' registration
rights prior to those which the Selling Stockholders propose to register,
allocated among the Company and such stockholders in accordance with any
agreement among the Company and such stockholders; and (ii) second, the
Registrable Shares which the Selling Stockholders propose to register and shares
of Common Stock or options, warrants or other securities convertible into Common
Stock of any other holders who are entitled to 'piggyback' registration rights
in proportion to the number of shares of Common Stock which the Selling
Stockholders propose to register.
The Selling Stockholders also have demand registration rights pursuant to
the Stockholders' Agreement. Pursuant to such agreement, at any time subsequent
to this Offering and any time which the Company is not restricted from effecting
a second registration pursuant to any applicable law, any one of the Selling
Stockholders holding an aggregate of 7% of the outstanding shares of Common
Stock may request that the Company effect a registration statement including
such stockholder's Registrable Shares. Upon request, the Company must notify the
other Selling Stockholders of the exercising stockholder's request, and use its
best efforts to effect the registration of: (i) the Registrable Shares which the
Company has been so requested to register by the Selling Stockholder and (ii)
all other Registrable Shares owned by Selling Stockholders, the others of which
shall have made a written request to the Company for registration thereof. Each
of the Selling Stockholders has waived his 'piggyback' and demand registration
rights for a two-year period, commencing upon the completion of this Offering,
and has entered into an agreement with the Underwriter whereby he agrees not to
effect any disposition of his Registrable Shares for a two-year period,
commencing upon the completion of this Offering, without the prior written
consent of the Underwriter. Notwithstanding, the exercise by one or more of
these registration rights may involve a substantial expense to the Company and
may adversely affect the terms upon which the Company may obtain additional
financing. See 'Management--Employment Agreements,' 'Description of Securities--
Registration Rights' and 'Shares Eligible for Future Sale.'
47
<PAGE>
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 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.
48
<PAGE>
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.
Notwithstanding, pursuant to the Stockholders' Agreement, 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 and the Consultant) without the consent of the
Underwriter. See 'Risk Factors--Dependence on Key Personnel; --Offering Proceeds
to Benefit Officers, Directors and Principal Stockholders' and 'Certain
Transactions.'
Pursuant to the Stockholders' Agreement, each of the Selling Stockholders,
holders of an aggregate of 1,900,000 shares of Common Stock (the 'Registrable
Shares') at the date of this Prospectus, is entitled to certain demand and
'piggyback' registration rights with respect to such Registrable Shares pursuant
to the Stockholders' Agreement. Any Selling Stockholder holding an aggregate of
7% of the outstanding shares of Common Stock may request that the Company file a
registration statement under the Securities Act, and subject to certain
conditions, the Company generally will be required to use its best efforts to
effect any such registration. In addition, if the Company proposes to register
any of its securities, either for its own account or for the account of other
stockholders, the Company is required, with certain exceptions, to notify the
Selling Stockholders and, subject to certain limitations, to include in such
registration statement all the Registrable Shares requested to be included by
such Selling Stockholders. The Company is generally obligated to bear the
expenses, other than underwriting discounts and sales commissions of these
registrations. Each of the Selling Stockholders has waived his 'piggyback' and
demand registration rights for a two-year period, commencing upon the completion
of this Offering, and has entered into an agreement with the Underwriter whereby
he agrees not to effect any disposition of his shares of Common Stock for a
two-year period, commencing upon the completion of this Offering, without the
prior written consent of the Underwriter. Notwithstanding, the exercise by one
or more of these registration rights may involve a substantial expense to the
Company and may adversely affect the terms upon which the Company may obtain
additional financing. See 'Risk Factors--Shares Eligible for Future Sale;
Registration Rights,' 'Management--Employment Agreements' and 'Description of
Securities.'
49
<PAGE>
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.
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 160% 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, even though at such time
the Common Stock of the Company may have a fair market value at less than
50
<PAGE>
$2.00 per share, resulting in dilution to stockholders and an expenditure of the
Company's capital even if such expenditures would adversely affect the Company's
liquidity and financial resources. 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 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
51
<PAGE>
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
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 directors of the Company. See 'Management' and '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.
52
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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 28, 1998
PRO FORMA(1) DECEMBER 27, 1997
MARCH 28, 1998 -------------- -----------------
-------------- (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
28, 1998.
See notes to Consolidated 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 Consolidated 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 Consolidated 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 Consolidated 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. After the reorganization, 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 purchase of a controlled interest commencing on the date
of the transaction.
DTI, which was formed in November 1997 as a wholly owned subsidiary of
International, has not commenced operations as of December 27, 1997. In March
1998, International contributed $1,000 for the shares of DTI.
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 the shorter of the estimated useful life of the
improvements, which is 10 years, or the life of the lease.
(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 27, 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 $500,000 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 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>
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 March 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 purchase of a controlled interest commencing on the date of
the transaction.
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>
DURALOGIC TECHNOLOGIES, INC. a wholly-owned subsidiary of International
Plastic Technologies, Inc.
===============================================================================
ULTRATHERM(R) Hot/Cold Massager
A photograph in the upper right corner of the page showing two models of the
Ultratherm(Registered), one standing up straight and the other laying down.
The Ultratherm(R) 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(R) 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(R), patented and currently being sold through specialty
catalogs and stores, was awarded Editors' Choice with a four star rating by Golf
Magazine in 1996. The Ultratherm(R) is currently under small-scale manufacturing
and the Company's goal is to implement full-scale manufacturing by the end of
1998.
COMPACT DISC PACKAGING CORP. a wholly-owned subsidiary of International Plastic
Technologies, Inc.
===============================================================================
The Pull Pack(TM) Plastic CD ROM Tray
Two photographs, each of the prototype model of the Pull Pack(Trademark).
The photograph on the far left shows two hands opening the prototype Pull
Pack(Trademark) packaging. The second photograph shows two hands removing a
Compact Disc from the Pull Pack(Trademark) packaging system.
Convenient and reliable, the Pull Pack(TM) offers a simple and effective
solution to problems associated with conventional disc packaging.
The Pull Pack(TM) is a redesigned "Jewel Box," the packaging used currently for
Compact Discs, CD ROMs and Digital Video Discs ("DVD"). The Pull Pack(TM) is a
prototype in the developmental stage which the Company plans, with no assurance,
to have manufactured. See "Business".
The patented Pull Pack(TM) 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.
ELECTRONIC HARDWARE CORP. a wholly-owned subsidiary of International Plastic
Technologies, Inc. website:http://www.ehcknobs.com
===============================================================================
EHC [LOGO]
KNOBS
MECHANICAL DEVICES
CUSTOM MOLDING
Photograph of various knobs and assemblies manufactured by EHC interspersed
throughout the page.
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.
<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................................. 20
Dividend Policy................................. 22
Dilution........................................ 23
Capitalization.................................. 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business........................................ 28
Management...................................... 36
Principal Stockholders.......................... 40
Certain Transactions............................ 41
Description of Securities....................... 45
Shares Eligible for Future Sale................. 49
Underwriting.................................... 50
Legal Matters................................... 52
Experts......................................... 52
Additional Information.......................... 52
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.
[LOGO]
1,250,000 SHARES
OF COMMON STOCK
AND
1,250,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
------------------------
PROSPECTUS
------------------------
, 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
Set forth below is an estimate of the fees and expenses payable by the
Company in connection with the issuance and distribution of the Common Stock.
<TABLE>
<S> <C>
SEC Registration............................................................... $ 4,675.00
NASD Filing Fee................................................................ 2,079.00
Nasdaq Listing Fee............................................................. 9,500.00
Boston Stock Exchange Listing Fee.............................................. 14,750.00
Transfer Agent Fee............................................................. 2,500.00
Printing and Engraving Costs................................................... 100,000.00
Legal Fees and Expenses........................................................ 250,000.00
Accounting Fees and Expenses................................................... 150,000.00
Blue Sky Fees and Expenses..................................................... 11,000.00
Miscellaneous.................................................................. 55,496.00
-----------
Total........................................................................ $600,000.00
-----------
-----------
</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., as amended
*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 Consulting, Inc. and Letter Agreement
between the Company and Bao-Wen Chen dated March 1, 1998, as amended
*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, Security Agreement dated February 21, 1997 and Waiver Letter
dated July 13, 1998
*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 July 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
10.21 Letter agreement between EHC and Republic National Bank of New York to release the personal guarantees
of Andrew Franzone, David Kassel and Harry Goodman dated May 14, 1998.
*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
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 July 21, 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
- ------------------------------------------ ------------------------------------------------- --------------
<C> <S> <C>
* Chief Executive Officer, President and Director July 21, 1998
- ------------------------------------------
Andrew Franzone
* Chairman of the Board July 21, 1998
- ------------------------------------------
David L. Kassel
* Vice President and Director July 21, 1998
- ------------------------------------------
Harry Goodman
* Chief Financial Officer and Controller July 21, 1998
- ------------------------------------------
Steven Sgammato
* Director July 21, 1998
- ------------------------------------------
Carl Seldin Koerner
*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., as amended
*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 Consulting, Inc. and
Letter Agreement between the Company and Bao-Wen Chen dated March 1, 1998, as amended
*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
- ---------- ------------------------------------------------------------------------------------------- ------
<S> <C> <C>
10.14 Loan Agreement between EHC and Long Island Development Corporation dated February 21, 1997,
Loan Promissory Note dated February 21, 1997, Security Agreement dated February 21, 1997
and Waiver Letter dated July 13, 1998
*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 July 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
10.21 Letter agreement between EHC and Republic National Bank of New York to release the personal
guarantees of Andrew Franzone, David L. Kassel and Harry Goodman dated May 14, 1998.
*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>
BY-LAWS
OF
INTERNATIONAL PLASTIC TECHNOLOGIES, INC.
Effective at July 1, 1998
ARTICLE I
Offices
The registered office of International Plastic Technologies, Inc.
(the "Corporation") shall be in the City of Dover, County of Kent, State of
Delaware. The Corporation also may have offices at such other places, within or
without the State of Delaware, as the Board of Directors (the "Board")
determines from time to time or the business of the Corporation requires. Until
such time as the Board otherwise determines, the Corporation shall also have an
office in the Town of Farmingdale, County of Nassau and State of New York.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. Except as otherwise provided in these
By-Laws, all meetings of the stockholders shall be held on such dates and at
such times and places, within or without the State of Delaware, as shall be
determined by the Board and as shall be stated in the notice of the meeting or
in waivers of notice thereof. If the place of any meeting is not so fixed, it
shall be held at the registered office of the Corporation in the State of
Delaware.
Section 2. Annual Meetings. The annual meeting of stockholders for
the election of directors and the transaction of such other proper business as
may be brought before the meeting shall be held on such date after the close of
the Corporation's fiscal year, and at such time, as the Board may from time to
time determine.
Section 3. Special Meetings. Special meetings of stockholders, for any
purpose or
1
<PAGE>
purposes, may be called by the Chairman of the Board, or by the Chairman of the
Board upon the request of at least 50% of the members of the Board or by
stockholders holding at least 10% of the outstanding shares entitled to vote at
a stockholders meeting.
Section 4. Notice of Meetings. Except as otherwise required by law,
whenever the stockholders are required or permitted to take any action at a
meeting, written notice thereof shall be given, stating the place, date and time
of the meeting and, unless it is the annual meeting, by or at whose direction it
is being issued. The notice also shall designate the place where the
stockholders' list is available for examination, unless the list is kept at the
place where the meeting is to be held. Notice of a special meeting also shall
state the purpose or purposes for which the meeting is called. A copy of the
notice of any meeting shall be delivered personally or shall be mailed, not less
than ten (10) or more than sixty (60) days before the date of the meeting, to
each stockholder of record entitled to vote at the meeting. If mailed, the
notice shall be given when deposited in the United States mail, postage prepaid,
and shall be directed to each stockholder at his or her address as it appears on
the record of stockholders of the Corporation, or to such other address which
such stockholder may have filed by written request with the Secretary of the
Corporation. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who attends the meeting, except when the stockholder attends the
meeting for the express purpose of objecting at the beginning thereof to the
transaction of any business because the meeting is not lawfully called or
convened, or by any stockholder who submits, either before or after the meeting,
a signed waiver of notice. Unless the Board, after the adjournment of a meeting,
shall fix a new record date for the adjourned meeting or unless the adjournment
is for more than thirty (30) days, notice of an adjourned meeting need not be
given if the place, date and time to which the meeting shall be adjourned are
announced at the meeting at which the adjournment is taken.
Section 5. Quorum. Except as otherwise provided by law or, by the
Certificate of Incorporation of the Corporation, at all meetings of
stockholders, the holders of a majority of the outstanding shares of the
Corporation entitled to vote at the meeting shall be present in person or
represented by proxy in order to constitute a quorum for the transaction of
business.
2
<PAGE>
Section 6. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, at all meetings of the
stockholders, every stockholder of record having the right to vote thereat shall
be entitled to one vote for every share of stock standing in his or her name as
of the record date and entitling him or her to so vote. A stockholder may vote
in person or by proxy. Except as otherwise provided by law or by the Certificate
of Incorporation of the Corporation, any corporate action to be taken by a vote
of the stockholders, other than the election of directors, shall be authorized
by not less than a majority of the votes cast at a meeting by the stockholders
present in person or by proxy and entitled to vote thereon. Directors shall be
elected as provided in Section 3 of Article III of these By-Laws. Written
ballots shall not be required for voting on any matter unless ordered by the
Secretary of the meeting.
Section 7. Proxies. Every proxy shall be executed in writing by the
stockholder or by his or her attorney-in-fact, or otherwise as provided in the
General Corporation Law of the State of Delaware (the "General Corporation
Law").
Section 8. List of Stockholders. At least ten (10) days before
every meeting of stockholders, a list of the stockholders (including their
addresses) entitled to vote at the meeting and their record holdings as of the
record date shall be open for examination by any stockholder, for any purpose
germane to the meeting, during ordinary business hours, at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held, The list also shall be kept at and throughout the meeting, and
may be inspected by any stockholder who is present.
Section 9. Conduct of Meetings. At each meeting of the stockholders,
the Chairman of the Board or, in his or her absence, a director chosen by a
majority of the directors then in office shall act as chairman of the meeting.
The Secretary or, in his or her absence, any person appointed by the chairman of
the meeting shall act as secretary of the meeting and shall keep the minutes
thereof. Except as otherwise provided by law, at any annual or special meeting
of
3
<PAGE>
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. Such business must have either been: (A) brought
before the meeting at the direction of the chairman of the meeting; or (B)
specified in a written notice given by or on behalf of a stockholder of record
on the record date for such meeting entitled to vote thereat or a duly
authorized proxy for such stockholder; provided, that the following actions, as
described below, are taken. A notice must be delivered personally to, or mailed
to and received at, the principal executive office of the Corporation, addressed
to the attention of the Secretary, not less than sixty (60) days nor more than
ninety (90) days prior to the meeting; provided, however, that in the event that
less than seventy (70) days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual or special
meeting was mailed or such public disclosure was made, whichever first occurs.
Such notice shall set forth: (i) a description of each such item of business
proposed to be brought before the meeting and the reasons for conducting such
business at such meeting; (ii) the name and address of the person proposing to
bring such business before the meeting; (iii) the class and number of shares
held of record, held beneficially and represented by proxy by such person as of
the record date for the meeting (if such date has then been made publicly
available) and as of the date of such notice; and (iv) any material interest of
the stockholder in such item of business. No business shall be brought before
any meeting of stockholders of the Corporation otherwise than as provided in
this Section 9. The chairman of the meeting may, if the facts warrant, determine
that a stockholder proposal was not made in accordance with the foregoing
procedure, and if he or she should so determine, he or she shall so declare to
the meeting and the defective proposal shall be disregarded.
Section 10. Written Consent to Action in Lieu of a Meeting.
Stockholders may take such action by written consent as shall be permitted by
section 228 of the General Corporation Law provided, however, that if at any
time a class of stock of the Corporation becomes registered pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations of The Securities and Exchange Commission and such stock is
being traded on a
4
<PAGE>
nationally recognized exchange, any action to be taken at any annual or special
meeting of stockholders must be taken at a meeting.
ARTICLE III
Board
Section 1. Number of Board Members. The business, property and affairs
of the Corporation shall be managed under the direction of the Board, which
shall consist of five directors. Directors need not be stockholders of the
Corporation. The number of directors may be reduced or increased from time to
time by action of a majority of the entire Board, but no decrease may shorten
the term of an incumbent director. When used in these By-Laws, the phrase
"entire Board" means the total number of directors which the Corporation would
have if there were no vacancies.
Section 2. Nomination. Only persons who are nominated in accordance
with the procedures set forth in these By-Laws shall be eligible to serve as
directors of the Corporation. Nominations of persons for election to the Board
of the Corporation may be made at a meeting of stockholders (a) by or at the
direction of the Board or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 2, who shall be entitled to vote for the election of directors at the
meeting and who complies with the notice procedures set forth in this Section 2.
Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy (70) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice the date of meeting or such public disclosure was made. Such
stockholder's notice shall set forth (x) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act; and (y) as to the stockholder
giving the notice (A) the name and address, as they appear on the Corporation's
books, of such stockholder and (B) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. At the request of
the Board, any person nominated by the Board for election as a director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the By-Laws, and if he or she should so determine, he or she shall
so declare to the
5
<PAGE>
meeting and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of this Section 2, a stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section.
Section 3. Election and Term. Except as otherwise provided by law, by
the Certificate of Incorporation of the Corporation or by these By-Laws, the
directors shall be elected at the annual meeting of the stockholders and the
persons receiving a plurality of the votes cast shall be so elected. Subject to
a director's earlier death, resignation or removal as provided in Sections 4 and
5 of this Article III, each director shall hold office until his or her
successor shall have been duly elected and shall have qualified.
Section 4. Removal. A director may be removed at any time, with or
without cause, by the vote of the holders of a majority of the outstanding
shares of the Corporation entitled to vote at an election of directors.
Section 5. Resignations. Any director may resign at any time by
giving written notice of his or her resignation to the Corporation. A
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein immediately upon its
receipt, and, unless otherwise specified therein, the acceptance of a
resignation shall not be necessary to make it effective.
Section 6. Vacancies. Except as otherwise provided by the
Certificate of Incorporation of the Corporation, any vacancy in the Board
arising from an increase in the number of directors or otherwise shall be filled
only by the vote of a majority of the directors then in office. Subject to his
or her earlier death, removal or resignation as provided in Sections 4 and 5 of
this Article III, each director so elected shall hold office until his successor
shall have been duly elected and shall have qualified.
Section 7. Place of Meetings. Except as otherwise provided in these
By-Laws, all meetings of the Board shall be held at such places, within or
without the State of Delaware, as the Board determines from time to time.
Section 8. Annual Meeting. The annual meeting of the Board shall be
held either (a) without notice immediately after the annual meeting of
stockholders and in the same place, or (b) as soon as practicable after the
annual meeting of stockholders on such date and at such time and place as the
Board determines.
Section 9. Regular Meetings. Regular meetings of the Board shall be
held on such dates and at such places and times as the Board determines. Notice
of regular meetings need not be given, except as otherwise required by law.
Section 10. Special Meetings. Special meetings of the Board may be
called by the
6
<PAGE>
Chairman of the Board and shall be called by the Chairman of the Board or the
Secretary upon the written request of not less than a majority of directors. The
request shall state the date, time, place and purpose or purposes of the
proposed meeting.
Section 11. Notice of Meetings. Notice of each special meeting of the
Board (and of each annual meeting held pursuant to subdivision (b) of Section 8
of this Article III) shall be given, not later than 24 hours before the meeting
is scheduled to commence, by the Chairman of the Board or the secretary and
shall state the place, date and time of the meeting. Notice of each meeting may
be delivered to a director by hand or given to a director orally (whether by
telephone or in person) or mailed or telecopied to a director at his or her
residence or usual place of business, provided, however, that if notice of less
than 72 hours is given it may not be mailed. If mailed, the notice shall be
deemed to have been given when deposited in the United States mail, postage
prepaid, and if telecopied, the notice shall be deemed to have been given when
oral confirmation of receipt is given. Notice of any meeting need not be given
to any director who shall submit, either before or after the meeting, a signed
waiver of notice or who shall attend the meeting, except if such director shall
attend for the express purpose of objecting at the beginning thereof to the
transaction of any business because the meeting is not lawfully called or
convened. Notice of any adjourned meeting, including the place, date and time of
the new meeting, shall be given to all directors not present at the time of the
adjournment, as well as to the other directors unless the place, date and time
of the new meeting is announced at the adjourned meeting.
Section 12. Quorum. Except as otherwise provided by law or these
By-Laws, at all meetings of the Board a majority of the entire Board shall
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board. A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another place, date and time.
Section 13. Conduct of Meetings. At each meeting of the Board, the
secretary of the Board or, in his or her absence, a director chosen by a
majority of the directors present shall act as secretary of the meeting. The
secretary or, in his or her absence, any person appointed by the secretary of
the meeting shall act as secretary of the meeting and keep the minutes thereof.
The order of business at all meetings of the Board shall be as determined by the
secretary of the meeting.
Section 14. Committees of the Board. The Board, by resolution adopted
by a majority of the entire Board, may designate an audit committee,
compensation committee, executive committee and other committees, each
consisting of one (1) or more directors. Each committee (including the members
thereof) shall serve at the pleasure of the Board and shall keep minutes of its
meetings and report the same to the Board. The Board may designate one or more
directors as alternate members of any committee. Alternate members may replace
any absent or disqualified member or members at any meeting of a committee.
Except as limited by law, each committee, to the extent provided in the
resolution establishing it, shall have and may exercise all
7
<PAGE>
the powers and authority of the Board with respect to all matters.
Section 15. Operation of Committees. A majority of all of the
members of a committee shall constitute a quorum for the transaction of
business, and the vote of a majority of all the members of a committee present
at a meeting at which a quorum is present shall be the act of the committee.
Each committee shall adopt whatever other rules of procedure it determines for
the conduct of its activities.
Section 16. Written Consent to Action in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board or of any
committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 17. Meetings Held Other Than in Person. Members of the
Board or any committee may participate in a meeting of the Board or committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and such participation shall constitute presence in
person at the meeting.
ARTICLE IV
Officers
Section 1. Executive Officers Etc.. The executive officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board also may elect or appoint one or more Vice Presidents (any
of whom may be designated as Executive Vice Presidents, Senior Vice Presidents
or otherwise), and any other officers it deems necessary or desirable for the
conduct of the business of the Corporation, each of whom shall have such powers
and duties as the Board determines.
Section 2. Duties.
(a) The Chairman of the Board. The Chairman of the Board shall
be a member of the Board. The Chairman of the Board of Directors shall preside
at all meetings of the stockholders and the Board.
(b) The President. The President shall perform, in the absence
or disability of the Chairman of the Board, the duties and exercise the powers
of the Chairman of the Board and shall have such other powers and duties as the
Board or the Chairman of the Board assigns to him or to her.
(c) The Vice President. The Vice President or, if there shall
be more than one, the Vice Presidents, if any, in the order of their seniority
or in any other order determined by
8
<PAGE>
the Board, shall perform, in the absence or disability of the President, the
duties and exercise the powers of the President and shall have such other powers
and duties as the Board or the President assigns to him or to her or to them.
(d) The Secretary. Except as otherwise provided in these
By-Laws or as directed by the Board, the Secretary shall attend all meetings of
the stockholders and the Board; shall record the minutes of all proceedings in
books to be kept for that purpose; shall give notice of all meetings of the
stockholders. and special meetings of the Board; and shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, shall affix the
same to any corporate instrument. The Secretary shall have such other powers and
duties as the Board or the Chairman of the Board assigns to him or her.
(e) The Treasurer. Subject to the control of the Board,
the Treasurer shall have the care and custody of the corporate funds and the
books relating thereto; shall perform all other duties incident to the office of
treasurer; and shall have such other powers and duties as the Board or Chairman
of the Board assigns to him or her.
Section 3. Election; Removal. Subject to his or her earlier death,
resignation or removal, as hereinafter provided, each officer shall hold his or
her office until his or her successor shall have been duly elected and shall
have qualified. Any officer may be removed at any time with or without cause by
the Board.
Section 4. Resignations. Any officer may resign at any time by giving
written notice of his resignation to the Corporation. A resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 5. Vacancies. If an office becomes vacant for any reason, the
Board or the stockholders may fill the vacancy, and each officer so elected
shall serve for the remainder of his or her predecessor's term and until his
successor shall have been elected or appointed and shall have qualified.
ARTICLE V
Provisions Relating to Stock Certificates and Stockholders
Section 1. Certificates. Certificates for the Corporation's capital
stock shall be in such form as required by law and as approved by the Board.
Each certificate shall be signed in the name of the Corporation by the
Secretary, or the Chairman of the Board or President or any Vice President and
by the Secretary, the Treasurer or any Assistant Secretary or any Assistant
Treasurer and shall bear the seal of the Corporation or a facsimile thereof. If
any certificate is countersigned by a transfer agent or registered by a
registrar, other than the Corporation or its
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<PAGE>
employees, the signature of any officer of the Corporation may be a facsimile
signature. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature as placed on any certificate shall have
ceased to be such officer, transfer agent or registrar before the certificate
shall be issued, it may nevertheless be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of the issue.
Section 2. Lost Certificates, etc. The Corporation may issue a
new certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed, and the Board may
require the owner of the lost, mutilated, stolen or destroyed certificate, or
his or her legal representatives, to make an affidavit of that fact and to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation on account of the alleged loss,
mutilation, theft or destruction of the certificate or the issuance of a new
Certificate.
Section 3. Transfers of Shares. Transfers of shares shall be
registered on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 4. Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or for the purpose of determining stockholders entitled
to receive payment of any dividend or other distribution or the allotment of any
rights, or for the purpose of any other action, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of any such meeting
and shall not be more than sixty (60) days prior to any other action.
ARTICLE VI
Indemnification
Section 1. Indemnification. The Corporation shall, to the fullest
extent permitted by the General Corporation Law (including, without limitation,
Section 145 thereof) or other provisions of the laws of Delaware relating to
indemnification of directors, officers, employees and agents, as the same may be
amended and supplemented from time to time, indemnify any and all such persons
whom it shall have power to indemnify under the General Corporation Law or such
other provisions of law.
Section 2. Statutory Indemnification. Without limiting the generality
of Section 1 of this Article VI, to the fullest extent permitted, and subject to
the conditions imposed, by law, and pursuant to Section 145 of the General
Corporation Law unless otherwise determined by the Board of Directors:
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<PAGE>
(i) the Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against reasonable expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
(ii) the Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against reasonable expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, except as
otherwise provided by law.
Section 3. Indemnification by Resolution of Stockholders or Directors
of Agreement. To the fullest extent permitted by law, indemnification may be
granted, and expenses may be advanced, to the persons described in Section 145
of the General Corporation Law or other provisions of the laws of Delaware
relating to indemnification and advancement of expenses, as from time to time
may be in effect, by (i) a resolution of stockholders, (ii) a resolution of the
Board, or (iii) an agreement providing for such indemnification and advancement
of expenses; provided that no indemnification may be made to or on behalf of any
person if a judgment or other final adjudication adverse to the person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that such person personally gained in fact a financial
profit or other advantage to which such person was not legally entitled.
Section 4. General. It is the intent of this Article VI to require the
Corporation to indemnify the persons referred to herein for judgments, fines,
penalties, amounts paid in settlement and expenses (including attorneys' fees),
and to advance expenses to such persons, in each and every circumstance in which
such indemnification and such advancement of expenses could lawfully be
permitted by express provision of By-Laws, and the indemnification and expense
advancement provided by this Article VI shall not be limited by the absence of
an express recital of such circumstances. The indemnification and advancement of
expenses provided by, or granted pursuant to, these By-Laws shall not be deemed
exclusive of any other
11
<PAGE>
rights to which a person seeking indemnification or advancement of expenses may
be entitled, whether as a matter of law, under any provision of the Certificate
of Incorporation of the Corporation or these By-Laws, by agreement, by vote of
stockholders or disinterested directors of the Corporation or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Section 5. Indemnification Benefits. Indemnification pursuant to these
By-Laws shall inure to the benefit of the heirs executors, administrators and
personal representatives of those entitled to indemnification.
ARTICLE VII
General Provisions
Section 1. Dividends Etc. To the extent permitted by law, the Board
shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation of the Corporation and the terms of any other
corporate document or instrument binding upon the Corporation, to determine
what, if any, dividends or distributions shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such form as is
required by law and as shall be approved by the Board.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board.
Section 4. Voting Shares in Other Corporations. Unless otherwise
directed by the Board, shares in other corporations which are held by the
Corporation shall be represented and voted only by the Chairman of the Board or
by a proxy or proxies appointed by him or her.
ARTICLE VIII
Amendment
By-Laws may be made, altered or repealed by the Board, subject to the
right of stockholders to alter or repeal any By-Laws made by the Board.
12
<PAGE>
CONSULTING SERVICES AGREEMENT
This Agreement, made as of the 1st day of March, 1998, between
International Plastic Technologies, Inc., a Delaware corporation (the
"Company"), and B.C. China Business, Inc., a New York corporation (the
"Consultant")
WHEREAS, the Company wishes to arrange for the outsourcing of a portion
of its manufacturing needs to independent contractors in the People's Republic
of China (the "Territory"); and
WHEREAS, the Consultant presently maintains close professional
relationships with certain manufactures in the Territory; and
WHEREAS, the Company desires to contract for the consulting services of
the Consultant and the Consultant desires to perform such consulting services on
behalf of the Company;
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. Term. The Company hereby retains the Consultant and the Consultant
hereby accepts such retainer, for a term (the "Term") commencing as of the date
first written above and ending on March 1, 2008.
2. Services. The Consultant agrees to perform for the Company, on a
non-exclusive basis, the following services:
(a) Provision of general consulting services to the Company and the
Company's personnel in connection with, and in furtherance of, the development
and expansion of the Company's business in the Territory, the development of new
business ventures in the Territory, and the various day-to-day activities of the
Company in the management of its business in the Territory; and
(b) Provision of general consulting services on such matters as may be
requested by the Board of Directors or the President of the Company.
3. Cash Compensation.
(a) During the first twelve (12) month period of the Term, the Company
shall pay the Consultant Fifty Dollars ($50.00) per hour and (i) an amount
equivalent to one and one half per cent (1.5%) of the Net Cost (as defined
below) of all products manufactured in the Territory at the Company's request up
to a Net Cost of $5,000,000.00 per year, plus one per cent (1%) of the
<PAGE>
portion of Net Cost which exceeds $5,000,000.00 per year (the "Commission"); and
(ii) all reasonable expenses incurred by the Consultant in performing her duties
hereunder.
(b) Net Cost shall be defined for purposes of this Agreement as the
aggregate invoice price of the products manufactured in the Territory, less the
cost of shipping and any returns.
(c) The Consultant's compensation as set forth above will be reviewed
by the Company at the end of the initial twelve (12) month period.
(d) Provided that the Consultant has not breached the provisions of
this Agreement in any way and does not extend the Term, the Consultant's
Commission will continue so long as the product is being purchased by sources
developed by the Consultant.
4. Stock Compensation.
(a) Stock Grants. The Consultant will receive a minimum of 5,000 shares
of unregistered common stock of the Company upon the date that the Company's
registration for an initial public offering is declared effective by the
Securities and Exchange Commission (the "Effective Date"). The Consultant shall
receive a minimum of 5,000 unregistered shares of common stock of the Company on
each anniversary of the Effective Date for four years following the Effective
Date.
(b) Option Grants. The Consultant will receive a minimum of 5,000
options to purchase common stock of the Company on the Effective Date. The
Consultant shall receive 5,000 options on each anniversary of the Effective Date
for four years following the Effective Date. The exercise price of the options
will be $4.50.
5. Consultant's Covenants. During the Term and thereafter, the Consultant
shall keep secret and retain in strictest confidence, and shall not use for her
benefit or the benefit of others, except in connection with the business and
affairs of the Company and its affiliates, all confidential matters relating to
the present business and any other principal line of business developed by the
Company during the Term (hereinafter collectively referred to as the "Company
Business") and shall not disclose them to anyone except with the Company's
express written consent. These rights of the Company are in addition to and
without limitation to those rights and remedies available under common law for
protection of the types of such confidential information which constitute "trade
secrets" as construed under controlling law.
6. Miscellaneous.
(a) This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto. This Agreement may be amended,
superseded, canceled, renewed or extended, only by a written instrument signed
by both parties.
2
<PAGE>
(b) This Agreement, and the Consultant's rights and obligations
hereunder, may not be assigned by the Consultant (other than to a corporation
the majority of whose shares are owned by the Consultant, provided that the
Consultant remains solely responsible for the performance of all the services
and compliance with all the provisions of this Agreement). Any purported
assignment by the Consultant in violation hereof shall be null and void.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors, permitted assigns, heirs, executors
and legal representatives.
(d) This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original
but all such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed their names as of
the day and year first above written.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
------------------------
Andrew Franzone, President
B.C. China Business, Inc.
By: /s/ Bao-wen Chen
------------------------
Bao-wen Chen, President
3
<PAGE>
International Plastic Technologies, Inc.
320 Broad Hollow Road
Farmingdale, New York 11735
March 1, 1998
Bao-wen Chen
61 West 62nd Street
Apt. 26L
New York, New York 10023
Re: Consulting Agreement
Dear Ms Chen:
Reference is made to that certain Consulting Services
Agreement by and between International Plastic Technologies, Inc. (the
"Company") and B.C. China Business, Inc. ("BCCB") dated as of March 1, 1998 (the
"Agreement"). Capitalized terms not defined herein have the meanings attributed
to them in the Agreement.
By signing this letter below, you will confirm and acknowledge
the following:
1. The Company has entered into a Consulting Services Agreement with BCCB
for the services of BCCB as the general consultant to the Company in
connection with the development and expansion of the Company's business
in the People's Republic of China;
2. The Company would not have entered into the Agreement without the
representation of BCCB that BCCB would be providing your services to
the Company; and
3. You agree to be available to provide your services to the Company as
required under the Agreement.
International Plastic Technologies, Inc.
By: /s/ Andrew Franzone
--------------------------------
AGREED AND ACCEPTED:
By: Bao-wen Chen
--------------------------
Bao-wen Chen
B.C. China Business Consulting, Inc.
By: /s/ Bao-wen Chen
---------------------------
Name: Bao-wen Chen
Title: President
<PAGE>
LOAN AGREEMENT
Agreement made February 21, 1997 by Electronic Hardware Corp., a New York
corporation with offices at 320 Broad Hollow Road, Farmingdale, NY 11735
(hereinafter called Borrower) and Allen Field Co. Inc., Andrew Franzone, Harry
Goodman and David Kassel, New York corporations, with offices at 320 Broad
Hollow Road, Farmingdale, NY 11735 (hereinafter called guarantors).
This agreement is made in connection with a loan of $250,000.00 to Borrower from
Long Island Development Corporation, a New York corporation with offices at 255
Executive Drive, Suite 400, Plainview, NY 11803 (hereinafter called LIDC or
lender). The loan is being made so that Borrower can make certain renovations,
purchase certain equipment and installations and/or for working capital.
Borrower has signed a note obligating itself to repay the loan. Guarantors have
signed a guarantee obligating themselves to repay the loan. Borrower and
guarantors represent and agree as follows:
1. Use of Proceeds: They will use the proceeds of the loan as permitted
by the Commitment Letter and Loan Memorandum of the Lender - New York
State Department of Economic Development Long Island Revolving Loan
Fund for Defense Diversification dated September 27, 1996 (hereinafter
the "Memorandum").
2. Financial Information: During each year of the loan term, Borrower will
submit to LIDC (a) an annual financial statement prepared by an
independent accountant in such form as LIDC may approve beginning with
its financial statement for 1996 and (b) its federal tax return
beginning with such return for FYE 1996 within 90 days of the end of
each fiscal year. Borrower agrees that LIDC may obtain said financial
statements and tax returns directly from Borrower's accountant.
3. Financial Information: During each year of the loan term, each
Guarantor will submit to LIDC (a) an annual financial statement
prepared by an independent accountant in such form as LIDC may approve
beginning with its financial statement for 1996 and (b) its federal tax
return beginning with such return for FYE 1996 within 90 days of the
end of each fiscal year. Each Guarantor agrees that LIDC may obtain
said financial statements and tax returns directly from its accountant.
4. Records: Borrower and guarantors will at all times keep proper books of
account and records regarding their operations and the premises.
Borrower and guarantors hereby authorize LIDC to make or cause to be
made, at their expense and in such manner and at such times as LIDC may
require, (a) inspections and audits of any books, records and papers in
the custody or control of borrower, guarantors or others, relating to
Borrower or guarantors' financial or business conditions, including the
making of copies thereof and extracts therefrom.
-1-
<PAGE>
Borrower and Guarantors hereby authorize all Federal. State and municipal
authorities (a) to furnish reports of examinations, records, and other
information relating, to the conditions and affairs of Borrower and guarantors
and any desired information from reports, returns, files and records of such
authorities upon request therefore by LIDC; and (b) to permit representatives of
LIDC to have full access from time to time to, and make copies of and extracts
from, any and all reports or returns by, or with respect to Borrower or
guarantors, and all reports of examiners or other information concerning
Borrower or guarantors contained in the files and records of such authorities.
Borrower and Guarantors agree to give LIDC access upon request to said
documentation for inspection and copying.
5. Reimbursable Expenses: Borrower and guarantors will, on demand,
reimburse LIDC for any and all expenses incurred, or which may be
hereafter incurred, by LIDC from time to time in connection with or by
reason of Borrower or guarantors' application for, and the making and
administration of the Loan.
6. Profits: There shall be no distribution of profits to shareholders and
no additions to the profit sharing nor pension funds of owners and
officers of Borrower unless Borrower is profitable and can afford same
in addition to payments in connection with this loan and other carrying
charges on the premises. Nothing herein shall prevent an employee from
making a contribution pursuant to the 401K plan.
7. Fees and Commissions: Borrower and guarantors certify they have not
directly or indirectly paid or agreed to pay any fees or commissions or
other compensation in connection with the application or closing of the
loan except their own counsel and as follows. Borrower and guarantors
further agree they will not pay any sums other than these listed in
connection with the application and closing of the loan:
Name & Address Service Fee
Newman and Cahn LIDC Legal $1,000.00
One Old Country Road
Carle Place, NY 11514-1889
Long Island Development Corp. Commitment and $2,500.00
255 Executive Drive
Suite 400 Application fees
Plainview NY 11514
8. Liability: Borrower and guarantors are jointly and severally liable
hereunder.
9. Borrower and guarantors agree to conform to the terms and conditions of
the commitment letter and loan memorandum.
-2-
<PAGE>
10. Omitted
11. Toxic Waste: Borrower and guarantors will keep the premises free from
pollution with toxic waste and will comply with all environmental laws
and will indemnify Lender from any liability resulting from any past,
present or future toxic waste contamination or damage and or clean up
responsibilities in connection with the premises and the additional
collateral.
12. Parties Affected: This agreement shall be binding upon Borrower,
guarantors and their successors and assigns and shall inure to the
benefit of LIDC and their successors and assigns.
13. Hazard Insurance: Borrower and Guarantors hereby agree to maintain
hazard insurance upon all of its tangible assets in the minimum amount
of eighty percent of value during the life of the loan, said insurance
naming LIDC as mortgagee payee/loss payee as appropriate. Borrower and
Guarantors also agree to maintain appropriate liability, workmen's
compensation and contents insurance.
14. Omitted
15. Omitted
16. Omitted
17. Acceleration: A violation of any one term of this loan agreement or of
the promissory note of even date or of any requirement in connection
with the loan imposed by LIDC may, at the option of LIDC, constitute a
default of the entire loan and the entire remaining indebtedness shall
immediately become due and payable without notice or demand.
18. Waiver: A Waiver by LIDC of any one term of this loan agreement shall
not be effective unless in writing and shall not constitute a waiver of
any other term.
19. Commitment Letter and Loan Memorandum: Borrower and guarantors agree
that all terms and conditions imposed by the Commitment Letter and Loan
Memorandum are hereby incorporated into this loan agreement and in case
of inconsistency between the terms of this loan agreement and the
Memorandum, Borrower and guarantors agree that they will abide by the
decision of LIDC as to resolution of such inconsistency.
20. Terms: The undersigned certify that they have read and are familiar
with each term of this loan agreement and understand the requirements
herein and will abide by them.
21. Adverse Change: Borrower and guarantors certify to Lender that there
has been no adverse change in the business, property or condition
(financial or otherwise) of
-3-
<PAGE>
adverse change in the business, property or condition (financial or
otherwise) of Borrower or Guarantors since the date of application
herein and that Borrower or guarantors will advise Lender of any
adverse changes from this date forward within ten (10) days of same.
22. Management: Borrower agrees not to execute any contracts for management
consulting services without the prior written consent of LIDC.
23. Change of Control: Borrower and guarantors agree that any and all
outstanding obligations may be accelerated and payments called for by
LIDC if the Borrower or guarantors, during the term of this loan,
effect a change of control of their businesses (management or
ownership, including ownership referred to in paragraph 27 of this
agreement).
24. Amount Due: Borrower and guarantors agree that the "amount due" at any
time during loan term includes the unpaid principal and accrued
interest.
25. New Debt: Borrower and guarantors agree not to incur additional (new)
financial obligations without LIDC's prior written consent other than
normal trade debt and other debt which it can afford while still
remaining profitable.
26. Ownership Premises: Borrower and guarantors agree that premises are
owned by K&G Realty Inc. an affiliate of the Borrower and (the
"affiliate") as of this date and agree that the entire indebtedness
hereunder and under promissory note of even date shall immediately
become due and payable without notice or demand if there is a change of
said premises ownership during the loan term without prior written
consent of LIDC.
Occupancy of Premises: Borrower and guarantors agree that the entire
premises are leased from the affiliate to borrower for the term of this
loan. Borrower and guarantors agree that there shall be no assignment
of said lease nor further subletting under said lease except with the
prior written consent of LIDC. Borrower and guarantors agree that
failure by Borrower to occupy at least 100% of the premises during the
term of the loan except with prior written consent of LIDC shall
constitute a default under the loan.
27. Ownership: Borrower and guarantors agree that the entire indebtedness
due hereunder and under promissory note of even date shall become
immediately due and payable without notice or demand if there is a
change of ownership of Borrower or guarantors during loan term without
LIDC's prior written consent. With respect to a corporation, this
applies to ownership represented by Common Stock, as well as authorized
but unissued stock, as well as Treasury Stock. Borrower and any
corporate guarantor(s) are each owned as follows as of the date of this
agreement:
-4-
<PAGE>
Andrew Franzone 1/3 President
Harry Goodman 1/3 V.P. / Sec'y
David Kassel 1/3 Chairman
28. UCC's: Borrower and guarantors hereby grant to LIDC a security interest
in all fixtures attached to or used in connection with the premises now
existing and hereafter acquired or created subject to no prior liens
except Republic National Bank.
LIDC is hereby authorized to file Financing Statements under the New
York Uniform Commercial Code without Borrowers signatures. Borrower and
guarantors agree to pay the cost of filing said financing statements or
renewals thereof during the loan term.
It is agreed that Borrower owns all said fixtures and shall not
transfer, sell, assign or otherwise dispose of said fixtures nor permit
any other security interest to be created thereon without LIDC's
written approval.
29. Business Form: Borrower and guarantors shall not conduct business
under any other name than those used at date of this agreement nor
change nor reorganize the type of business entity under which they do
business except upon prior written approval of LIDC. If such approval
is given, Borrower and guarantors agree that all documents, instruments
and agreements demanded by LIDC shall be prepared and filed at Borrower
or guarantors' expense before such change of name or business entity
shall occur. Borrower or guarantors shall pay the filing and recording
costs of any document or instruments necessary to perfect, extend,
modify or terminate the security interest created hereunder, as
demanded by LIDC.
30. Liens: Borrower and guarantors shall maintain their assets and its
business premises in good condition, pay promptly all taxes, judgments
or charges of any kind levied or assessed thereon, and keep same free
from mortgages or liens except those permitted by LIDC.
31. Employees: During the loan, Borrower will provide LIDC with statistics
as requested regarding Borrower's employees.
32. Hereafter-Formed Subsidiaries and Affiliates: Borrower and guarantors
shall cause any wholly owned subsidiary or any affiliate hereafter
formed or acquired by Borrower or guarantors within 30 days of such
formation or acquisition, to unconditionally guarantee in writing the
payment of all the liabilities and obligations of Borrower and
Guarantors to LIDC. An affiliate is defined as a company with 50% or
more common ownership between it and borrower or guarantor.
-5-
<PAGE>
Borrower and guarantors shall not transfer assets to a subsidiary or
affiliate or any other entity other than among those signing this
agreement without the prior consent of LIDC.
33. Other Laws: Borrower and guarantors shall comply with all Federal and
State laws pertaining to equal opportunity employment.
34. Indemnification: Borrower and guarantors agree to indemnify LIDC for
any and all claims against LIDC or costs, expenses, liabilities or
damages incurred by LIDC in connection with the Loan and the Premises.
35. Events of Default: The following shall constitute a default of the
loan:
a. Falsity of any statements, certificates, reports, representations or
warranties made or furnished by Borrower or guarantors or their
representative in correction with the making of the Loan or the
fulfillment of this Agreement, the Note, or the Security Agreement;
b. Insolvency or inability of Borrower or guarantors to pay their debts
generally as they become due;
c. Entry of an order, judgment or decree by court of competent
jurisdiction appointing a receiver, trustee or liquidator of Borrower
or guarantors or for a substantial part of the assets of Borrower or
guarantors;
d. Institution by or against Borrower or guarantors of any bankruptcy,
reorganization, arrangement, insolvency, or liquidation proceedings,
provided that such proceedings are not contested in good faith;
e. Suspension of all or a substantial part of the operations of
Borrower conducted on its business premises;
f. Vacancy of all or a substantial part of the business premises of the
Borrower;
g. Failure to provide LIDC with copies of current receipted real estate
tax bills and assessments or evidence of payment thereof, as LIDC may
demand;
h. Failure to maintain in full force and effect valid insurance
policies, if originally required;
i. Failure to terminate or subordinate within thirty (30) days after
filing any financing statement affecting the mortgaged fixtures,
chattels or articles of personal property filed
-6-
<PAGE>
by other than LIDC and without LIDC's written consent (with the
exception of continuation statements);
j. Failure to comply with any of the terms and conditions of this
Agreement, or the Memorandum, and/or failure to perform or abide by any
of the covenants, warranties or representations made in this Agreement
or the Memorandum;
k. Failure to comply with any of the terms and conditions of the
Mortgage, Note or any guaranty thereof executed of even date herewith;
1. Failure to comply with any of the terms and conditions of any other
loan from LIDC for the benefit of Borrower and/or Guarantors.
36. Remedies:
a. If any one or more of the Events of Default described in paragraph
35 hereof shall have occurred, then, and in such event, and at any time
thereafter, if any Event of Default shall then exist, LIDC may, at its
option, declare the Note to be due and payable, whereupon the maturity
of the then unpaid balance of the Note shall forthwith become due and
payable without presentment, demand, protest, or notice of any kind,
all of which are hereby expressly waived;
b. In case any Event of Default shall occur, LIDC may enforce its
rights or remedies by suit in equity or by action at law, or both;
c. No right or remedy herein conferred upon LIDC is intended to be
exclusive of any other right or remedies herein;
37. Miscellaneous:
a. Borrower and guarantors waive the right of a jury trial in any
action or proceeding brought in any Court by either party, or assigns,
arising out of the subject matter of this Agreement, the Loan or any
Note or other obligation secured hereby;
b. This Agreement may not be changed, modified or discharged, in whole
or in part, and no right or remedy of LIDC hereunder or under the Note
may be waived unless such change, modification, discharge or waiver is
in writing and signed by LIDC.
c. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein;
-7-
<PAGE>
d. Notices and Demands: Any notices or demands required by this
Agreement, the Note or the Mortgage, shall be in writing and delivered
personally or mailed to the party entitled to such notice or demand at
the premises.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed February 21, 1997.
Electronic hardware Corp.
BORROWER
SEAL
/s/ Andrew Franzone
---------------------------------
by: Andrew Franzone, President
ATTEST: /s/ Andrew Franzone
as attorney in fact for
/s/ for Harry Goodman
- ------------------------------------------
Harry Goodman, Secretary
Witness:/s/ [illegible]
----------------------------------
LONG ISLAND DEVELOPMENT CORPORATION
/s/ Eileen Leavell
----------------------------
By: Eileen Leavell
Asst. Secretary
-8-
<PAGE>
STATE OF NEW YORK }
.ss:
COUNTY OF NASSAU }
On February 21, 1997, before me personally came Andrew Franzone, to me
known who, being by duly sworn, did depose and say that he resides at BX 651
Strathmore Ct, Remsenberg, NY 11960; that he is the President of Electronic
Hardware Corp., the corporation described 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 Directors of said corporation; and that he signed his name thereto by
like order.
/s/Carol Lotardo
---------------------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 199/s/8
STATE OF NEW YORK }
.ss:
COUNTY OF NASSAU }
On February 21, 1997, before me personally came Eileen Leavell, to me
known who, being by me duly sworn, did depose and say that he resides at Floral
Park, New York; that she is an Assistant Secretary of the LONG ISLAND
DEVELOPMENT CORPORATION, the corporation described in and which executed the
foregoing instrument; that she 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 Directors of said corporation; and that she signed her
name thereto by like order.
/s/Carol Lotardo
---------------------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 199/s/8
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<PAGE>
LOAN PROMISSORY NOTE
$250,000.00 Carle Place, New York
Dated: February 21, 1997
FOR VALUE RECEIVED, Electronic Hardware Corp., a New York
corporation with an office for the transaction of business located at 320
Broad Hollow Road, Farmingdale, NY 11735 (the "Borrower"), promises to
pay to the order of the LONG ISLAND DEVELOPMENT CORPORATION, a New York
State not-for-profit corporation, having an office for the transaction of
business located at 255 Executive Drive, Suite 400, Plainview, New York
11803 (the "Lender") the principal sum of Two hundred fifty thousand
($250,000.00) DOLLARS, with interest on the unpaid principal balance of
such amount from the date of this Note or such advance. as the case may
be, at 7% percent per annum. This Note evidences a loan (the "Loan") made
by the Lender to Borrower, in the principal amount hereof, and is secured
by (a) a security agreement on all machinery and equipment of Borrower;
and (b) such other security as may now or hereafter be given to the
Lender by Borrower as collateral for the Loan (the Security Agreement,
this Note and such other documents evidencing such other security which
may hereafter be given as further security for, or in connection with,
the Loan, being hereinafter collectively referred to as the "Loan
Documents").
PAYMENT OF PRINCIPAL AND INTEREST
Borrower shall make payments on account of the principal balance
plus pay interest at the Interest Rate on the unpaid principal balance of
this Note beginning on the 1st day of the first full month following the
Closing Date, and continuing on the first day of each month thereafter
until the Maturity Date (or such earlier date in the event the Lender or
subsequent holder of the Note [the "Holder"] accelerates Borrower's
obligations hereunder), at which time, the balance of principal remaining
unpaid plus any accrued and unpaid interest shall be fully due and
payable. Said payments of principal and interest shall consist of 120
equal monthly payments, each in the amount of $2,902.71, the first of
which shall commence on March 1, 1997 and on the 1st day of each month
thereafter, up to and including February 1, 2007.
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are payable
at 255 Executive Drive, Suite 400, Plainview, New York 11803, or at such
other place as the Lender shall notify Borrower in writing. The Lender
reserves the right to require any payment on this Note, whether such
payment is of a regular installment or represents a prepayment, to be by
wired federal funds or other immediately available funds or to be paid at
a place other than the above address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as otherwise
provided in this Note, all payments received by the Lender on this Note
shall be applied by the Lender as follows:
FIRST, to any unpaid Late Payment Charges (hereinbelow defined); and
-1-
<PAGE>
SECOND, to accrued and unpaid interest to the payment due date; and
THIRD, to the reduction of principal of this Note.
If an Event of Default (hereinbelow defined) occurs, the Lender may apply
any payments received to any sums due hereunder or under any other Loan
Document in such manner as it deems appropriate.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of
principal and/or interest on this Note for fifteen (15) days after such
payment becomes due, whether by acceleration or otherwise, the Lender
may, at its option, whether immediately or at the time of final payment
of the amounts evidenced by this Note, impose a late payment charge (the
"Late Payment Charge") computed by multiplying the amount of each past
due payment by two (2%) percent, not to exceed $500.00. Until any and all
Late Payment Charges are paid in full, the amount thereof shall be added
to the indebtedness secured by any of the Loan Documents. The Late
Payment Charge is not a penalty and is deemed to be liquidated damages
for the purpose of compensating the Lender for the difficulty in
computing the actual amount of damages incurred by the Lender as a result
of the late payment by Borrower.
(d) PREPAYMENT. The principal balance may be prepaid in whole or
in part at any time without premium or penalty.
In the event the Lender receives partial prepayments, or in the
event that the Lender shall receive proceeds of condemnation or insurance
proceeds for application against the Loan, such prepayments and proceeds
shall be applied to installments of principal in the inverse order of
maturity and no prepayment premium shall be deducted from such
condemnation or insurance proceeds.
(e) ACCELERATION. If:
(i) Borrower fails to pay any sum due on this Note
within ten (10) days of the date the same is due; or
(ii) Borrower shall fail to perform any other
obligation required to be performed by Borrower under this Note, for ten
(10) days after the Lender has given written notice of such failure to
Borrower; or
(iii) Any warranty, representation or other statement
by or on behalf of Borrower in any instrument furnished in compliance
with or in reference to this Note be false or misleading in any material
respect; or
(iv) Borrower or any Guarantor shall generally not be
paying debts as they become due or file a petition or seek relief under
or take advantage of any insolvency law; make an assignment for the
benefit of creditors; commence a proceeding for the appointment of a
receiver, trustee, liquidator, custodian or conservator of Borrower or
any Guarantor or of the whole or substantially all of Borrower's or any
Guarantor's property or of any collateral pledged as security for this
Note; or if Borrower or any Guarantor shall file a petition or an answer
to
- 2 -
<PAGE>
a petition under any chapter of the Bankruptcy Reform Act of 1978, as
amended (or any successor statute thereto), or file a petition or seek
relief under or take advantage of any other similar law or statute of the
United States of America, any State thereof, or any foreign country or
subdivision thereof; or
(v) Under the provisions of any law for the relief or
aid of debtors, a court of competent jurisdiction or a receiver, trustee,
liquidator, custodian or conservator shall assume custody or control or
take possession from Borrower or any Guarantor of all or substantially
all of Borrower's or any Guarantor's property or any portion of any
collateral pledged as security for this Note; or
(vi) A Court of competent jurisdiction shall enter an
order, judgment or decree appointing or authorizing a receiver, trustee,
liquidator, custodian or conservator of Borrower or any Guarantor or of
the whole or substantially all of Borrower's or any Guarantor's property,
or any portion of the collateral pledged as security for this Note, or
enter an order for relief against Borrower or any Guarantor in any case
commenced under any chapter of the Bankruptcy Reform Act of 1978, as
amended (or any successor statute thereto), or grant relief under any
other similar law or statute of the United States of America, any State
thereof, or any foreign country or subdivision thereof and the same is
not stayed or discharged within sixty (60) days of entry; or
(vii) There is commenced against Borrower or any
Guarantor any proceeding for any of the foregoing relief or if a petition
is filed against Borrower or any Guarantor under any chapter of the
Bankruptcy Reform Act of 1978, as amended (or any successor statute
thereto), or under any other similar law or statute of the United States
of America, any State thereof, or any foreign country or subdivision
thereof, and such proceeding or petition remains undismissed for a period
of sixty (60) days or if Borrower or any Guarantor by any act indicates
consent to, approval of or acquiescence in any such proceeding or
petition; or
(viii) the Lender receives a notice to creditors with
regard to a bulk transfer by Borrower or any Guarantor pursuant to
Article VI of the Uniform Commercial Code; or
(ix) Any Guarantor defaults under or attempts to
withdraw, cancel or disclaim liability under any Guaranty issued to the
Lender or the Holder; or
(x) Any shares of the capital stock of the Borrower or
any Guarantor, if the Borrower or such Guarantor is a corporation, shall
be sold, transferred, conveyed, mortgaged, pledged, hypothecated or
alienated without the prior written consent of the Lender; or
(xi) Any partnership interest in the Borrower or any
Guarantor, if the Borrower or such Guarantor is a partnership, shall be
sold, assigned, transferred, conveyed, mortgaged, pledged, hypothecated
or alienated without the prior written consent of the Lender: or
(xii) Any material inaccuracy shall exist in any of the
financial statements or in any other information furnished by or to be
furnished by the Borrower or any Guarantor to the Lender to induce the
Lender to make the Loan evidenced by this Note; or
- 3 -
<PAGE>
(xiii) The death of any individual Borrower or
Guarantor or the dissolution of any corporate or partnership Borrower or
Grantor; or
(xvi) The Borrower or any other partnership or
corporate entity having common ownership with the Borrower, or any
Guarantor or any other partnership or corporate entity having common
ownership with any Corporate Guarantor, defaults under any other
agreement or document, now existing or in the future existing with the
Lender or the Holder; if a default shall be made by the Borrower or any
other partnership or corporate entity having common ownership with the
Borrower or by any Guarantor or any other partnership or corporate entity
having common ownership with any Corporate Guarantor, in the payment of
principal and interest or any charges on any note or other instrument
executed, or in the future executed and delivered to the Lender or the
Holder by the Borrower or any Guarantor or any other partnership or
corporate entity having common ownership with either the Borrower or any
Corporate Guarantor when and as the same shall become due and payable,
whether at a due date or by acceleration thereof; or
(xv) an event of default, under any other documents
executed by any Guarantor in connection with a loan or loans now existing
or in the future existing to any Corporate Guarantor and the Lender or
the Holder, shall have occurred; or
(xvi) and event of default, under any other Loan
Documents, shall have occurred;
then, and in any such event (an "Event of Default"), the Lender or the
Holder may, at its option, declare the entire unpaid balance of this Note
together with interest accrued thereon, to be immediately due and payable
and the Lender or the Holder may proceed to exercise any rights or
remedies that it may have under this Note or any other Loan Documents, or
such other rights and remedies with the Lender or the Holder may have at
law, equity or otherwise. In the event of such acceleration, Borrower may
discharge its obligations to the Lender or the Holder by paying:
(A) the unpaid principal balance hereof as at
the date of such payment,
plus
(B) accrued interest computed in the manner
set forth above, plus
(C) any Late Payment Charge computed in the
manner set forth above.
Plus
(D) any other sum due and owing the Lender or
the Holder under this Note
or any other Loan Document.
(f) INTEREST ACCRUAL. That if the whole of said principal sum
evidenced by this Note and interest, shall become due by exercise of the
option of the Lender or Holder after default by the Borrower or Mortgagor
under any of the terms, covenants and conditions of the Mortgage and
Security Agreement and/or this Note, or if the whole of said principal
sum and interest shall mature and become due under the terms, covenants
and conditions of the Mortgage and Security Agreement and/or this Note
regardless of default, if any, on the part of the
- 4 -
<PAGE>
Borrower or Mortgagor, then interest on said principal sum shall continue
to accrue at the rate provided for in this Note until said Principal sum
is fully paid.
(g) INTEREST AFTER MATURITY. In the event of Maturity by
acceleration or otherwise, the Interest Rate charged will be increased by
four (4%) percent per annum above the interest rate otherwise due. In no
event, however, will the rate charged exceed the maximum allowable by
law.
(h) COSTS AND EXPENSES ON DEFAULT. After default, in addition to
principal, interest and any Late Payment Charge, the Lender or the Holder
shall be entitled to collect all costs of collection, including, but not
limited to, reasonable attorneys' fees, incurred in connection with the
protection or realization of collateral or in connection with any of the
Lender's or Holder's collection efforts, whether or not suit on this Note
or any foreclosure proceeding is filed, and all such costs and expenses
shall be payable on demand and until paid shall also be secured by the
Loan Documents and by all other collateral held by the Lender or the
Holder as security for Borrower's obligations to the Lender or Holder.
(i) N0 WAIVER BY THE LENDER. No failure on the part of the
Lender or other holder hereof to exercise any right or remedy hereunder,
whether before or after the happening of a default, shall constitute a
waiver thereof, and no waiver of any past default shall constitute waiver
of any future default or of any other default. No failure to accelerate
the Loan evidenced hereby by reason of default hereunder, or acceptance
of a past due installment, or indulgence granted from time to time shall
be construed to be a waiver of the right to insist upon prompt payment
thereafter, or shall be deemed to be a novation of this Note or as a
reinstatement of the Loan evidenced hereby or as a waiver of such right
of acceleration or any other right, or be construed so as to preclude the
exercise of any right which the Lender may have, whether by the laws of
the state governing this Note, by agreement or otherwise; and Borrower
and each endorser or Guarantor hereby expressly waive the benefit of any
statute or rule of law or equity which would produce a result contrary to
or in conflict with the foregoing. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom such
agreement is sought to be enforced.
(j) WAIVER BY BORROWER. Borrower and each endorser or guarantor
of this Note hereby waives presentment, protest, demand, diligence,
notice of dishonor and of nonpayment, and waives and renounces all rights
to the benefits of any statute of limitations and any moratorium,
appraisement, exemption and homestead now provided or which may hereafter
be provided by any federal or state statute, including but not limited to
exemptions provided by or allowed under the Bankruptcy Code of 1978, both
as to itself personally and as to all of its or their property, whether
real or personal, against the enforcement and collection of the
obligations evidenced by this Note and any and all extensions, renewals
and modifications hereof.
(k) COMPLIANCE WITH USURY LAWS. It is the intention of the
parties to conform strictly to the usury laws, whether state or federal,
that are applicable to this Note. All agreements between Borrower and the
Lender, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise,
shall the amount paid or agreed to be paid to the Lender or the holder
hereof, or collected by the Lender or such holder,
- 5 -
<PAGE>
for the use, forbearance or detention of the money to be loaned hereunder
or otherwise, or for the payment or performance of any covenant or
obligation contained herein, or in any of the Loan Documents, exceed the
maximum amount permissible under applicable federal or state usury laws.
If under any circumstances whatsoever fulfillment of any provision hereof
or of the Loan Documents, at the time performance of such provision shall
be due, shall involve exceeding the limit of validity prescribed by law,
then the obligation to be fulfilled shall be reduced to the limit of such
validity; and if under any circumstances the Lender or other holder
hereof shall ever receive an amount deemed interest by applicable law,
which would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the
reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, the excess shall be deemed to have
been a payment made by mistake and shall be refunded to Borrower or to
any other person making such payment on Borrower's behalf. All sums paid
or agreed to be paid to the holder hereof for the use, forbearance or
detention of the indebtedness of Borrower evidenced hereby, outstanding
from time to time shall, to the extent permitted by applicable law, and
to the extent necessary to preclude exceeding the limit of validity
prescribed by law, be amortized, pro-rated, allocated and spread from the
date of disbursement of the proceeds of this Note until payment in full
of the Loan evidenced hereby and thereby so that the actual rate of
interest on account of such indebtedness is uniform throughout the term
hereof and thereof. The terms and provisions of this paragraph shall
control and supersede every other provision of all agreements between
Borrower, any endorser or Guarantor and the Lender.
(1) GOVERNING LAW: SUBMISSION TO JURISDICTION. This Note shall
be governed by and construed under the laws of the State of New York.
Borrower and each endorser or Guarantor hereby submits to personal
jurisdiction in said State for the enforcement of Borrower's obligations
hereunder or under any other Loan Document and waives any and all
personal rights under the law of any other state to object to
jurisdiction within such State for the purposes of litigation to enforce
such obligations of Borrower.
(m) WAIVER BY BORROWER OF JURY TRIAL. The Borrower hereby waives
trial by jury in any litigation in any court with respect to, in
connection with, or arising out of this Note, any other Loan Document or
the Loan, or any instrument or document delivered in connection with the
Loan, or the validity, protection, interpretation, collection or
enforcement thereof, or any other claim or dispute howsoever arising
between the Borrower and the Lender or the Holder.
(n) RIGHT OF SET OFF. Borrower grants to the Lender or the
Holder a continuing lien for the amount of this Note upon any and all
monies, securities and other property of Borrower and the proceeds
thereof, now or hereafter held or received by or in transit to the Lender
or the Holder from or for Borrower whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower with, and any and
all claims of Borrower against the Lender or the Holder at any time
existing. Upon the occurrence of an Event of Default, the Lender or the
Holder is authorized at any time and from time to time, without notice to
Borrower to set off, appropriate and apply any and all items hereinabove
referred to against this Note.
- 6 -
<PAGE>
(o) AUTHORITY OF THE LENDER. Borrower authorizes the Lender to
date this Note as of the day when the Loan is made and to complete or
correct this Note as to any terms of the Loan not set forth herein at the
time of delivery hereof.
(p) NOTICES. Any notices required or permitted to be given
hereunder shall be: (i) personally delivered or (ii) given by registered
or certified mail, postage prepaid, return receipt requested, or (iii)
forwarded by overnight courier service, in each instance addressed to the
addresses set forth at the head of this Note, or such other addresses as
the parties may for themselves designate in writing as provided herein
for the purpose of receiving notices hereunder. All notices shall be in
writing and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate mail or
courier service, upon deposit with the U.S. Postal Service or delivery to
the courier service.
(q) LIABILITY IF MORE THAN ONE BORROWER. If more than one person or
entity executes this Note as a Borrower, all of said persons or entities
are jointly and severally liable hereunder.
(r) ENTIRE AGREEMENT. This Note and the other Loan Documents
constitute the entire understanding between Borrower, the Guarantors, if
any, and the Lender and to the extent that any writings not signed by the
Lender or oral statements or conversations at any time made or had shall be
inconsistent with the provisions of this Note and the other Loan Documents,
the same shall be null and void.
IN WITNESS WHEREOF, the Borrower and each Guarantor has executed
this instrument the date first above written.
Electronic Hardware Corp.
BORROWER
SEAL
/s/ Andrew Franzone
------------------------------
by: Andrew Franzone, President
ATTEST:
/s/ Andrew Franzone
Attorney in Fact
/s/ Harry Goodman
- ------------------------
Harry Goodman, Secretary
- 7 -
<PAGE>
Allen Field Co. Inc.
/s/ Andrew Franzone
------------------------------
by: Andrew Franzone, President
/s/A. Franzone /s/A. Franzone
Attorney in Fact for Attorney in Fact for
/s/Andrew Franzone /s/Harry Goodman /s/ David Kassel
- -------------------- ----------------------- -----------------------
Andrew Franzone Harry Goodman David Kassel
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On February 21, 1997, before me personally came Andrew Franzone,
to me known who, being by duly sworn, did depose and say that he resides
at BX 651 Strathmore Ct, Remsenberg, NY 11960; that he is the President
of Electronic Hardware Corp., the corporation described 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 Directors of said
corporation; and that he signed his name thereto by like order.
/s/ Carol Lotardo
----------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On February 21, 1997, before me personally came Andrew Franzone,
to me known who, being by duly sworn, did depose and say that he resides
at BX 651 Strathmore Ct, Remsenberg, NY 11960; that he is the President
of Allen Field Co. Inc., the corporation described 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 Directors of said corporation;
and that he signed his name thereto by like order.
/s/ Carol Lotardo
----------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
- 8 -
<PAGE>
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On February 21, 1997, before me personally came Andrew Franzone,
to me known to be the individual described in and who executed the
foregoing loan promissory note, and acknowledged that he executed the
same.
/s/ Carol Lotardo
---------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
ATTORNEY-IN-FACT
ACKNOWLEDGMENT
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On the 21st day of February, 1997, before me personally came Andrew
Franzone, to me personally known to be the person described and appointed
attorney-in-fact in and by a certain power-of-attorney executed by Harry
Goodman dated January 8, 1997 (or to be recorded in the office of of
County simultaneously with the foregoing instrument), and acknowledged to
me that he has executed the foregoing instrument as the act of said
/s/ Carol Lotardo
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
ATTORNEY-IN-FACT
ACKNOWLEDGMENT
STATE OF NEW YORK}
ss:
COUNTY OF NASSAU}
On the 21st day of February, 1997, before me personally came Andrew
Franzone, to me personally known to be the person described and appointed
attorney-in-fact in and by a certain power-of-attorney executed by David
Kassel dated January 8, 1997 (or to be recorded in the office of
__________________ of______________________ County simultaneously with the
foregoing instrument), and acknowledged to me that he has executed the
foregoing instrument as the act of said
/s/ Carol Lotardo
---------------------------------
CAROL LOTARDO
NOTARY PUBLIC, State of New York
No. 4732765
Qualified in Nassau County
Commission Expires August 31, 1998
<PAGE>
SECURITY AGREEMENT (CHATTEL MORTGAGE)
THIS AGREEMENT, made the day of February 21, 1997 under the laws of the state
of New York
BETWEEN Electronic Hardware Corp. herein called the Debtor
whose business address is (if none, write "none")
320 Broad Hollow Road, Farmingdale, NY 11735
and whose resident address is
and Long Island Development Corporation herein called the Secured Party
whose address is 255 Glen Cove Road,
Carle Place, N.Y.
WITNESSETH:
To secure the payment of an indebtedness in the amount of
$250,000.00 with interest, payable as follows:
120 monthly installments, with interest at 7% per
annum, the first of which is payable on March 1, 1997 and
monthly thereafter up to and including February 1, 2007.
as evidenced by a note or notes of even date herewith, and also to secure
any other indebtedness or liability of the Debtor to the Secured Party
direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, including all future advances or loans
which may be made at the option of the Secured Party, (all hereinafter
called the "obligations") Debtor hereby grants and conveys to the Secured
Party a security interest in, and mortgages to the Secured Party,
(a) the property described in the schedule herein which the
Debtor represents will be used primarily
/ / for personal, family or household purposes
/ / in farming operations /X/ in business or other use
(b) all property, goods and chattels of the same classes as
those scheduled, acquired by the Debtor subsequent to the execution of
this agreement and prior to its termination. (If the property described
in the Schedule is for personal, family or household purposes then no
security attaches under this section (b) unless the debtor acquires
rights in them within 10 days after the Secured Party gives value.)
(c) all proceeds thereof, if any,
(d) all substitutions, replacements and accessions thereto (the
foregoing (a), (b), (c) and (d) hereinafter called the collateral).
1. DEBTOR WARRANTS, COVENANTS AND AGREES AS FOLLOWS:
PAYMENT 1a To pay and perform all of the obligations secured
by this agreement according to their terms.
DEFEND 1b To defend the title to the collateral against all
TITLE persons and against all claims and demands whatsoever,
which collateral, except for the security interest granted
hereby, is lawfully owned by the Debtor and is now free
and clear of any and all liens, security interests,
claims, charges, encumbrances, taxes and assessments
except as may be set forth in the schedule.
ASSURANCE 1c On demand of the secured party to do the
OF TITLE following; furnish further assurance of title, execute any
written agreement or do any other acts necessary to
effectuate the purposes and provisions of this agreement,
execute any instrument or statement required by law or
otherwise in order to perfect, continue or terminate the
security interest of the Secured Party in the collateral
and pay all costs of filing in connection therewith.
POSSESSION 1d To retain possession of the collateral during the
existence of this agreement and not to sell, exchange,
assign, loan, deliver, lease, mortgage or otherwise
dispose of same without the written consent of the Secured
Party.
LOCATION 1e To keep the collateral at the location specified
in the schedule and not to remove same (except in the
usual course of business for temporary periods) without
the prior written consent of the Secured party.
LIENS 1f To keep the collateral free and clear of all
liens, charges, encumbrances, taxes and assessments.
TAXES 1g To pay, when due, all taxes, assessments and
license fees relating to the collateral.
REPAIRS 1h To keep the collateral, at Debtor's own cost and
expense, in good repair and condition and available for
inspection by the Secured Party at all reasonable times.
INSURANCE 1i To keep the collateral fully insured against
loss by fire, theft and other casualties, Debtor shall
give immediate written notice to the Secured Party and to
insurors of loss or damage to the collateral and shall
promptly file proofs of loss with insurors.
2. THE PARTIES FURTHER AGREE
NON-WAIVER 2a Waiver of or acquiescence in any default by the
Debtor, or failure of the Secured Party to insist upon
strict performance by the Debtor of any warranties or
agreements in this security agreement, shall not
constitute a waiver of any subsequent or other default
or failure.
NOTICES 2b Notices to either party shall be in writing and
shall be delivered personally or by mail addressed to the
party at the address herein set forth or otherwise
designated in writing.
LAW 2c The Uniform Commercial Code shall govern the
APPLICABLE rights, duties and remedies of the parties and any
provisions herein declared invalid under any law shall not
invalidate any other provision or this agreement.
DEFAULT 2d The following shall constitute a default by
Debtor:
non-payment Failure to pay the principal or any installment of
violation principal or of interest on the indebtedness or any notes
misrepresentation when due. Failure by Debtor to comply with or perform
levy-insolvency any provision of this agreement. False or misleading
death representations or warranties made or given by Debtor in
impairment of connection with this agreement. Subjection of the
security collateral to levy of execution or other judicial process.
Commencement of any insolvency proceeding by or against
the Debtor. Death of the Debtor. Any reduction in the
value of the collateral or any act of the Debtor which
imperils the prospect of full performance or satisfaction
of the Debtor's obligations herein.
REMEDIES ON 2e Upon any default of the Debtor and at the option
DEFAULT of the Secured Party, the obligations secured by this
acceleration agreement shall immediately become due and payable in
full without notice or demand and the Secured Party shall
have all the rights, remedies and privileges with respect
to repossession, retention and sale of the collateral and
disposition of the proceeds as are accorded by the
applicable sections of the Uniform Commercial Code
respecting "Default".
assembling Upon any default and upon demand, Debtor shall assemble
collateral the collateral and make it available to the Secured Party
attorneys' fees at the place and at the time designated in the demand.
etc. Upon any default, the Secured Party's reasonable
attorneys' fees and the legal and other expenses for
pursuing, searching for, receiving, taking, keeping,
storing, advertising, and selling the collateral shall be
chargeable to the Debtor.
deficiency The Debtor shall remain liable for any deficiency
resulting from a sale of the collateral and shall pay any
such deficiency forthwith on demand.
monies If the Debtor shall default in the performance of any of
advanced the provisions of this agreement on the Debtor's part to
be performed, Secured Party may perform same for the
Debtor's account and any monies expended in so doing shall
be chargeable with interest to the Debtor and added to the
indebtedness secured hereby.
FINANCING 2f The Secured Party is hereby authorized to file a
STATEMENT Financing Statement.
CAPTIONS 2g The Captions are inserted only as a matter of
convenience and for reference and in no way define, limit
or describe the scope of this agreement nor the intent of
any provision thereof.
[end of page]
<PAGE>
The terms, warranties and agreements herein contained shall bind
and inure to the benefit of the respective parties hereto, and their
respective legal representatives, successors and assigns.
The gender and number used in this agreement are used as a
reference term only and shall apply with the same effect whether the
parties are of the masculine or feminine gender, corporate or other form,
and the singular shall likewise include the plural.
This agreement may not be changed orally.
IN WITNESS WHEREOF, the Parties have respectively signed and
sealed these presents the day and year first above written.
Electronic Hardware Corp.
Witness:/s/ [illegible] /s/ Andrew Franzone
----------------------------
by: Andrew Franzone, President
Long Island Development Corporation
/s/ Eileen Leavell
-----------------------------
By: Eileen Leavell, Asst. Sec'y
SCHEDULE
Describe items of collateral, the address where each item will
be located and describe any prior liens, etc., and the amounts due
thereon. If items are crops or goods affixed or to be affixed to real
estate describe the real estate and state the name and address of the
owner of record thereof.
Items Location, etc.
----- --------------
all personal property, including and without limitation, all present and
future accounts receivable, machinery, equipment, inventory (raw and
finished), contract rights, instruments, chattel paper, intangibles,
and/or fixtures, now existing or hereafter acquired or created, and all
additions and accessions thereto and exchanges and proceeds thereof.
The chief place of business of the Debtor, if other than stated
in this agreement, is:
GUARANTEE
The undersigned guarantees prompt and full performance and payment
according to the tenor of the within agreement, to the holder hereof, and, in
the event of default, authorizes any holder hereof to proceed against the
undersigned, for the full amount due including reasonable attorneys' fees, and
hereby waives presentment, demand, protest, notice of protest, notice of
dishonor and any and all other notices or demand of whatever character to which
the undersigned might otherwise be entitled. The undersigned further consents to
any extension granted by any holder and waives notice thereof. If more than one
guarantor, obligation of each shall be joint and several.
WITNESS the hand and seal of the undersigned this February 21, 19 .
Allen Field Co. Inc.
/s/ Andrew Franzone (L.S.)
---------------------------------
by: Andrew Franzone, President
Address
---------------------------------
SECURITY AGREEMENT
CHATTEL MORTGAGE
================================================================================
TO
================================================================================
DATED,
================================================================================
================================================================================
To perfect lien, file UCC 1 (see UCC Section 9-410)
N.Y.: CONSUMER GOODS OR FARM CONNECTED COLLATERAL:
--resident debtor; with filing officer in county of debtor's residence.
--non resident debtor; Dept. of state: if debtor has a place of
business in only one county in N.Y., also with filing officer of such
county.
--crops: Dept. of state and also with filing officer in county where
land, on which crops are grown, lies.
FIXTURES attached to realty; in county where land lies.
ALL OTHER CASES; Dept. of state: if debtor has a place of business in
only one county in N.Y., also with filing officer in such county.
'filing officer'; in N.Y.C., the City Register of the county:
elsewhere in state, the county clerk.
N.J.: CONSUMER GOODS OR FARM CONNECTED COLLATERAL:
--with clerk or county of debtor's residence.
--if non resident debtor, in county where goods are kept.
--crops: in county where land lies.
FIXTURES attached to realty; with register of county where land
lies or with county clerk if no register.
ALL OTHER COLLATERAL; with secretary of state.
CONN.: FIXTURES attached to realty; with clerk of town or city where land lies.
ALL OTHER COLLATERAL; with secretary of state.
<PAGE>
July 13, 1998
[Letterhead of Long Island Development Corporation]
Electronic Hardware Corp.
320 Broad Hollow Road
Farmingdale, New York 11735
Attn: Mr. Steven Sgammato
Re: Electronic Hardware Corp.
Dear Mr. Sgammato:
Reference is made to your letter of July 10, 1998. Please be advised that
Long Island Development Corp. hereby waives provisions 23, 27 and 29 of the
Loan Agreement between Electronic Hardware Corp. and Long Island Development
Corporation dated 2/21/97.
This letter specifically waives those provisions in relation to the
reorganization of Electronic Hardware Corp. into a wholly owned subsidiary
of International Plastic Technologies, Inc. (IPT).
A condition to this approval is that David L. Kassel, Andrew Franzone and Harry
Goodman, guarantors of the loan to EHC, maintain control by retaining/owning
59.5% of the shares of IPT after the offering.
Very Truly Yours,
/s/ Irving Borman
Irving Borman
Sr. Vice President
Lending & Portfolio Management
<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
- 1 -
<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
- 2 -
<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.
- 3 -
<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.
- 4 -
<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
- 5 -
<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.
-6-
<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)
-7-
<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
- 8 -
<PAGE>
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.
- 9 -
<PAGE>
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.
- 10 -
<PAGE>
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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<PAGE>
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
- ------------------------------------ ---------------------------------
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
August 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. Watts By /s/ Steven Sgammato
------------------------------- ------------------------------
LOCAL 531, I. B. of T. EMPLOYER
Dated: 7/8/98 Dated: 7/7/98
------------- -------------
<PAGE>
EXH 10.21
[Letterhead of Electronic Hardware Corp.]
May 14, 1998
Andrew Pokross
First Vice President
Republic National Bank of New York
Fifth Avenue at 40th Street
New York, NY 10018
Re: Release of Personal Guarantees
Dear Mr. Pokross,
Electronic Hardware Corporation is requesting that Republic National Bank of New
York release the personal guarantees of David Kassel, Harry Goodman and Andrew
Franzone from the Term loan agreement and Demand Note dated July 29, 1996
contingent upon the Initial Public Offering of International Plastic
Technologies, Inc.
Please sign this letter as an acceptance of the release and return it to me as
soon as possible. Feel free to call me if you have any additional questions.
Sincerely,
/s/ Steven Sgammato
- -------------------
Steven Sgammato
Controller
Accepted: /s/ Andrew Pokros
--------------------------------------------------
Andrew Pokros - Republic National Bank of New York
<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. 2 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
July 21, 1998
