<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 3
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ESAFETYWORLD, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 44290 11-3496415
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
(ADDRESS AND TELEPHONE NUMBER OF EXECUTIVE OFFICES)
EDWARD A. HEIL
100-31 SOUTH JERSEY AVENUE
SETAUKET, NEW YORK 11733
516-244-1454
FACSIMILE: (212) 208-3082
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
STEVEN W. SCHUSTER, ESQ. GREGORY SICHENZIA, ESQ.
MCLAUGHLIN & STERN, LLP SICHENZIA, ROSS & FRIEDMAN LLP
260 MADISON AVENUE 135 WEST 50TH STREET, 20TH FLOOR
NEW YORK, NY 10016 NEW YORK, NEW YORK 10020
TELEPHONE: 212-448-1100 TELEPHONE: (212) 664-1200
FACSIMILE: 212-448-0066 FACSIMILE: (212) 664-7329
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
under 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 under 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 under 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 the delivery of the prospectus is expected to be made under rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED OFFERING
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER PROPOSED AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
shares common stock, $.001 par value
("common stock")(2)........................ 1,150,000 $7.00 $8,050,000 $2,237.90
underwriter's warrant(3)................... 1 $.001 $100 $.28
shares of common stock underlying
underwriter's warrant...................... 100,000 $10.50 $1,050,000 $291.90
Total Registration Fee..................... $2,530.08(4)
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee under
rule 457 under the Securities Act of 1933.
(2) Includes 150,000 shares of common stock that may be purchased by the
underwriter to cover over-allotments, if any.
(3) Represents warrant granted to the underwriter to acquire an aggregate of
100,000 shares of common stock at an exercise price equal to 150% of the
price to the public in this offering.
(4) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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 THE DATE AS THE COMMISSION, ACTING UNDER SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 8, 2000.
PROSPECTUS
ESAFETYWORLD, INC.
1,000,000 SHARES OF COMMON STOCK
$7.00 PER SHARE
ESAFETYWORLD, INC.:
o eSAFETYWORLD, 100-31 S. Jersey Avenue, Setauket, New York 11733; (516)
244-1454
o Proposed Nasdaq SmallCap Market symbol: SFTY
o Proposed Boston Stock Exchange symbol: SFT
THE OFFERING:
o Kashner Davidson Securities Corp. has an option to purchase an additional
150,000 shares from eSAFETYWORLD to cover any over-allotments.
o This is a firm commitment offering.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public offering price...................................................... $7.00 $7,000,000
Underwriting discounts and commissions..................................... $0.70 $ 700,000
Proceeds, before expenses, to eSAFETYWORLD................................. $6.30 $6,300,000
</TABLE>
THE INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
Neither the SEC nor any state securities commission has approved or
disapproved these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
KASHNER DAVIDSON SECURITIES CORP.
The date of this prospectus is February , 2000.
<PAGE>
NOTICE FOR CALIFORNIA RESIDENTS
OUR COMMON STOCK IS TO BE SOLD IN THE STATE OF CALIFORNIA UNDER THE TERMS
OF A LIMITED OFFERING QUALIFICATION UNDER A SUITABILITY STANDARD THAT REQUIRES
INVESTORS TO MEET A "SUPER SUITABILITY" STANDARD OF NOT LESS THAN $250,000
LIQUID NET WORTH, PLUS $65,000 GROSS ANNUAL INCOME OR $500,000 LIQUID NET WORTH
OR $1,000,000 NET WORTH (INCLUSIVE) OR $200,000 GROSS ANNUAL INCOME. LIQUID NET
WORTH MEANS NET WORTH EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES.
NOTICE FOR INDIANA RESIDENTS
OFFERS AND SALES IN THIS OFFERING IN INDIANA MAY ONLY BE MADE TO ACCREDITED
INVESTORS AS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF
1933, AS AMENDED.
NOTICE FOR NEW JERSEY RESIDENTS
OFFERS AND SALES IN THIS OFFERING IN NEW JERSEY MAY ONLY BE MADE TO
ACCREDITED INVESTORS AS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES
ACT OF 1933. UNDER RULE 501, TO BE AN ACCREDITED INVESTOR AN INDIVIDUAL MUST
HAVE (A) A NET WORTH OR JOINT NET WORTH WITH THE INDIVIDUAL'S SPOUSE OF MORE
THAN $1,000,000 OR (B) INCOME OF MORE THAN $200,000 IN EACH OF THE TWO MOST
RECENT YEARS OR JOINT INCOME WITH THE INDIVIDUAL'S SPOUSE OF MORE THAN $300,000
IN EACH OF THOSE YEARS AND A REASONABLE EXPECTATION OF REACHING THE SAME INCOME
LEVEL IN THE CURRENT YEAR. OTHER STANDARDS APPLY TO INVESTORS WHO ARE NOT
INDIVIDUALS. THERE WILL BE NO SECONDARY SALES OF THE SECURITIES TO PERSONS WHO
ARE NOT ACCREDITED INVESTORS FOR 90 DAYS AFTER THE DATE OF THIS OFFERING IN NEW
JERSEY BY THE UNDERWRITER AND SELECTED DEALERS.
1
<PAGE>
PROSPECTUS SUMMARY
ESAFETYWORLD
OUR BUSINESS
eSAFETYWORLD, Inc. sells disposable garments and equipment to companies
involved in production or other activities that must be done in a controlled
environment or whose employees are exposed to environmental hazards. Our goal is
to develop and operate a business-to-business e-commerce site on the world wide
web as the principal means of selling our products to the industrial safety
market. We believe that the Internet offers significant opportunities in the
areas of e-commerce, including the ability to reach a large potential market
without the need for significant advertising expenditures.
We have identified an industry with annual sales in the United States of
greater than $10 billion. We focus on the sale of disposable items used in the
industrial safety and controlled environmental markets because these types of
products must be reordered regularly by customers.
THE OFFERING
<TABLE>
<S> <C>
Securities offered.............................................. 1,000,000 shares
Common stock outstanding prior to the offering.................. 2,000,000 shares
Common stock to be outstanding after the offering............... 3,000,000 shares
</TABLE>
The number of shares of our common stock to be outstanding after the
offering assumes that the underwriter does not exercise the over-allotment
option. If the over-allotment option is exercised in full, 3,150,000 shares of
our common stock will be outstanding after the offering.
USE OF PROCEEDS
The net proceeds from the sale of the shares are estimated to be
approximately $5,890,000 after deducting commissions and expenses of the
offering, which are estimated at $1,110,000.
We intend to use the net proceeds of this offering for:
o marketing,
o capital expenditures,
o website development,
o repayment of indebtedness,
o equipment, and
o working capital and general corporate purposes
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The selected financial data set forth below at June 30, 1999 is derived
from and should be read together with eSAFETYWORLD's financial statements
footnotes appearing elsewhere in this prospectus.
The selected financial data for the cleanroom distribution product group of
Laminaire Corporation for the years ended December 31, 1998 and 1997 is derived
from and should be read together with the product group's financial statements
and footnotes appearing elsewhere in this prospectus. The summary financial data
for the product group provided below for the interim periods ended June 30,
1999 and 1998 has been prepared from the product group's books and records and
reflects, in our opinion, all adjustments necessary for a fair presentation of
the results of operations of the product group for the periods shown. Results
for interim periods may not reflect expected results for the entire year.
ESAFETYWORLD
eSAFETYWORLD had no revenues during the period ended June 30, 1999. In
August 1999, it acquired the cleanroom distribution product group in an
acquisition accounted for as a purchase. The operating results of the acquired
business are included in eSAFETYWORLD's results commencing with the date of
acquisition.
<TABLE>
<CAPTION>
10/31/99
6/30/99 10/31/99 (AS ADJUSTED)
------- ---------- -------------
<S> <C> <C> <C>
Current assets................................................... -- $ 384,275 $ 5,751,275
Total assets..................................................... $10,000 1,819,675 7,009,675
Liabilities...................................................... -- 1,065,004 365,004
Stockholders' equity............................................. 10,000 756,671 6,644,571
</TABLE>
The "as adjusted column" assumes the completion of the offering.
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
OCTOBER 31, 1999
----------------
<S> <C>
Revenues............................................................................. $ 355,969
Operating profit..................................................................... $ 63,816
Net income........................................................................... $ 44,671
Income per share..................................................................... $ .02
Average number of shares outstanding................................................. 2,000,000
</TABLE>
The results of the cleanroom distribution product group are included in our
results of operations from the date of acquisition in August 1999 or for
approximately two and one half months during the four month period ended
October 31, 1999.
CLEANROOM DISTRIBUTION PRODUCT GROUP
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ --------------------
1998 1997 1999 1998
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................................... $2,267,846 $1,506,607 $746,325 $867,700
Operating profit................................... 54,067 204,106 95,984 142,164
Net income......................................... 35,144 132,669 62,390 92,407
</TABLE>
Net income for the years ended December 31, 1999 and 1998 was calculated
assuming an effective income tax rate of 35% for the purposes of calculation.
The cleanroom distribution product group was managed as a division by
Laminaire during this period. Its assets and liabilities were commingled with
the assets and liabilities of Laminaire and its operating results were included
in Laminaire's overall results. eSAFETYWORLD acquired the business, customer and
vendor lists of this division and did not acquire any tangible assets of the
division.
The pro forma data does not give effect to proceeds, if any, from the
exercise of the underwriter's over allotment option.
3
<PAGE>
RISK FACTORS
You should carefully consider each of the following risks and all of the
other information contained in this prospectus before deciding to invest in
shares of our common stock. Some of the following risks relate principally to
our business in general and the industry in which we operate. Other risks relate
principally to the securities markets and ownership of our stock.
If any of the following risks and uncertainties develop into actual events,
our business, financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
Our business is subject to the following risks:
BECAUSE OUR OPERATING HISTORY IS LIMITED FROM THE PERIOD SINCE JUNE 1999, WE MAY
NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR ACHIEVE PROFITABILITY.
An evaluation of our future performance and prospects is difficult because
eSAFETYWORLD had no revenues during the period ended June 30, 1999 and no
operating history prior to this date. Our prospects must be considered in light
of the risks, expenses, delays, problems and difficulties frequently encountered
in the establishment of a new business. Our principal start-up risk relates to
the amount of time that will be required to become known to users of industrial
safety products and the willingmess of these users to order products on the
Internet. An investor in our common stock must consider the risks and
difficulties frequently encountered by early stage companies operating in new
and rapidly evolving markets.
WE WILL RELY HEAVILY ON IDEAL SALES INC. FOR THE DELIVERY OF OUR PRODUCTS. THE
LOSS OF IDEAL SALES COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS.
We will rely on Ideal Sales Inc. to be the vendor for a substantial
majority of the products that we will sell. Ideal has purchase agreements with
many different vendors and incurs the warehousing costs to maintain products in
its own inventory. The loss of Ideal or a significant reduction in the number of
products that it distributes would require us to enter into supply agreements or
relationships with many individual vendors and could require us to incur
inventory holding costs.
Furthermore, we are linking our computer system to Ideal's to facilitate
our customer service operations. The loss of Ideal could restrict our customer
service capabilities because we might not have similar access to other vendors'
inventory and delivery information.
Any restrictions on Ideal's willingness to ship products or the loss of
this vendor would adversely affect our business.
4
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the shares being offered in this offering
at an assumed public offering price of $7.00 per share are estimated to be
$5,794,000, after deducting the 10% underwriting discount, three percent
non-accountable expense allowance payable to the underwriter, plus an additional
$200,000 in estimated offering expenses payable by us and assuming that the
underwriter's over allotment option is not exercised. If the underwriter's over
allotment option is exercised in full, our net proceeds are estimated to be
$6,707,500.
We intend to use the net proceeds as described in the following table:
<TABLE>
<S> <C> <C>
Marketing................................................................ $ 4,130,000 70%
Repayment of promissory notes............................................ 375,000 6
Capital expenditures, including equipment................................ 350,000 6
Website development...................................................... 250,000 4
Payment of obligations to vendors........................................ 200,000 3
Consulting fee to underwriter............................................ 96,000 2
General working capital.................................................. 489,000 9
------------ ---------
Total.................................................................... $ 5,890,000 100%
------------ ---------
------------ ---------
</TABLE>
The marketing costs will consist of:
o advertising,
o general promotional activities,
o creation and distribution of CD-ROMs,
o attendance at trade shows and conventions,
o follow-up with prospective vendors and customers, and
o the personnel costs associated with those functions
The proceeds will be used to repay promissory notes executed in August 1999
in the aggregate principal amount of $375,000. The principal amount of the
promissory notes has been used for general working capital and to pay for
expenses incurred in connection with the acquisition of the division from
Laminaire and expenses related to this offering.
We anticipate paying an aggregate of $200,000 to Kimberly-Clark
Corporation, The Texwipe Company LLC and Alma, Inc., three of our suppliers, as
required under our guarantees of the obligations of Laminaire. We issued these
guarantees as part of our acquisition of the distribution division of Laminaire.
We anticipate that Laminaire will not pay these vendors because of its cash flow
limitations and that we will make these payments at the closing of the offering.
We will deduct any amounts paid under the guarantees from the amounts owed by us
to Laminaire under the promissory notes in the aggregate principal amount of
$500,000 issued when we acquired the distribution division of Laminaire. The
remaining amounts due under the notes will be
o paid from revenues generated by operations,
o refinanced from other sources, or
o reduced by cancellation of a note due from Laminaire in the principal
amount of $102,000.
Website development will include ongoing enhancements to our site as well
as assisting vendors and other strategic partners in developing material for our
site.
Working capital will include salaries, rent and administrative expenses and
inventory financing. A portion of working capital will be used to satisfy
approximately $125,000 in obligations to vendors, assumed in the purchase of the
distribution division from Laminaire.
This allocation is only an estimate and we may adjust it as necessary to
address our operational needs in the future. For instance, we may use a portion
of the net proceeds to acquire complementary technologies or businesses.
However, we have no commitments or agreements and are not involved in any
negotiations to purchase any technology or businesses.
We reserve the right to reallocate proceeds to different uses, including
ways which differ from the specific proposed uses described in this prospectus
if management determines the needs of the business so require. In addition, a
large portion of the proceeds is allocated to discretionary purposes. Investors
may not agree with the allocation or reallocation. Based on our operating plan,
we believe that the net proceeds of this offering, together with available funds
on hand and cash flow from future operations, will be sufficient to satisfy our
working capital requirements for at least 12 months following this offering. Our
belief is based upon assumptions, including assumptions about our contemplated
operations and economic and industry conditions. If we are able to make
significant acquisitions for cash consideration, we would require additional
capital. In addition, contingencies may arise that may require us to obtain
additional capital.
We cannot be sure that we will be able to obtain additional capital on
favorable terms or at all. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in short-term, interest-bearing, investment
grade securities or similar quality investments.
5
<PAGE>
DILUTION
Our net tangible book value as of October 31, 1999 was $0 per share. Net
tangible book value per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities and divided by the total number
of shares of common stock outstanding. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the net tangible book value per
share of common stock immediately after the completion of this offering. After
giving effect to the sale of the 1,000,000 shares of common stock offered by us
at an assumed initial public offering price of $7.00 per share, and after
deducting the underwriting discount and estimated offering expenses payable by
us, our net tangible book value at October 31, 1999 would have been
approximately $5,900,000 or $2.01 per share of common stock. This represents an
immediate increase in net tangible book value of $2.01 per share to existing
stockholders and an immediate dilution of $4.99 per share to new investors of
common stock. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................................ $7.00
Net tangible book value per share before the offering.................................. $0.00
Increase per share attributable to new investors....................................... 2.01
-----
Pro forma net tangible book value per share after the offering......................... 2.01
-----
Dilution per share to new investors.................................................... $4.99
-----
-----
</TABLE>
The following table summarizes, on an as adjusted basis after giving effect
to the offering, as of October 31, 1999, the differences between the existing
stockholders and new investors with respect to the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid:
<TABLE>
<CAPTION>
SHARES OWNED CONSIDERATION
------------------- --------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Present shareholders...................... 2,000,000 67% $ 10,000 .1% $ .001
New investors............................. 1,000,000 33% 7,000,000 99.9% 7.00
--------- ----- ---------- -----
Total................................... 3,000,000 100% $7,010,000 100.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
CAPITALIZATION
The following table states our capitalization as of October 31, 1999 and as
adjusted to reflect the sale of the 1,000,000 shares and the application of the
estimated net proceeds. This table should be together with our financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- -------------
<S> <C> <C>
Debt--notes payable................................................................ $ 656,000 $ 300,000
---------- -----------
Stockholders' equity;.............................................................. 2,000 3,000
common stock, par value of $.001 per share; 20,000,000 authorized;
2,000,000 shares outstanding; 3,000,000 shares outstanding as adjusted
Additional paid-in capital......................................................... 708,000 6,596,900
Retained earnings.................................................................. 44,671 44,671
---------- -----------
Total stockholders' equity...................................................... 754,671 6,644,571
---------- -----------
Total capitalization............................................................ $1,410,671 $ 6,944,571
---------- -----------
---------- -----------
</TABLE>
Our calculation of common shares outstanding as adjusted for the offering does
not give effect to:
o 150,000 additional shares of common stock that are issuable upon the
exercise of the underwriter's over-allotment option; and
o 100,000 shares of common stock reserved for issuance upon the exercise of
the underwriter's warrant.
The "As adjusted" column treats the $100,000 fee for a 24-month consulting
agreement with the underwriter as a prepaid asset.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read together with the financial
statements and notes included elsewhere in this prospectus.
RESULTS OF OPERATIONS
General--We had no operating history prior to June 30, 1999. In August
1999, we acquired the business of the Distribution Product Group of Laminaire
Corporation. Our business strategy for the year following the completion of the
offering is designed to have us identified as the Internet independent sales
representative for the mid and small sized companies in our market niches. This
strategy is to:
o attend and present at trade shows,
o host receptions for potential customers and vendors,
o work with World Internet Marketing Corporation and others to implement a
state-of-the-art Internet marketing campaign,
o prepare and distribute a CD-Rom,
o prepare and distribute printed advertising and promotional material, and
o visit or otherwise contact directly targeted customers and vendors.
In December 1999, we entered into a supply agreement with Ideal Sales,
Inc., a traditional wholesaler of industrial safety products. The agreement will
provide us with the ability to sell more than 15,000 different products
distributed by Ideal. We anticipate that Ideal will become our principal
supplier.
FOUR MONTHS ENDED OCTOBER 31, 1999.
eSAFETYWORLD included the results of the former Distribution Product Group
in its results commencing with the acquisition date in August 1999. Therefore,
approximately two and a half months of sales are included.
Operating results are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Sales................................................................. $355,969 $469,235
Cost of sales......................................................... 213,110 402,927
Gross profit.......................................................... 142,859 66,308
</TABLE>
The amounts in 1998 consist of the comparable period in 1998 for the
distribution division when it was owned and operated by Laminaire.
Our results in 1999 were adversely affected by:
o the need to overcome vendor issues involving past due payments from
Laminaire. We experienced difficulties obtaining shipments through
October while we established our own relationships with vendors whose
payments were delayed by Laminaire. We executed agreements with three
principal vendors in September 1999 which guaranteed payment of amounts
owed to these vendors by Laminaire. Most of the negotiations with
Laminaire's former vendors were completed by the end of October.
o the loss of an indeterminate amount of sales resulting from our inability
to ship some products while we engaged in negotiations with vendors.
We realized a higher gross margin on sales during the four months ended
October 31, 1999 than was realized by the distribution division in 1998 because
of:
o favorable pricing on shipments in September 1999
o the reduction in warehousing and shipping costs by having vendors ship
directly to customers
In addition, the amounts in 1998 include sales that were made at very low
margins to large companies. Some of these sales were in connection with
contracts given to Laminaire when it was eligible for various
7
<PAGE>
set-aside and similar programs as a minority owned business. No similar low
margin sales took place in 1999.
Our remaining costs in addition to cost of sales consisted principally of:
o salaries of $33,949
o amortization of the acquired assets of $41,600. Amortization expense
commenced with the date of acquisition.
During this period, our efforts principally were directed towards:
o Completing the supply agreement with Ideal Sales, Inc.;
o Overcoming vendor issues inherited from the Laminaire purchase;
o Developing and refining our overall strategy; and
o Planning this offering.
Distribution product group division--During the periods discussed below,
the division operated as a product group of Laminaire. Laminaire lacked the
financial resources and credit terms from its suppliers to develop the
division's business fully. The principal fluctuations resulted from the changes
in Laminaire's ability to commit resources during the period. Also, Laminaire
used cash generated by the division to help it meet its overall obligations.
Past operating results are not necessarily indicative of future performance.
In September 1999, we entered into letter agreements with Kimberley-Clark
Corporation, The Texwipe Company LLC and Alma Inc., the three principal vendors
of the division prior to our entering into the Ideal agreement. Because
Laminaire was in arrears in its accounts payable to these three suppliers, we
entered into the agreements in order to arrange for continued shipments of
products from these vendors. The amount initially guaranteed to Kimberly-Clark
was $85,450, to Texwipe was $56,284 and to Alma was $77,845, for an aggregate of
$219,579. The agreements provide that we will pay open balances due by Laminaire
to the vendors as of the closing date of this offering. All payments made by us
for these purposes will be offset against the notes in the principal amount of
$500,000 due by us to Laminaire. At November 30, 1999, the aggregate amount owed
by Laminaire to these vendors was approximately $200,000.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The product group became part of eSAFETYWORLD in August 1999. These results
are not comparable to results following the acquisition because our methods of
operating and shipping are very different from Laminaire's methods. Unlike
Laminaire, we do not store and ship our own inventory. Therefore, we will not
have any inventory holding or overhead costs to include in cost of sales. The
amount of joint overheads allocable by Laminaire to its various divisions was
based on several factors including the volume of sales and other activity
generated by each division. Therefore, the amounts allocable could vary
significantly from year-to-year.
8
<PAGE>
A summary of sales and cost of sales by product type for the period prior
to the acquisition is shown below.
<TABLE>
<CAPTION>
SALES BY PRODUCT 6/30/98 6/30/99
- ------------------------------------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Gloves.......................................... $130,400 17.5% $148,311 17.1%
Wipers.......................................... 227,890 30.5% 264,594 30.5%
Accessories..................................... 111,325 14.9% 154,786 17.8%
Mats............................................ 111,177 14.9% 91,893 10.6%
Disposable garments............................. 117,469 15.7% 97,125 11.2%
Cleanroom furniture............................. 5,476 0.7% 41,053 4.7%
Chairs.......................................... 8,587 1.2% 10,988 1.3%
Fabric garments................................. 11,142 1.5% 12,713 1.5%
Vacuum products................................. 14,592 2.0% 35,602 4.1%
Foam wipers..................................... 7,402 1.0% 7,873 0.9%
Static products................................. 865 0.1% 2,832 0.3%
-------- ----- -------- ------
Total........................................... $746,325 100.0% $867,770 100.0%
-------- ----- -------- ------
-------- ----- -------- ------
</TABLE>
<TABLE>
<CAPTION>
COST OF SALES 6/30/98 6/30/99
- ------------------------------------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Gloves.......................................... $ 94,143 12.6% $121,240 14.0%
Wipers.......................................... 172,651 23.1% 211,140 24.3%
Accessories..................................... 78,433 10.5% 121,946 14.1%
Mats............................................ 89,062 11.9% 68,836 7.9%
Disposable garments............................. 99,142 13.3% 72,456 8.4%
Cleanroom furniture............................. 3,918 0.5% 28,937 3.3%
Chairs.......................................... 6,386 0.9% 6,768 0.8%
Fabric garments................................. 6,191 0.8% 8,569 1.0%
Vacuum products................................. 11,997 1.6% 7,689 0.9%
Foam wipers..................................... 2,724 0.4% 2,830 0.3%
Static products................................. 686 0.1% 2,327 0.3%
-------- ----- -------- ------
Total........................................... $565,333 75.7% $652,738 75.2%
-------- ----- -------- ------
-------- ----- -------- ------
</TABLE>
The division did not emphasize particular products during any period. The
fluctuations are a result of orders received in the normal course of business
and not of any concerted marketing efforts.
9
<PAGE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 % 1997 % DIFFERENCE
---------- ----- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................. $2,267,846 100% $1,506,607 100% $761,239
Cost of revenues.......................... 2,070,174 91.28% 1,117,464 74.17% 952,710
Gross profits............................. 197,672 8.72% 389,143 25.83% -191,471
Selling................................... 98,148 4.33% 154,905 10.28% -56,757
General and administrative................ 45,457 2.00% 30,132 2.00% 15,225
Operating profits......................... 54,167 2.39% 204,106 13.55% -149,939
</TABLE>
In 1998, the division had a significant amount of low margin sales that
required minor sales efforts. Also in 1998, the division had one fewer full-time
employee, resulting in a reduction of selling expenses.
The composition of sales and cost of sales was as follows:
<TABLE>
<CAPTION>
SALES BY PRODUCT TYPE 12/31/98 12/31/97
- -------------------------------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Gloves...................................... $ 328,478 14.5% $ 340,731 22.6%
Wipers...................................... 652,221 28.8% 313,362 20.8%
Accessories................................. 348,738 15.4% 272,093 18.1%
Mats........................................ 265,795 11.7% 261,631 17.4%
Disposable garments......................... 456,453 20.1% 163,815 10.9%
Cleanroom furniture......................... 65,238 2.9% 69,175 4.6%
Chairs...................................... 89,128 3.9% 23,482 1.6%
Fabric garments............................. 18,992 0.8% 22,877 1.5%
Vacuum products............................. 15,985 0.7% 17,737 1.2%
Foam wipers................................. 14,307 0.6% 15,131 1.0%
Static products............................. 12,511 0.6% 6,573 0.4%
---------- ----- ---------- ------
Total....................................... $2,267,846 100.0% $1,506,607 100.0%
---------- ----- ---------- ------
---------- ----- ---------- ------
</TABLE>
<TABLE>
<CAPTION>
COST OF SALES 12/31/98 12/31/97
- -------------------------------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Gloves...................................... $ 228,379 10.1% $ 236,030 15.7%
Wipers...................................... 647,253 28.5% 240,072 15.9%
Accessories................................. 260,488 11.5% 196,244 13.0%
Mats........................................ 194,526 8.6% 180,714 12.0%
Disposable garments......................... 360,238 15.9% 113,566 7.5%
Cleanroom furniture......................... 45,975 2.0% 45,133 3.0%
Chairs...................................... 80,249 3.5% 15,028 1.0%
Fabric garments............................. 12,311 0.5% 15,048 1.0%
Vacuum products............................. 11,356 0.5% 12,371 0.8%
Foam wipers................................. 6,415 0.3% 5,142 0.3%
Static products............................. 4,190 0.2% 6,143 0.4%
---------- ----- ---------- ------
Total product cost.......................... 1,851,380 81.6% 1,065,491 70.7%
Overheads................................... 218,974 9.7% 51,473 3.5%
---------- ----- ---------- ------
Total....................................... $2,070,174 91.3% $1,117,464 74.2%
---------- ----- ---------- ------
---------- ----- ---------- ------
</TABLE>
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We entered into two promissory notes with unrelated parties in August 1999
in the aggregate principal amount of $375,000. The principal amount of the
promissory notes has been used for general working capital and to pay for
expenses incurred in connection with the acquisition of the division from
Laminaire and expenses related to this offering. The notes will be repaid from
the proceeds of this offering.
We issued promissory notes in the aggregate principal amount of $500,000 to
Laminaire in August 1999 when we acquired the business and vendor and customer
lists of the distribution division of Laminaire. One note is in the principal
amount of $200,000 and bears interest at the rate of eight percent per annum.
The note is payable in equal quarterly installments commencing March 31, 2000.
The second note is in the principal amount of $300,000 and bears interest at the
rate of eight percent per annum. The note is payable in 20 equal quarterly
installments commencing June 30, 2000.
The amount owed to Laminaire under the two promissory notes will be offset
by the amount paid by us under guarantees of obligations of Laminaire to three
of its principal vendors. As of the closing of this offering, we will have paid
approximately $219,000 under such guarantees. This amount includes $200,000
payable from the proceeds of the offering. In August 1999, we also made a demand
loan to Laminaire in the principal amount of $102,000. We may apply the amounts
due under the demand loan to the amounts owed Laminaire under the two promissory
notes. Any remaining amounts due under these notes will be paid from revenues
generated by operations or refinanced from other sources.
We believe that the net proceeds of this offering will be sufficient to
satisfy our working capital requirements for at least 12 months following this
offering because most of our expenditures relate to marketing. We have
discretion over the timing and amount of these expenditures. In addition, our
emphasis on outsourcing means that our level of fixed costs is relatively low,
less than $100,000 per month, and we have no material obligations or
requirements for capital expenditures. Our principal commitments in the year
2000 relate to obligations under employment agreements in the aggregate amount
of $200,000.
We have no commitments for financing. If the offering is not completed, we
would seek to obtain sources of financing or to refinance existing notes
payable, although no assurances can be given that we will be successful. We
would seek to obtain financing through expanding our lines of credit with
vendors or though the sale of equity or debt securities. We will seek to obtain
financing through expanding our lines of credit with vendors or through the sale
of equity or debt securities.
SEASONALITY
The demand for our products is somewhat seasonal. Our customers have a
reduced demand for our products in the summer due to the fact that many of our
customer's employees take vacation, plants are often closed during a portion of
the summer months and there is a general reduction of activity in those months.
NEW ACCOUNTING PRONOUNCEMENTS
No new pronouncement issued by the Financial Accounting Standards board,
the American Institute of Certified Public Accountants or the Securities and
Exchange Commission is expected to have a material impact on our financial
position or reported results of operations.
YEAR 2000 ISSUES
We did not experience any interruptions or problems caused by Year 2000
issues nor did any of our principal suppliers or customers, including Spider,
Inc., our principal provider of software and hardware support and services.
11
<PAGE>
FORWARD LOOKING INFORMATION
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to:
o our future plans;
o objectives;
o expectations and intentions; and
o the assumptions underlying or relating to any of these statements.
We use words like as "expects," "anticipates," "intends," "plans" and
similar expressions to identify forward-looking statements.
12
<PAGE>
BUSINESS
INTRODUCTION
eSAFETYWORLD was established as a Nevada corporation in July 1997 as The SL
Group, Inc. We changed our name to eSAFETYWORLD, Inc. in August 1999. Our
purpose is to sell disposable garments and industrial safety equipment to
companies involved in production or other activities that must be done in
controlled environments or whose employees are exposed to environmental hazards
or otherwise require protective garments or equipment. We intend to expand our
traditional distribution business through the development and operation of a
business-to-business e-commerce site on the world wide web. Our business model
is based on the following assumptions:
o The business-to-business market available to Internet sellers is growing
rapidly based on many publicly available articles and studies, including
one published by the United States Department of Commerce in 1998
entitled The Emerging Digital Economy that projected that
business-to-business e-commerce revenues will increase from $8 billion in
1997 to $326 billion in 2002.
o The targeted industry segment is large and being serviced by a
significant number of entrants. The annual United States market for
industrial safety products that we intend to sell is estimated to be in
excess of $10 billion by R.K. Miller, P.C. Walker and C.E. Purcell in
their book, "Occupational Safety and Industrial Hygiene Market" published
in 1998. The 1999 edition of the Thomas Register, a trade directory,
lists several thousand vendors.
o Based upon our conversations with industry participants, a significant
part of the selling effort in these segments takes place through the
distribution of catalogs and brochures. Our principal premise is that
sales and orders placed through the Internet offer an ideal replacement
for traditional catalogs.
Our business model is designed to take advantage of the Internet as a
selling medium. eSAFETYWORLD believes that the Internet offers significant
opportunities in the areas of e-commerce, including the ability to reach a large
potential market without the need for substantial advertising expenditures. The
ability to reach a worldwide market means that even a small degree of
penetration can result in a high level of sales revenue. The keys needed to
succeed in e-commerce include:
o Having user friendly software;
o Using a business model that does not require significant amounts of
development costs or working capital; and
o Developing a methodology for encouraging visitors to visit the website
and advertising at a reasonable cost.
Our strategic plan is to:
o Become a significant factor in the marketplace by becoming the Internet
seller for a wide array of available products. We want to become the
Internet independent sales representative for the industries that we
serves and will serve; and
o Utilize and modify existing technology in an effective, user friendly
way.
eSAFETYWORLD's goal is to use well-developed Internet technology and not
incur significant expenditures for technological research and development. We
will seek ways to use this technology profitably, like targeting market niches,
and will allow others to assume the technological risk of new development. In
addition, we intend to introduce new selective catalogues and brochures targeted
to specific product groups and CD-ROMs to be distributed free of charge.
Our website is located at WWW.ESAFETYWORLD.COM and became operational in
November 1999. All of the frontend design work has been completed. Under our
agreement with Ideal Sales Inc. executed in December 1999, we are adding the
15,000 products distributed by Ideal to the website. We expect that these
products will be added by February 2000. The proceeds of the offering are not
necessary to complete development of the website. We will, however, rely on the
proceeds of the offering and funds from operations to continue to operate and
expand the website to include additional products offered by vendors. Our growth
and expansion into new product areas is dependent on operation of the website.
Customers who do not use our website can continue to order via toll free
telephone numbers.
13
<PAGE>
We believe that industrial safety products that are sold through
traditional printed catalogues and brochures are uniquely suited for sale on the
Internet. The reasons for this include:
o Products bought through catalogues are purchased by people who do not
need to "touch" or "feel" the product prior to purchase;
o E-commerce can make purchasing easier and quicker than filling out forms
in a catalogue or brochure or calling a toll-free telephone number; and
o E-commerce can provide more information and update information more
quickly than can distributors of catalogues.
We also believe that fixed costs must be kept to a minimum in order to
increase operating leverage. The principal advantage of using the Internet as a
selling vehicle is the ability to avoid incurring significant fixed costs. The
key element of this strategy is to:
o minimize or eliminate inventory holding and shipping costs;
o minimize the need for expensive advertising campaigns by selecting market
niches that can be reached through trade shows and less expensive forms
of advertising; and
o out source services wherever possible.
Keeping fixed costs to a minimum is achievable if fulfillment supply
contracts are negotiated with vendors to perform all or most fulfillment
functions. We have entered into an agreement with Ideal. This agreement gives us
access to 15,000 products, all to be included on our website. This vendor will
arrange for shipment and will accommodate small or limited orders. Based on our
preliminary discussions with other vendors, we believe that many of our current
and potential vendors will agree to similar terms although, in some instances,
we may have to pay premiums for products, particularly if order quantities are
small. We will eliminate products from our site if the associated vendors will
not perform fulfillment functions. We believe that this strategy may result in
some lost sales. However, we also believe that the strategy offers the best
means of achieving the potential high degree of operating leverage afforded by
Internet commerce.
Risks associated with our strategy include:
o an evolving business model based on using existing Internet and software
technologies to establish e-commerce businesses in specific market
niches;
o ability to maintain and expand a customer base;
o ability to manage working capital and product return risks;
o the need to manage growth and changing operations;
o the need to continue to develop and upgrade our websites,
transaction-processing systems and infrastructure;
o ability to scale our systems and fulfillment capabilities to accommodate
the growth of our business;
o ability to access and obtain additional capital when required; and
o dependence on the reliability and growing use of the Internet for
commerce and communication and on general economic conditions.
We expect to incur operating losses and negative cash flow because of costs
and expenses related to online operations.
Operating losses are expected to continue because of expenses related to:
o marketing and other promotional activities, including the anticipated
expenditure of $4,130,000 from the proceeds of this offering;
o the expansion of financial, management and order fulfillment
infrastructure;
o the development of our website, transaction-processing systems and
management infrastructure;
o the expansion of product offerings and website content;
o strategic relationship development with members of the industrial safety
products industry; and
o amortization of goodwill and other intangibles.
14
<PAGE>
BACKGROUND
We conducted no material operations in our organization between July 1997
and August 1999, other than to develop our business plan and strategy. The SL
Group was formed for the purpose of receiving shares of an investment in an
unrelated business. The proposed investment in the unrelated business, which did
not take place, involved a consumer products distribution business doing
business in Russia. It was to be operated by Mr. Jenkins, a director and our
chief financial officer. The SL Group had no operations but was used by our
founders to establish the business of eSAFETYWORLD.
The officers and directors of eSAFETYWORLD decided to develop an e-commerce
business to sell disposable garments and equipment. After studying Laminaire's
distribution division, we concluded that, although it was narrowly focused,
acquiring the business of its distribution division, including its vendors and
customer lists, would benefit eSAFETYWORLD's business. The purchase price was
based on negotiations and reflected Laminaire's needs to satisfy some of its
past due liabilities and our interest in obtaining further visibility in the
market place. We did not obtain an independent fairness opinion.
In August 1999, we acquired the distribution division of Laminaire. The
purchase price was 100,000 shares of common stock, notes payable in the
aggregate principal amount of $500,000 and the assumption of accounts payable
and accrued expenses of $125,000. The notes payable bear interest at eight
percent per annum. One of the notes in the principal amount of $200,000 is
payable in 12 equal quarterly installments, and the other note in the principal
amount of $300,000 is payable in 20 equal quarterly installments. We have the
right to offset the principal amount of a $102,000 demand note that we made to
Laminaire, in whole or in part, against any payment due by us to Laminaire under
these note agreements. In addition, we can offset the approximately $200,000
subject to our guarantees of amounts due by Laminaire to three of its vendors
against any amount due by us to Laminaire under the promissory notes. The first
installments due under the promissory notes are payable at the earlier of our
completion of this offering or March 31, 2000.
Laminaire's division, which has been in operation for more than 20 years,
provides us with an entree to the vendors and customers of a targeted industry
niche. The division provides us with access to approximately 500 industrial
safety products to distribute, including disposable/limited use apparel, hoods,
gloves, packaging and flooring material, monitoring devices, electrostatic
devices, furnishings, wipers, and swabs. The 500 products offered by the
distribution division are targeted to mid-sized and small customers throughout
the United States that use cleanrooms, particularly research laboratories and
microelectronic facilities. Traditionally, no customer has accounted for than
10% of the division's sales. The top 100 products constituted approximately 50%
of the division's revenues in the last two years. The distribution division has
competed with numerous other small distributors and independent sales
representatives.
The principal vendors, who accounted for approximately 80% of purchases in
the 12 months ended June 30, 1999, include The Texwipe Company, Alma, Inc. and
Kimberly-Clark Corporation. We guaranteed the amounts due by Laminaire to these
vendors to ensure ongoing deliveries and to establish positive relationships
with these vendors. Laminaire had become increasingly delinquent in its payments
to these vendors which resulted in deteriorating relationships and interruption
of shipments. As a result of these guarantees and our timely payments for new
orders, shipments from these vendors are not being delayed.
Purchases and sales for the distribution division are typically made
through invoices and sales orders. The division has no long term supply or sales
contracts. Its personnel prior to the acquisition by eSAFETYWORLD consisted of
three full time employees and a manager who devoted a portion of his time to the
division. Laminaire primarily marketed the division's products through
telemarketing by employees and distribution of print catalogues and materials.
Its website has very limited e-commerce capabilities but is linked to several
other sites, including Thomas Register.
We have included the approximately 500 products distributed by the division
on our website. The products sold by eSAFETYWORLD are available from a wide
variety of vendors and we believe that the loss of any vendor other than Ideal
will have no material impact on our business or on product availability.
During the period August 1999 through December 1999, we operated the
distribution division's business substantially the same way as Laminaire did
except that we arranged for more of our vendors to ship products directly to our
customers. In February or March 2000, we will begin to rely more heavily on our
website, which is more sophisticated than Laminaire's website. The two
salespeople currently employed by us
15
<PAGE>
were formerly Laminaire's sales force for the Distribution Division. Through
December 31, 1999 our product line consisted of substantially the same
approximately 500 products distributed by Laminaire's distribution division. We
anticipate that operations will change substantially in early 2000 when an
additional 15,000 products supplied by Ideal Sales, Inc. will be available on
our website as well as additional products provided by other vendors. The
product line of the acquired distribution division will then become an
increasingly less significant portion of our total business.
Edward A. Heil, our chairman, is a director of Laminaire. Steven W.
Schuster, one of our directors, is a member of the law firm that serves as
Laminaire's corporate counsel, and Mr. Schuster formerly was Laminaire's
corporate secretary. The negotiations for the acquisition were conducted on an
arms length basis. Mr. Schuster did not act as counsel for Laminaire, and
Mr. Heil did not participate in the Laminaire board meeting that approved the
transaction. Mr. Heil will provide management and financial services consulting
services to us through EH Associates LLC, an entity affiliated with Mr. Heil. On
average, Mr. Heil is currently devoting about 35 hours per week to us. He will
continue as a director of Laminaire after the offering.
Ms. Owens, one of our directors, is employed by Laminaire as special
assistant to the board of directors but will sever all relationships with
Laminaire upon completion of the offering. Ms. Owens devotes approximately 15
hours per week to us. She will perform investor relations, employee benefits and
personnel administration for us through EDK Associates, LLC, which is controlled
by Ms. Owens. Mr. McClelland, one of our officers, will become a full time
employee at the completion of the offering, at which time he will sever his
relationship as a division manager with Laminaire. Currently, he devotes a
substantial portion of his time to Laminaire. Peter Daniele is chief financial
officer of Laminaire where he works three days per week. He was our chief
financial officer from August through October 1999, but no longer has any
involvement with us. Neither Ms. Owens, Mr. McClelland nor Mr. Daniele
participated in any of the negotiations relating to the purchase transaction. At
the conclusion of the offering, Mr. Heil is the only individual who will be
affiliated with both us and with Laminaire.
NATURE OF THE INTERNET
The Internet is an increasingly significant medium for communication,
information and commerce. The September 16, 1999 edition of The Wall Street
Journal Interactive Edition reported a research study conducted by Goldman Sachs
that concluded that the value of business-to-business e-commerce conducted in
the United States will increase from approximately $114 billion in 1999 to an
estimated $1.5 trillion by 2004.
We believe that growth in Internet usage and online commerce is being
fueled by a number of factors including:
o a large and growing installed base of personal computers in the workplace
and home;
o advances in the performance and speed of personal computers and modems;
o improvements in network security, infrastructure and bandwidth;
o easier and cheaper access to the Internet; and
o the rapidly expanding availability of commerce sites.
The Internet provides several advantages for online distributors. Online
distributors are able to "display" a larger number of products than traditional
store-based or catalog distributors at a lower cost. In addition, online
distributors are able to frequently adjust their featured selections, editorial
content, shopping interfaces and pricing, thus providing significant
merchandising flexibility. The minimal cost to publish on the web, the ability
to reach and serve a large and global group of customers electronically from a
central location, and the potential for personalized low-cost customer
interaction provide additional economic benefits for online distributors. Unlike
traditional distribution channels, online distributors do not have the
burdensome costs of managing and maintaining a retail store infrastructure or
the significant printing and mailing costs of catalogs. Online distributors can
also easily obtain demographic and behavioral data about customers, increasing
opportunities for direct marketing and personalized services.
We will further expand the benefits of online selling by using a
distribution model that requires minimal inventory on hand and by utilizing
software that can be modified or updated easily and cheaply.
16
<PAGE>
A key element of our strategy is to generate a high volume of traffic on,
and use of, our website. Our revenues depend on the number of customers who use
our website to purchase safety equipment. Our website, transaction processing
systems and network infrastructure performance, reliability and availability are
critical to our operating results. These factors also are critical to our
reputation and our ability to attract and retain customers and maintain adequate
customer service levels. The volume of goods we sell and the attractiveness of
our product and service offerings will decrease if there are any systems
interruptions that affect the availability of our website or our ability to
fulfill orders.
The business-to-business sector for industrial safety products is largely
served by individual company sites selling that particular company's products.
In many cases, these sites are viewed as a supplement to a company's traditional
selling efforts.
Our success will depend in large part on continued growth in, and the use
of, the Internet, particularly for business-to-business commerce. The issues
concerning the commercial use of the Internet that we expect to affect the
development of the market for our services include:
o security;
o reliability;
o cost;
o ease of access;
o quality of service; and
o increases in bandwidth availability.
If the Internet develops more slowly as a commercial or business medium
than predicted, it will adversely affect our business. In addition, companies
that control access to Internet transactions through network access or web
browsers could promote competitors or charge a substantial fee to us for
inclusion in their product or service offerings. Either of these developments
could adversely affect our business.
We must continue to enhance and improve the functionality and features of
our online site. The Internet and the online commerce industry are rapidly
changing. If competitors introduce new products and services embodying new
technologies, or if new industry standards and practices emerge, our websites
and systems may become obsolete. Our future success will depend on our ability
to:
o license or internally develop leading technologies useful in our
business;
o develop new services and obtain technologies that address the
increasingly sophisticated and varied needs of our prospective customers;
and
o respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
MARKET NICHES AND BACKGROUND
The market for disposable industrial garments and equipment has increased
substantially in the past twenty-five years. In 1970, Congress enacted the
Occupational Safety and Health Act or "OSHA," which requires employers to supply
protective clothing in some work environments. At about the same time, Dupont
developed Tyvek(TM) which, for the first time, allowed for the economical
production of lightweight, disposable protective clothing. The attraction of
disposable garments grew in the late 1970's with the increases in both labor and
material costs of producing cloth garments and the expansion of federal, state
and local regulations requiring that employees wear protective clothing to
protect against exposure to particular contaminants, including asbestos and
hydro-carbons known as "PCBs."
The use of disposable garments avoids the continuing costs of laundering
and decontaminating woven cloth work garments and reduces the overhead costs
associated with handling, transporting and replacing these garments. As
manufacturers have become aware of the advantages of disposable clothing, the
demand for disposable garments has increased. This has allowed for greater
production volume and, in turn, has reduced the cost of manufacturing disposable
industrial garments.
17
<PAGE>
We believe that this market will grow because of:
o Government legislation which mandates the clean up of toxic waste sites
and the elimination of hazardous materials from the environment as
required under various Congressional Super Fund Acts. The Environmental
Protection Agency designated OSHA to be responsible for the health and
safety of workers in and around areas of hazardous materials and
contaminated waste, as well as regulations requiring that employees wear
protective clothing to protect against exposure to particular
contaminants.
o Lower cost of disposable/limited use garments compared to reusable woven
and cloth garments because of the elimination of costs associated with
laundering, decontaminating, handling, transporting and replacing
reusable woven or cloth garments.
o Increasing workers' compensation claims and large class action liability
suits instituted by both present and prior employees for failure to be
protected against hazardous agents found in the workplace.
o Ongoing expansion in the semiconductor, microelectronics, medical device
and pharmaceutical industries, all of which require manufacturing in a
cleanroom environment.
We have identified two initial market niches:
Controlled environment facilities--Clean rooms are one of the most
effective approaches to achieving a contamination controlled environment. A
clean room is a specially designed room in which particulate presence and
environmental conditions are carefully maintained. Clean rooms are used for
product manufacture and assembly, testing, research and development, packaging,
aseptic processing and to perform medical/surgical procedures. Clean rooms are
operated and maintained under strict procedures to minimize the risk of
introducing foreign particles. The greatest demand for clean room products and
services has been and continues to be in the manufacture and assembly of
products based on modern technology. The semiconductor market is the largest
market for clean rooms and other contamination control products, as integrated
circuits can be rendered ineffective by a minute particle, undetectable to the
human eye, and must be discarded.
eSAFETYWORLD sells a large variety of disposable items, including hats,
coats, boots and gloves, that are used in cleanroom facilities. Disposable items
are ideal products for a distributor because they must be reordered on a regular
basis.
Industrial safety and hazardous worksites--We will sell products to "end
users," including manufacturing companies and service businesses, public
utilities, fisheries, pharmaceutical plants, the transportation industry and
companies whose employees are exposed to hazardous materials. Use of these
products has in a large part resulted from the adoption of OSHA and other
governmental safety standards and the awareness of industry and the general
public for the need to provide worker protection against hazardous materials
contained in industrial facilities, schools and buildings.
These products include coveralls, shirts, pants, headwear, hoods, aprons,
smocks, lab coats, hazardous material handler suits, examination gowns, sleeves,
shoe covers and related items. Many of these products are disposable and,
therefore, offer the same benefits as do disposable cleanroom products. Sales of
these products will begin shortly after the closing of the offering. The
limiting factor in making these products available prior to the closing of the
offering is our ability to demonstrate financial resources to establish trade
credit with vendors for product delivery.
Future market niches--We have identified several additional market niches
for future expansion, all of which appear to have the same attributes as
eSAFETYWORLD's initial market niches. The identified niches include products
serving the hospital, plumbing supply, construction and commercial heating and
air conditioning industries. We also expect to introduce a variety of industrial
first aid products during the first or second quarter of 2000.
The identified product areas include disposable/limited use protective
industrial garments, specialty safety and industrial work gloves, reusable woven
industrial and medical apparel, fire and heat protective clothing, along with
protective systems for personnel, and suits for use by toxic waste clean up
teams.
18
<PAGE>
Protective garments, including boots, goggles, aprons and overalls, are
used primarily for:
o Safety and hazard protection, to protect the wearer from contaminants or
irritants including chemicals, pesticides, fertilizers, paint, grease,
and dust and from limited exposures to hazardous waste and toxic
chemicals including acids, asbestos, lead, and PCB's;
o Clean room environments, for the prevention of human contamination of
manufacturing processes in clean room environments;
o Physical protection, to protect a wearer from laceration, splinters, eye
injuries, heat and chemical irritants without sacrificing manual
dexterity or comfort;
o Heat and fire protection, to protect municipal fire fighters, military,
airport and industrial fire fighting teams and for maintenance of "hot"
equipment including ovens, kilns, glass furnaces, refinery installations,
and smelting plants;
o Protection from viral and bacterial microbiologicals, to protect the
wearer from contagious diseases including AIDS and hepatitis, at
hospitals, clinics and emergency rescue sites; and
o Protection from highly concentrated and chemical and biological toxins,
to protect the wearer from toxic waste at Super Fund sites, accidental
toxic chemical spills or biological discharges, the handling of chemical
or biological warfare weapons and the cleaning and maintenance of
chemical, petrochemical and nuclear facilities.
Other ancillary products used in cleanroom and laboratory environments,
include:
o Packaging materials,
o Monitor devices,
o Flooring and mats,
o Electrostatic devices,
o Furnishings, and
o Wipers and swabs.
Disposable/limited use industrial garments are used in a wide variety of
industries and applications. Typical industry users are chemical plants,
petrochemical refineries and related installations, automotive manufacturers,
pharmaceutical companies, coal and oil power generation utilities and telephone
utility companies. There are many smaller industries that use these garments for
specific safety applications unique to their situation.
IMPLEMENTATION OF BUSINESS PLAN
o We intend to attend at least two trade shows or conventions per month. At
each show, we will arrange to exhibit our site and capabilities. We will
rent exhibit rooms at the convention sites for this purpose. We will also
collect the business cards and email addresses of attendees. These
efforts will be targeted at both prospective vendors and customers. We
will work with prospective vendors to convince them that we will help
bring them additional sales rather than be a competitor. Our message to
customers will be that we are a convenient one stop shopping source.
o We intend to engage marketing employees and selected consultants to
follow-up with and visit attendees of our presentations. In addition, we
will send regular email to all persons on our email lists.
o Within a month of the completion date of this offering, we intend to
start mailings of printed flyers.
o Within two months of the completion of the offering, we intend to start
distributing CD-ROMs free of charge both at shows and in the mail. The
CD-ROMs will contain the information typically contained in a printed
catalogue.
o We intend to start a full-time telemarketing campaign and customer
service program.
o We intend to work with trade groups to be their website of choice and
will negotiate agreements to have links from their website to our
website.
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During the first six months following the offering, we intend to enhance our
website to include:
o training programs sponsored by others;
o message boards; and
o improvements suggested by users and customers.
Our staff, management and known consultants can perform the initial phase of our
program if they are augmented by several marketing employees, telemarketers and
customer service representatives. Our goal is to have these people in place
within 60 days after the offering is completed.
SOFTWARE
Our strategy has been and is to license or otherwise obtain commercially
available technology whenever possible rather than seek internally developed
solutions. With this objective in mind, we have entered into an agreement with
an electronic commerce software company, Spider, Inc., and its affiliate, World
Internet Marketing Corporation. Through these agreements, we will have access to
state-of-the-art, end-to-end electronic commerce software, use of Spider's
primary and backup servers and access to Wincorp's e-commerce advertising and
marketing programs. We believe that our software solution is effective because
it is user friendly and easy to administer.
The Spider Web Commercial 2000 System is designed to be a total end-to-end
electronic commerce solution for stand alone interactive e-commerce enabled
business-to-business websites. Each virtual store is an electronic
commerce-enabled website designed to sell products over the Internet.
Because of our software technology, the maintenance of the website is
performed easily and requires fewer operating personnel. The Spider Web
Commercial 2000 software can be maintained by employees having skill levels
equal to order entry employees or store checkout employees. This feature is
advantageous because it enables us to maintain our own websites, as well as
scaling up employees to setup and build e-commerce websites commensurate with
the growth of the Internet. Entry level employees can easily, quickly and
efficiently add, delete or modify products within the website. These changes,
including prices, are simultaneously updated, in real time, in our
business-to-business site. Product displays may be enhanced with image animation
that can be added by the same level of employees.
Spider's technology was designed so that each business-to-business site may
have an unlimited number of departments and unlimited number of products under
each department or sub-department. The website is easily navigable by the
consumer, who may move fluidly among departments, sub-departments and products.
eSAFETYWORLD will use, on a nonexclusive basis, an e-commerce method,
developed with Spider and World Internet Marketing Corporation,
"E-Branding(TM)," which permits our virtual store to be linked seamlessly with
the websites of manufacturers and distributors. The method was developed by
Spider and licensed to eSAFETYWORLD. Once inside the virtual store, a customer
can immediately view all of a manufacturer's or distributor's products including
those which are not available in the retailer's "brick and mortar" store. A
customer can then order the desired product from an "E-Branded(TM)" website.
We are continually working with Spider to enhance and expand our technology
and transaction processing systems, and other technologies, to accommodate a
substantial increase in the volume of traffic on our website. Spider designs and
upgrades our software and website and provides us with servers, Internet
marketing and support services for $10,000 per month under the terms of written
agreement. The first payment is due following completion of this offering. Under
the agreement, Spider and Wincorp will also conduct an Internet marketing
campaign on our behalf. The agreement is terminable by either us or Spider after
December 31, 2001. We rely on Spider to maintain our website. We may be unable
to accurately project the rate or timing of increases in the use of our website.
We may fail to timely expand and upgrade our systems and infrastructure to
accommodate these increases. In addition, our failure to achieve or maintain
high capacity data transmission could significantly reduce consumer demand for
our services.
Our systems are and will continue to be designed based on industry standard
architectures and will be designed to reduce downtime in the event of outages or
catastrophic occurrences. These systems will provide 24-hour-a-day,
seven-day-a-week availability. The system hardware is operated by Spider in East
Northport, New York, and will provide redundant communications lines and
emergency power backup.
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MARKETING
Our goal is to become the independent Internet sales representative for and
an Internet portal to the industrial safety market. The division purchased from
Laminaire relied on catalogues distributed to customers to generate orders. We
intend to gradually phase out use of single comprehensive paper catalogue and
use a portion of the proceeds of the offering to convert the catalogue to
CD-ROMS's to distribute to customers. We intend to print catalogs on a selective
basis for various product groups. We will work with the purchasing departments
of all significant customers, both individually and at trade shows, to
familiarize them with our Internet ordering system. Most customers are medium
sized enterprises that use computer applications extensively in their
businesses. We do not anticipate any material adverse impact of existing
customers not wishing to use the Internet to place orders because we can
currently accommodate orders placed by phone or fax.
Our standard arrangement is:
o Split the profit on all items sold based on negotiated arrangements with
each "vendor."
o Arrange, wherever possible, for the manufacturer to distribute products
directly to end customers.
We will expand our product offerings by:
o Marketing our services and availability at trade shows; and
o Contacting potential users directly.
We need to develop and drive traffic through our website. We will market our
availability to customers by:
o Being active in all significant industry trade shows;
o Advertising in industry catalogs similar to and including the Thomas
Register;
o Implementing systematic e-mailing and brochure campaigns; and
o Making direct sales calls on targeted companies by independent
representatives.
These efforts will be coordinated with a full scale Internet marketing
campaign that we will conduct together with World Internet Marketing
Corporation, an entity engaged solely in that area. World Internet Marketing
Corporation has developed proprietary techniques to facilitate high ranking of
clients' websites on search engines. Our efforts will include:
o Distributing a specially designed CD-ROM for trade shows that uses a
patent pending software technology and several Internet marketing
opportunities. The multimedia interactive trade show CD-ROM interactively
displays our products in a manner that functions seamlessly with our
Internet e-commerce website. We will distribute CD-ROMS at trade shows
and also by mail to existing and prospective customers.
o Obtaining e-mail addresses of targeted groups. Wincorp's marketing staff
can identify all newsgroups and chat rooms on the Internet that discuss a
specific topic and extract applicable e-mail addresses or addresses from
local or regional geographic locations. All these addresses will receive
information by e-mail including selected "sales" and promotions. The
e-mail includes a hotlink to our website.
o Searching the entire Internet for all websites that display targeted
keywords to locate and extract target market e-mail addresses. Once all
targeted e-mail addresses are extracted, a customized e-mail message,
including text and/or banner advertisement with a website hotlink, will
be sent to each e-mail address included on the list.
The identified industry niches offer an advantage in that many vendors
participate in several trade shows each year. Therefore, we can meet with and
have access to these companies without incurring significant advertising
expenditures. We will attend these shows and:
o Distribute our CD-ROM,
o Make actual presentations showing that use of our service may add
incremental sales without incurring incremental costs prior to the sale
and
o Collect the e-mail and mailing addresses of participants for follow-up.
We will also engage in traditional mailing and telemarketing efforts.
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We will perform all billing and collection functions, even if vendors drop
ship products directly to our customers.
COMPETITION
We believe that there are hundreds of competitors selling products that are
similar to those sold by us based on listings in industry catalogs, including
the Thomas Register. The National Safety Council, a trade organization of
manufacturers and distributors, has over 15,000 members. The most significant
national competitor is Grainger Inc., a distributor of industrial safety
products, who distributes through stores, catalogues and a website. Many of our
competitors are regional companies selling through catalogs and independent
sales representatives. Increasing numbers of these competitors are also
establishing websites and e-commerce sites. Almost all of these companies
compete by:
o distributing catalogs in the mail,
o attending trade shows,
o engaging independent sales representatives and
o telemarketing.
In addition, increasing numbers of competitors are developing in-house websites
and relying on aggressive pricing.
We believe that our e-commerce site and our business strategy provide us
with a competitive advantage because:
o Our e-commerce site is user-friendly with significant amounts of
graphics.
o Our strategy requires low levels of working capital and few inventory
holding costs.
o Our strategy permits us to serve as a manufacturer's Internet independent
sales representative and does not put us in direct competition with other
sales efforts.
However, we can give no assurances that our approach will not be duplicated or
improved upon by others. If we face increased competition, our operating results
may be adversely affected.
CUSTOMER SERVICE
We believe that a high level of customer service and support is critical to
retaining and expanding its customer base and encouraging repeat purchases. A
customer service representative will be available from 8:00 a.m. to 8:00 p.m.
Eastern Time, five days a week, to provide assistance via e-mail or telephone.
We will strive to answer all customer inquiries within 24 hours commencing
shortly after the completion of the offering. Customer service representatives
handle questions about orders, assist customers in finding desired products and
register customers' credit card information over the telephone and, by June
2000, on a real time messaging system on our website. Customer service
representatives are expected to be a valuable source of feedback regarding user
satisfaction.
ORDER FULFILLMENT AND VENDORS
Our understanding with Ideal, Kimberly Clark, Alma and Texwipe call for
these vendors to drop ship products directly to our customers with customary
payment terms and without any advance payment by us. Products are purchased
using purchase orders or verbal agreements. No long term supply agreements,
including obligations to purchase inventory, exist. As our business grows and we
service other markets and provide a wider array of products, we anticipate that
we will rely less on these vendors.
A significant element of our strategic plan involves entering into
agreements with vendors under which the vendors will drop ship products directly
to our customers. Drop shipment substantially reduces our requirements to
maintain and store inventory. There can be no assurances that we will continue
to be successful in negotiating these arrangements with the vendors.
We anticipate that our principal vendor will be Ideal Sales Inc., a
wholesaler of industrial safety products. Under the agreement, we will offer
products available from Ideal, which currently number approximately 15,000.
Ideal will be the exclusive supplier of these products, which are manufactured
by select manufacturers. The agreement does not limit our ability to distribute
substantially similar products sold by other manufacturers, including our three
principal vendors. The prices for the products will be negotiated
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from time to time. All products will be purchased using standard purchase orders
and will be shipped to a customer specified by us. Upon completion of this
offering, we will get standard 30 day payment terms. Ideal will not receive any
royalties or commissions based on our sales. Ideal has agreed to link its
computers with ours. The link will allow all transactions to be transmitted
electronically and give us access to Ideal's inventory and shipping data to
provide more timely customer service. The agreement is terminable by either
party on 120 days prior written notice. We placed our first order, which was for
approximately $90,000, with Ideal in December 1999.
Our success depends on our ability to have access to products in sufficient
quantities at competitive prices. Vendors may offer exclusive allocations of
product to distributors for limited periods of time. Some potential vendors have
their own online commerce efforts, which may eliminate or reduce our ability to
get sufficient product allocations from these vendors. Competitors may also be
able to secure products from vendors on more favorable terms, fulfill customer
orders more efficiently and adopt more aggressive pricing or inventory
availability policies than us. Our business will be adversely affected if we are
not able to offer our customers sufficient quantities of products in a timely
manner or have access to products at acceptable prices and terms.
SECURITY
We use the secure socket layer or "SSL" transaction protocol to protect
sensitive information transferred to and from our servers. SSL is currently used
for most web-based e-commerce projects to protect credit card and other
processing. The servers used by us may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. Our business may be
adversely affected by customers' perceptions of Internet security or if our
security measures do not prevent security breaches.
REGULATION
Although there are few laws and regulations directly applicable to the
Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere covering issues like unsolicited bulk e-mailing,
license fees, copyrights, privacy, pricing, sales taxes and characteristics and
quality of Internet services. The adoption of restrictive laws or regulations
could slow Internet growth or expose us to significant liabilities associated
with content available on its websites or Internet marketing methods. The
application of existing laws and regulations governing Internet issues including
property ownership, libel and personal privacy is also very uncertain. There can
be no assurance that current or new government laws and regulations, or the
application of existing laws and regulations will not expose us to significant
liabilities, significantly slow Internet growth or otherwise cause a material
adverse effect on our business, results of operations or financial condition.
We do not collect sales or other taxes with respect to the sale of services
or products in states and countries where we believe that it is not required to
do so. One or more states or countries have sought to impose sales or other tax
obligations on companies that engage in online commerce within their
jurisdictions. A successful assertion by one or more states or countries that we
should collect sales or other taxes on products and services, or remit payment
of sales or other taxes for prior periods, could have a material adverse effect
on our business, results of operations and financial condition.
The Communications Decency Act of 1996, known as "CDA", was enacted in
1996. Although those sections of the CDA that, among other things, proposed to
impose criminal penalties on anyone distributing "indecent" material to minors
over the Internet were held to be unconstitutional by the U.S. Supreme Court,
there can be no assurance that similar laws will not be proposed and adopted.
Although we do not currently distribute the types of materials that the CDA may
have deemed illegal, the nature of similar legislation and the manner in which
it may be interpreted and enforced cannot be fully determined, and legislation
similar to the CDA could subject us to potential liability, which in turn could
have an adverse effect on our business, financial condition and results of
operations. These laws could also damage the growth of the Internet generally
and decrease the demand for our products and services, which could adversely
affect our business, results of operations and financial condition.
As a distributor of Internet content, we face potential liability for
negligence, copyright, patent, trademark, defamation, indecency and other claims
based on the nature and content of the materials that it
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broadcasts. These claims have been brought, and sometimes successfully pressed,
against Internet content distributors. In addition, we could be exposed to
liability with respect to the content or unauthorized duplication or broadcast
of content. Although we will maintain general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed. In addition, although we will
generally require our content providers to indemnify us for this liability, the
indemnification may be inadequate. Any imposition of liability that is not
covered by insurance, is in excess of insurance coverage or is not covered by an
indemnification by a content provider could have a material adverse effect on
our business, results of operations and financial condition.
We hold the WWW.ESAFETYWORLD.COM domain name, although we believe that in
the future we will hold additional various web domain names and trademarks. The
acquisition and maintenance of domain names generally is regulated by
governmental agencies and their designees. For example, in the United States,
the National Science Foundation has appointed Network Solutions, Inc. as a
registrar for the ".com",".net" and ".org" generic top-level domains. The
regulation of domain names in the United States and in foreign countries could
change in the near future. These changes in the United States are expected to
include a transition from the current system to a system that is controlled by a
non-profit corporation and the creation of additional top-level domains.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which it may conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
may be unable to prevent third parties from acquiring domain names that are
similar to, infringe upon or otherwise decrease the value of our trademarks and
other proprietary rights.
We are not regulated by the FDA, OSHA or the EPA. We do not presently
intend to sell products that require government approval. However, our customers
are subject to federal and state regulation related to industrial safety.
Changes in these laws and regulations could materially affect demand for
industrial safety products.
INTELLECTUAL PROPERTY
We regard the technology we use in connection with the operation of our
website as proprietary, but have no existing or pending patent or copyright
protection. We rely on the following to protect our software and other propriety
technology:
o confidentiality and license agreements with third parties,
o trade secret and trademark laws, and
o common law copyright.
PROPERTIES
We will operate out of rented 1,200 square feet of office space located at
100-3 South Jersey Avenue, East Setauket, New York 11733. The month-to-month
verbal lease calls for monthly payments of $1,000 and is payable to Morgan
Bishop, Inc., an entity controlled by Mr. Burghard, who owns 5% of our common
stock. We plan to lease a slightly larger amount of office space in New Jersey
to accommodate newly-hired sales people as well as employees and consultants who
reside in New Jersey.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
PERSONNEL
We have two full-time employees who are salespeople. We have officers who
devote various amounts of time to our business and will devote full time to us
at the completion of the offering as set forth under "Management". At the
completion of the offering we expect to have fewer than 15 full-time employees,
including Messrs. McClelland and Brownfiel, our vice presidents. Our strategic
plan is to use dedicated consultants and to outsource as many functions as
possible. Growth is not expected to result in significant increases in
personnel.
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Our success will depend upon continued services of Edward A. Heil and our
directors and consultants. Mr. Heil has formulated our business plan,
established our goals, worked with Mr. Paul White and other consultants on our
software development and has extensive contacts in the financial community. Our
consultants have extensive experience dealing with vendors and customers in our
target markets. The loss of one or more of our other key personnel or
consultants, or our inability to attract qualified personnel, could have a
material adverse effect on our business, financial condition and results of
operations. We are also dependent on Spider, Inc and its affiliate, World
Internet Marketing Corporation, for the development of our websites. The loss of
Spider as a vendor and consultant could have an adverse impact on us and our
operations.
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MANAGEMENT
Our management consists of:
<TABLE>
<S> <C> <C>
Edward A. Heil.............. 48 chairman, president and chief executive officer
R. Bret Jenkins............. 41 director, secretary, and chief financial officer
John C. Dello-Iacono........ 50 director
Bridget C. Owens............ 42 director, assistant secretary
Steven W. Schuster.......... 44 director
David McClelland............ 39 vice president
James Brownfiel............. 28 vice president
Paul White.................. 41 chief technology advisor
</TABLE>
Edward A. Heil is a founder of eSAFETYWORLD and has been president and a
director since 1997. He is a certified public accountant and a managing
director, since January 1992, in Independent Network Group, Inc., a financial
consulting firm. During that same period, he has been a principal of EH
Associates, LLC, a financial consulting firm. From 1984 through December 1991 he
was a partner in the accounting firm, Deloitte & Touche, LLP. From 1973 to 1984
he was employed in various professional capacities by Deloitte & Touche, LLP.
Mr. Heil holds Bachelor of Arts and Master of business Administration degrees
from New York University. Mr. Heil, who will devote from 50 to 60 percent of his
time to eSAFETYWORLD, is also a director of Laminaire Corporation and Worldwide
Financial Holdings, Inc. EH Associates, LLC has a consulting contract to provide
us with management and financial services.
R. Bret Jenkins has been a director since 1997 and became chief financial
officer in October 1999. He has been in the private practice of securities and
general business law for the past 15 years. Mr. Jenkins, who is also a director
of Worldwide Financial Holdings, Inc., holds Bachelor of Arts and Juris
Doctorate degrees from the University of Utah. JP, Inc., a consulting firm
controlled by Mr. Jenkins, has a contract to provide us with business services.
John C. Dello-Iacono has been a director since 1999. He has been a managing
director of Independent Network Group, Inc., a financial consulting firm since
1994. During this period he assisted companies and individuals in obtaining and
structuring financings. He holds a Bachelors degree from St. John's University.
Bridget C. Owens has been a director since June 1999. She has served as
special assistant to the board of directors of Laminaire Corporation since 1995.
Prior to that she was director of marketing for Independent Network Group, Inc
in 1994 and for Primac Inc., a privately-held transportation company from
1992-1993. Prior to Primac, Ms. Owens owned and operated a trucking and
transportation company.
Steven W. Schuster has been a director since August 1999. He has been a
member of McLaughlin & Stern, LLP, eSAFETYWORLD's counsel, since 1995. From 1997
through 1999, he was secretary of Laminaire. Mr. Schuster has practiced
corporate and securities law for the past 20 years. He received a Bachelor of
Arts degree from Harvard University and a Juris Doctorate from New York
University. Mr. Schuster is also a director of ACTV, Inc., an interactive
television company.
David McClelland has been an officer since October 1999. Mr. McClelland
will become a full time employee immediately following the completion of the
offering. He has held executive positions with Laminaire Corporation, a
manufacturer and distributor of cleanroom products, since 1980. Mr. McClelland
serves as division manager of the cleanroom distribution and manufacturing
divisions of Laminaire. He is a graduate of New Jersey Institute of Technology.
James Brownfiel has been an officer since August 1999. He has been a
project manager and general manager engaged in the installation of commercial
heating and air conditioning units since 1994. Since 1996, he has been a general
manager for Deshler Mechanical Corp. From 1995 to 1996, he was a District
Manager for Ferguson Enterprises. From 1994 to 1995, he was a project manager
for Porter Brothers Inc. He is a graduate of the University of Notre Dame.
Mr. Brownfiel is Mr. Heil's son-in-law and will become a full time employee
immediately following the completion of the offering.
Paul White has been chief technology advisor since January 1999. He founded
and is chief executive officer of Spider and World Internet Marketing
Corporation where he has worked since 1995. He has passed the Patent Bar and
writes software patents, trademarks and copyrights. From 1994 to 1995, he
invented and managed the development of medical laboratory billing software at a
medical laboratory software firm. From 1982 to 1994, Mr. White owned and
operated a chain of retail stores, The Wind & Surf Shop.
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BOARD OF DIRECTORS
All directors hold office until the completion of their term of office,
which is not longer than three years, or until their successors have been
elected. We have a staggered board of directors. All officers are appointed
annually by the board of directors and, subject to existing employment
agreements, serve at the discretion of the board.
The board of directors will have an audit committee, finance, operating and
compensation committee. The audit committee will review the results and scope of
the audit and other services provided by our independent auditors, review and
evaluate our system of internal controls. The finance committee will oversee our
treasury function. The operating committee will review and establish our
strategies, goals and direction. The compensation committee will manage our
stock option plan and review and recommend compensation arrangements for our
officers. All committees will commence operations concurrent with the completion
of the offering.
Directors shall receive $4,000 per year and $350 per meeting as
compensation for serving on the board of directors. All directors are reimbursed
by us for any expenses incurred in attending directors' meetings. We also intend
to obtain officers and directors liability insurance, although no assurance can
be given that it will be able to do so.
We intend to apply for director and officer liability insurance and also
keyman life insurance on the life of Mr. Heil. We have not yet obtained the
insurance.
POSSIBLE CONFLICTS OF INTEREST
Possible conflicts of interest could arise because Mr. Heil is a director
of Laminaire as well as being our chief executive officer. Mr. Heil will recuse
himself on all matters that come before our board of directors relating to our
dealings with Laminaire. Also, Mr. Jenkins, rather than Mr. Heil, will be
responsible for any negotiations that may be required in the future with
Laminaire.
STOCK OPTION PLAN
We have a stock option plan that expires in 2009 and enables us to grant
incentive stock options, non-qualified options and stock appreciation rights for
up to an aggregate of 450,000 shares of our common stock. Incentive stock
options granted under the plan must conform to applicable federal income tax
regulations and have an exercise price not less than the fair market value of
shares at the date of grant or 110% of fair market value for ten percent or more
stockholders. Other options and stock appreciation rights may be granted on
terms determined by the compensation committee of the board of directors.
EXECUTIVE COMPENSATION
No officer, director or employee has received compensation of $100,000, and
no director, officer or employee has a contract or commitment to receive annual
compensation in excess of $100,000 except as described below:
We intend to enter into a three-year employment agreement with
Mr. McClelland that will be effective at the effective date of the offering and
will call for an annual salary of $125,000 and reimbursement of business
expenses, including a car allowance. Mr. McClelland devotes approximately five
hours per week to us and will work full time for us upon completion of the
offering.
Mr. Brownfiel has a three-year employment agreement that becomes effective
at the effective date of the offering and calls for an annual salary of $75,000
in 2000, $85,000 in 2001 and $100,000 in 2002, as well as reimbursement of
business expenses, including a car allowance. Mr. Brownfiel devotes
approximately five hours per week to us and will work full time for us upon
completion of the offering.
We have an agreement with EH Associates, LLC, an entity associated with
Mr. Heil, under which we will pay annual consulting fees for general management
services of $125,000, $140,000 and $150,000 in each of the three years in the
period ended December 31, 2002. Mr. Heil will receive no compensation from us
beyond the payments to EH Associates, LLC. Mr. Heil currently devotes
approximately 35 hours per week to us and will continue to work approximately 35
hours per week upon completion of the offering.
We have an agreement with EDK Associates, LLC under which we have agreed to
pay annual fees of $58,000, $65,000 and $75,000 in each of the three years in
the period ended December 31, 2002 for administrative, marketing and investor
relations services. Ms. Owens, a director, is the managing member and sole owner
of EDK Associates, LLC. Ms Owens currently devotes approximately 15 hours per
week to us. It is anticipated that Ms. Owens will devote 30 to 35 hours per week
to eSAFETYWORLD and will perform investor relations, employee benefits and
personnel administration. She will receive reimbursement for expenses but no
other compensation from us.
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We have an agreement with JP Inc., an entity controlled by Mr. Jenkins,
under which we have agreed to pay annual fees of $50,000 in each of the three
years in the period ended December 31, 2002 for consultation on financial
services. Mr. Jenkins currently devotes approximately five hours per week to us.
Mr. Jenkins will devote 40 to 50 hours per month to eSAFETYWORLD. The
compensation paid to JP Inc. will increase by an amount to be negotiated if Mr.
Jenkins is required to work more than five (5) business days a month for us. He
will receive no salary as chief financial officer during the period that JP,
Inc. is acting as a consultant. Mr. Jenkins will receive reimbursement for
expenses.
RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1999, we acquired the business, customer and vendor lists and
base of the distribution division of Laminaire Corporation and incorporated the
business on our website. This division distributes disposable products used in
cleanrooms to a wide variety of commercial customers. The purchase price
consisted of 100,000 shares of our common stock, notes payable to the seller in
the principal amount of $500,000 and the assumption of debt of $125,000. This
transaction was accounted for as a purchase in conformity with Opinion No. 16 of
the Accounting Principles Board.
The transaction was approved by two of our disinterested directors. Edward
A. Heil, our chairman, is a director of Laminaire. Steven W. Schuster, one of
our directors, is Laminaire's corporate secretary. Bridget Owens, one of our
directors, is employed as special assistant to the board of directors of
Laminaire. David McClelland, our chief operating officer, is a division manager
at Laminaire. Both Ms. Owens and Mr. McClelland will resign their positions with
Laminaire concurrent with the completion of the offering.
In August 1999, eSAFETYWORLD made a demand loan to Laminaire Corporation in
the principal amount of $102,000. The loan bears interest at the rate of 9% per
annum. The note is convertible into common stock of Laminaire at a conversion
price of $.08 per share, which was the bid price per share of Laminaire's common
stock on the date of the loan. The loan was made to provide Laminaire with
additional working capital and to lower the amount ultimately due from Laminaire
under the notes issued in connection with the acquisition of the business of the
Distribution Division.
In September 1999, we signed agreements with Kimberly-Clark Corporation,
The Texwipe Company LLC and Alma, Inc., our three principal suppliers at that
time, who were also suppliers to the Distribution Division of Laminaire. Under
the agreement with Kimberly-Clark, we agreed to guarantee payment for all goods
and services sold by Kimberly-Clark to Laminaire. The amount of the guarantee
was approximately $200,000 as of November 30, 1999. Under the agreements with
the vendors, any unpaid amounts as of the closing of this offering will be paid
from the proceeds of this offering. Under the terms of the promissory notes in
the principal amount of $500,000 payable to Laminaire Corporation for the
Distribution Division, any amounts paid to the vendors will be deducted from the
amounts owed Laminaire.
Paul White is president and chief executive officer of Spider, Inc. and
chief executive officer of World Internet Marketing Corporation. Our business
depends on its licensing and marketing agreements with Spider and Wincorp under
which Spider designs and upgrades our software and website and provides us with
servers, Internet marketing and support services for $10,000 per month.
Mr. Heil owned 10% of the common stock of World Internet Marketing
Corporation until December 1999. He no longer has any association with World
Internet. Spider, Inc. has engaged World Internet Marketing Corporation to
perform Internet marketing services for us. We also have an agreement with EH
Associates, LLC, an entity associated with Mr. Heil, to provide management
services.
JP Inc. has a contract with us for consultation for financial services.
Mr. Jenkins is the controlling shareholder of JP Inc.
EDK Associates, LLC has a contract with us for administrative, marketing
and investor relations services. Ms. Owens is the managing member and sole owner
of EDK Associates, LLC.
Peter Daniele served as our chief financial officer from August 1999 to
October 1999. During that period he was also chief financial officer of
Laminaire where he worked three days a week. Mr. Daniele no longer has any
association with us and did not take part in any negotiations between Laminaire
and eSAFETY WORLD.
The oral lease for payment of $1,000 per month is with an entity controlled
by Raymond Burghard, an owner of 5% of our outstanding stock.
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<PAGE>
In July 1997, our founders received shares of common stock in consideration
for $.001 per share. These founders could be considered promoters of
eSAFETYWORLD. The founders and the number of shares that they received, after
giving effect to the subsequent 2,000 for one split, are:
<TABLE>
<S> <C>
Edward A. Heil........................................................... 443,000
R. Bret Jenkins.......................................................... 375,000
Donald Arbisi............................................................ 147,000
Shannon White............................................................ 145,000
Windsor Fund............................................................. 145,000
Raymond Burghard......................................................... 100,000
Ben Hoskins.............................................................. 100,000
Steven W. Schuster....................................................... 100,000
John C. Dello-Iacono..................................................... 50,000
Bridget C. Owens......................................................... 50,000
Hyett Capital............................................................ 75,000
Balmore Fund............................................................. 75,000
Chamberlain Fund......................................................... 75,000
David McClelland......................................................... 20,000
</TABLE>
The shares owned by Mr. Jenkins include 225,000 shares owned by JP Inc., an
entity he controls.
The Windsor Fund is managed by Ian Renart. The Chamberlain Fund is managed
by Susan Lake. The Balmore Fund is managed by Arie Rabinowitz. The managers and
principals of Hyett Capital are Ethyl and Hyman Schwartz. Neither Mr. Renart,
Ms. Lake, Mr. Rabinowitz nor Mr. or Mrs. Schwartz are otherwise affiliated with
us.
The Chamberlain Fund made a loan in the principal amount of $125,000 to us
in August 1999. The loan is payable in August 2000 and bears interest at 8% per
annum. The loan will be prepaid from the proceeds of this offering in accordance
with its terms.
Mr. Schuster, one of our directors, is a member of McLaughlin &
Stern, LLP, a law firm that serves as our general counsel. Mr. Schuster owns
100,000 shares of common stock, which will constitute approximately three
percent of our issued and outstanding stock after the offering. The board of
directors believes that Mr. Schuster qualifies as an independent director as he
will own less than five percent of our common stock after the offering and the
fees to be paid to McLaughlin & Stern for services rendered to us will
constitute less than five percent of the firm's annual revenues.
We have engaged in transactions with certain entities which members of
management or 5% or greater shareholders are affiliated. While such arrangements
could possibly lead to conflicts of interests between us and such persons, all
future material affiliated transactions and future loans and loan guarantees
with our officers, directors, 5% shareholders, or their respective affiliates,
will be on terms that are as favorable to us as those generally available from
unaffiliated third parties.
Additionally, we have and will maintain at least two independent directors
on our board of directors. All future transactions and loans with affiliates
shall be approved or ratified by a majority of our independent directors who do
not have an interest in the transactions and who will have access, at our
expense, to our counsel or independent legal counsel.
29
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to us regarding beneficial
ownership of our common stock at the date of this prospectus by:
o each person known by us to own, directly or beneficially, more than 5% of
our common stock,
o each of our directors, and
o all of our officers and directors as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, based on information furnished by the owners, have
sole investment and voting power over to the shares. The table showing the
shares of common stock owned after the offering assumes that the officers and
directors do not buy any shares in the offering.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES PERCENT OF SHARES
NAMES AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED OWNED BEFORE OFFERING OWNED AFTER OFFERING
- ----------------------------------------------------- ------------ --------------------- --------------------
<S> <C> <C> <C>
Edward A. Heil....................................... 443,000 22.15% 14.77%
R. Bret Jenkins ..................................... 375,000 17.75% 11.66%
972 North 1430 West
Orem, Utah 84057
Donald Arbisi ....................................... 147,000 7.35% 4.90%
P. O. Box 151
Dalzell, Illinois
Shannon White ....................................... 145,000 7.25% 4.83%
1101 Shadowbrook Drive
North Lakeland, FL 33813
Windsor Fund ........................................ 145,000 7.25% 4.83%
55 Frederick Street
Nassau, Bahamas
Raymond Burghard .................................... 100,000 5.00% 3.33%
120 Broadway, 28th Floor
New York, NY 10271
Ben Hoskins ......................................... 100,000 5.00% 3.33%
972 North 1430 West
Orem, Utah 84057
Laminaire Corp. ..................................... 100,000 5.00% 3.33%
960 E. Hazelwood Avenue
Rahway, New Jersey 07065
Steven W. Schuster .................................. 100,000 5.00% 3.33%
McLaughlin & Stern LLP
260 Madison Avenue
New York, NY 10016
John C. Dello-Iacono ................................ 50,000 2.50% 1.67%
Jericho Atrium
Suite 125
Broadway, Jericho 11735
Bridget C. Owens..................................... 50,000 2.50% 1.67%
David McClelland..................................... 20,000 1.00% 0.67%
Directors and officers as a group, 8 persons......... 1,038,000 51.90% 34.60%
</TABLE>
The address for all other officers, directors and 5% shareholders not
specified in the table is 100-31 South Jersey Avenue, Setauket, New York 11733.
JP, Inc. owns 225,000 shares. It is an entity controlled by Mr. Jenkins.
Shares held by it are beneficially owned and controlled by Mr. Jenkins.
Mr. Heil is a director of Laminaire Corporation., but disclaims beneficial
ownership of the shares of common stock owned by Laminaire Corporation.
The Windsor Fund is managed by Ian Renart.
Mr. Shannon White is not related to Paul White, our chief technology advisor.
The calculations for shares and percentages outstanding after the offering
do not give effect to:
o 150,000 additional shares of common stock reserved for the underwriter's
over-allotment option; and
o 100,000 shares of common stock reserved for issuance upon the exercise of
the underwriter's warrant
Upon the completion of this offering, our existing shareholders will
collectively beneficially own approximately 67% of our outstanding common stock
or 63% if the underwriter's over-allotment option is exercised in full. Because
of their beneficial stock ownership, these stockholders will be in a position to
30
<PAGE>
continue to elect a majority of the board of directors, decide matters requiring
stockholder approval and determine our policies.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Upon completion of this offering, we will have outstanding 3,000,000
shares of common stock or 3,150,000 shares if the underwriter's over-allotment
option is exercised in full. Of these shares, 1,900,000 will be freely
tradeable, subject to lock-up agreements with the underwriter and volume
restrictions imposed by rule 144. The lock-up agreements executed by the
officers, directors and holders of a minimum of five percent of our common stock
prohibit the transfer of the shares without the underwriter's consent for 18
months after the offering.
31
<PAGE>
DESCRIPTION OF OUR SECURITIES
We are incorporated in the state of Nevada and are authorized to issue up
to 20,000,000 shares of common stock having a par value of $.001 per share and
1,000,000 shares of preferred stock. Neither the certificate of incorporation
nor the by-laws contain any provision that would delay, defer or prevent a
change in control.
COMMON STOCK
2,000,000 shares of common stock are issued and outstanding. Each share of
common stock entitles the holder to one vote on each matter submitted to the
stockholders. The holders of common stock:
o have equal ratable rights to dividends from funds legally available for
payment of dividends when, as and if declared by the board of directors;
o are entitled to share ratably in all of the assets available for
distribution to holders of common stock upon liquidation, dissolution or
winding up of our affairs;
o do not have preemptive, subscription or conversion rights, or redemption
or access to any sinking fund; and
o are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders.
We have not paid any dividends on its common stock to date. eSAFETYWORLD
anticipates that, for the foreseeable future, it will retain earnings, if any,
to finance the continuing operations of its business. The payment of dividends
will depend upon, among other things, capital requirements and the operating and
financial conditions of eSAFETYWORLD.
Our proposed trading symbols do not imply that a liquid and active market
will develop or be sustained for the securities upon completion of this
offering.
Our calculation that 3,000,000 shares of common stock will be outstanding
after this offering is based on the 2,000,000 shares of common stock outstanding
prior to the offering and 1,000,000 shares of common stock being sold by us in
this offering. Our calculation of the shares of common stock to be outstanding
after this offering excludes:
o 150,000 shares of common stock subject to the underwriter's
over-allotment option,
o 100,000 shares of common stock issuable upon the exercise of the
underwriter's warrant, and
o 450,000 shares of common stock reserved for issuance under our stock
option plan.
PREFERRED STOCK
Our certificate of incorporation authorizes the issuance of 1,000,000
shares of preferred stock with designations, rights and preferences determined
from time to time by its board of directors. Our board of directors is
empowered, without stockholder approval, to issue shares of preferred stock with
voting, liquidation, conversion, or other rights that could adversely affect the
rights of the holders of the common stock. We have no present intention to issue
any shares of preferred stock. There can be no assurance that we will not do so
in the future. No preferred stock may be issued without the underwriter's
consent for 12 months following the effective date of this prospectus.
TRANSFER AGENT
Standard Registrar & Transfer Company, Inc. has been appointed as the
transfer agent and registrar for our common stock. The transfer agent's address
is 12528 South 1840 East, Draper, Utah 84020, its telephone number is
(801) 571-8844.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our bylaws provide that we shall indemnify its officers, directors,
employees and other agents to the fullest extent permitted by Nevada law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Nevada law, our directors will not be liable for monetary damages
for breach of
32
<PAGE>
the directors' fiduciary duty of care to us or our shareholders. This provision
in the certificate of incorporation does not eliminate the directors' duty of
care, and in appropriate circumstances equitable remedies including as an
injunction or other forms of non-monetary relief would remain available under
Nevada law. Each director will continue to be liable for breach of the
director's duty of loyalty to us or our shareholders, for acts or omissions not
in good faith or involving intentional misconduct, for knowing violations of
law, for any transaction from which the director derived an improper personal
benefit and for improper distributions to shareholders. In addition, this
provision does not affect a director's responsibilities under any other laws,
including federal securities laws or state or federal environmental laws.
We have been advised that in the opinion of the SEC, this type of
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against these types of liabilities, other than the payment by us
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suitor proceeding, is asserted by a director,
officer or controlling person in connection with the securities being
registered, we will submit the question of whether indemnification by us is
against public policy to an appropriate court and will be governed by the final
adjudication of the case.
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is or may be sought.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, we have agreed to sell to the
underwriters named below, for whom Kashner Davidson Securities Corp. is acting
as representative, the following respective numbers of shares of common stock.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Kashner Davidson Securities Corp............................................
----------
Total..................................................................... 1,000,000
----------
----------
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
Upon the completion of this offering and for a period of eighteen months,
officers, directors and stockholders who will own more than 5% of our issued and
outstanding common stock after the offering are not permitted, without the prior
consent of the underwriter, to publicly sell, offer or contract to sell or grant
any option to purchase, transfer, assign or pledge, or otherwise encumber or
dispose of any shares of our stock. In the event that our stock is assigned or
transferred in a private sale, the assignee or transfer is also bound by the
agreement.
We will grant to Kashner Davidson Securities Corp. a three year right of
first refusal to have Kashner Davidson Securities Corp. sell securities under
future public and private offerings of any non-bank debt or equity securities or
our subsidiaries, by us, our subsidiaries and/or our affiliates, except for
issuances or sales to employees under the rules of our stock option plan.
In addition, for a 12 month period we will not sell our securities in a
private placement or file a registration statement on Form S-8, except for the
450,000 shares issuable under our stock option plan, without Kashner Davidson
Securities Corp.'s consent.
We and Kashner Davidson Securities Corp. will enter into a financial
consulting agreement providing for Kashner Davidson Securities Corp. to act as
management and financial consultant to us for a two-year period for a fee of
$96,000 payable at the closing of this offering.
We have granted Kashner Davidson Securities Corp., for a period of not less
than three years after the closing of the offering, the right to have Kashner
Davidson Securities Corp.'s designee present at meetings of
33
<PAGE>
the board of directors and each of its committees subject to our right to
exclude the designee under particular circumstances. The designee will be
entitled to the same notices and communications sent by us as we give to our
directors and will attend directors' and committees' meetings, but will not be
entitled to vote at these meetings. This designee will also be entitled to
receive the same compensation payable to directors as members of the board of
directors and its committees and all reasonable expenses in attending the
meetings. As of the date of this prospectus, no designee has been selected.
PUBLIC OFFERING PRICE AND DEALERS CONCESSION
The underwriter proposes initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to some dealers, who are
members of the National Association of Securities Dealers, Inc., at that price
less a concession not in excess of $.35 per share. The underwriters and the
selling group members may not reallow any further discounts on sales to other
broker/dealers. After the offering, the public offering price and concession and
discount to dealers may be changed by the underwriter.
OVER-ALLOTMENT OPTION
We have granted the underwriter an option, which may be exercised within
45 days after the date of this prospectus, to purchase up to 150,000 additional
shares of common stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. If the underwriter exercise its over-allotment option to
purchase any of these additional 150,000 shares of common stock, these
additional shares will be sold by the underwriter on the same terms as those on
which the shares offered by this prospectus are being sold. We will be
obligated, under the terms of to the over-allotment option, to sell shares to
the underwriter if the underwriter exercises their over-allotment option. The
underwriter may exercise its over-allotment option only to cover over-allotments
made in connection with the sale of the shares of common stock offered by this
prospectus.
NON-ACCOUNTABLE EXPENSE ALLOWANCE
We have agreed to pay the underwriter a non-accountable expense allowance
of 3% of the gross proceeds derived from the sale of the shares of common stock
underwritten, including the sale of any shares of common stock that the
underwriter may sell to cover over-allotments, if any, of which $50,000 has been
paid as of the date of this prospectus. We have also agreed to pay all expenses
in connection with qualifying the common stock offered in this prospectus for
sale under the laws of the states as eSAFETYWORLD and the underwriter may
designate and registering the offering with the NASD, including filing fees and
fees and expenses of counsel retained for these purposes.
UNDERWRITING COMPENSATION
The following table summarizes the compensation to be paid to the
underwriter by us, which includes a 10% discount:
<TABLE>
<CAPTION>
TOTAL
------------------------------
WITHOUT WITH
PER SHARE OVERALLOTMENT OVERALLOTMENT
--------- ------------- -------------
<S> <C> <C> <C>
Underwriting discounts paid by us.............................. $ .70 $ 700,000 $ 805,000
</TABLE>
INDEMNIFICATION OF UNDERWRITER
We have agreed to indemnify the underwriter against specific civil
liabilities, including liabilities under the Securities Act.
UNDERWRITER'S WARRANT
Upon completion of this offering, we will sell to the underwriter, for its
own accounts, a warrant covering an aggregate of up to 100,000 shares of common
stock exercisable at a price of $10.50 per share. The underwriter will pay a
price of $100 for the warrant. The underwriter will receive 100,000 shares if it
exercises the warrant, commencing on the first anniversary of the date of this
offering until the fifth
34
<PAGE>
anniversary of the date of this offering. The terms of the warrant require us to
register the common stock for which the warrant is exercisable within one year
from the date of the prospectus. This underwriter's warrant is not transferable
by the warrant holders other than to officers and partners of the underwriter.
The exercise price of the underwriter's warrant and the number of shares of
common stock for which the warrant is exercisable are subject to adjustment to
protect the warrant holders against dilution in specific events.
STABILIZATION AND OTHER TRANSACTIONS
In connection with this offering, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions effected in accordance with rule 104 of
Regulation M under the Securities Exchange Act of 1934, which permits an
underwriter to bid for, or purchase, common stock for the purpose of stabilizing
the market price. The underwriter also may create a short position by selling
more common stock in connection with this offering than they are committed to
purchase from us, and may then purchase common stock in the open market. Any of
the transactions described in this paragraph may result in the maintenance of
the price of the common stock at a level above that which might otherwise
prevail in the open market. None of the transactions described in the paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
DISCRETIONARY ACCOUNTS
The underwriter has informed us that it does not intend to confirm sales to
any account over which it exercises discretionary authority.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriter. Among the factors
considered in determining the initial public offering price were:
o our results of operations,
o our current financial condition,
o our future prospects,
o the state of the markets for our services,
o the experience of our management,
o the economics of the e-commerce industry in general,
o the general condition of the equity securities market, and
o the demand for similar securities of companies considered comparable to
us.
SALES IN CALIFORNIA
This offering was approved in California on the basis of a limited offering
qualification where offers and sales could only be made to proposed issuees
based on their meeting various suitability standards as described in this
prospectus. We did not have to demonstrate compliance with some or all of the
merit regulations of the California Department of Corporations, as found in
Title 10, California Code of Regulations, Rule 260.140 et seq.
You will be unable to sell shares of common stock that you purchase in this
offering under exemptions for secondary trading available under California
Corporations Code Section 25104(h), as those exemptions have been withheld.
However, there may be other exemptions to cover private sales by the bona fide
owners of our securities for those owners' own account without advertising and
without being effected by or through a broker dealer in a public offering.
35
<PAGE>
LEGAL MATTERS
Particular legal matters that arise in connection with the offering will be
passed upon for us by McLaughlin & Stern, LLP, 260 Madison Avenue, New York, New
York. Mr. Steven Schuster, a partner of McLaughlin & Stern, LLP, is a director
of eSAFETYWORLD. Particular legal matters that arise in connection with the
offering will be passed upon for the underwriter by its counsel, Sichenzia, Ross
& Friedman LLP, 135 West 50th Street, 20th Floor, New York, New York.
EXPERTS
The financial statements of eSAFETYWORLD, Inc. at June 30, 1999 and for
each of the three fiscal periods in the period then ended and the financial
statements of the Cleanroom Distribution Product Group of Laminaire Corporation
as of December 31, 1998 and for each of the two years in the period ended
December 31, 1998 appearing in this prospectus and registration statement have
been audited by Eichler, Bergsman & Co., LLP, Certified Public Accountants, as
stated in their reports which appear elsewhere in this prospectus and in the
registration statement, and are included in reliance upon the reports of
Eichler, Bergsman & Co., LLP given upon its authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
eSAFETYWORLD will file reports, proxy statements and other information with
the SEC. Those reports, proxy statements and other information may be obtained:
o At the public reference room of the SEC, Room 1024- Judiciary Plaza, 450
Fifth Street, N.W. Washington, D.C. 20549;
o At the public reference facilities at the SEC's regional offices located
at Seven World Trade Center, 13th Floor, New York, NY 10048 or
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661;
o By writing to the SEC, Public Reference Section, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549;
o From the Internet site maintained by the SEC at http://www.sec.gov, which
contains reports, proxy information statements and other information
regarding issuers that file electronically with the SEC.
eSAFETYWORLD has filed with the SEC a registration statement under the
Securities Act of 1933, for the common stock offered in this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
the information set forth, or annexed as exhibits to, the registration
statement, some portions of which have been omitted under the rules and
regulations of the SEC. For further information with respect to eSAFETYWORLD and
the common stock, reference is made to our registration statement, including
exhibits, copies of which may be inspected and copied at the facilities of the
SEC. Copies of the registration statement, including exhibits, may be obtained
from the Public Reference Section of the SEC at the address listed in the
paragraph above upon payment of the fee prescribed by the SEC. Information
regarding the operation of the SEC's public reference facilities may be obtained
by calling the SEC at 1-800-SEC-0330.
eSAFETYWORLD intends to distribute to its stockholders annual reports
containing financial statements audited and reported upon by its independent
public accountants after the close of each fiscal year, and will make other
periodic reports as we determine to be appropriate or as may be required by law.
eSAFETYWORLD's fiscal year ends June 30 each year.
36
<PAGE>
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ESAFETYWORLD, INC.:
Independent Auditors' Report............................................................................... F-2
Balance Sheet, June 30, 1999 and October 31, 1999 (unaudited).............................................. F-3
Statements of Operations for the period July 17, 1997 (inception) to December 31, 1997, the year ended
December 31, 1998, the six months ended June 30, 1999 and the four months ended October 31, 1999
(unaudited).............................................................................................. F-4
Statements of Cash Flows for the period July 17, 1997 (inception) to December 31, 1997, the year ended
December 31, 1998, the six months ended June 30, 1999 and the four months ended October 31, 1999
(unaudited).............................................................................................. F-5
Statement of Stockholders' Equity for the period July 17, 1997 (inception) to December 31, 1997, the year
ended December 31, 1998, the six months ended June 30, 1999 and the four months ended October 31, 1999
(unaudited).............................................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
CLEANROOM DISTRIBUTION PRODUCT GROUP OF LAMINAIRE CORPORATION:
Independent Auditors' Report............................................................................... F-10
Balance Sheet, December 31, 1998........................................................................... F-11
Statements of Operations for the years ended December 31, 1998 and 1997.................................... F-12
Statements of Cash Flows for the years ended December 31, 1998 and 1997.................................... F-13
Notes to Financial Statements.............................................................................. F-14
Condensed Balance Sheet, June 30, 1999..................................................................... F-16
Condensed Statements of Operations for the six months ended June 30, 1999 and 1998 (unaudited) ............ F-17
Condensed Statements of Cash Flows for the six months ended June 30, 1999 and 1998......................... F-18
Notes to Condensed Financial Statements for the six months ended June 30, 1999 and 1998 (unaudited)........ F-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
eSAFETYWORLD, Inc.
We have audited the accompanying balance sheet of eSAFETYWORLD, Inc. as of
June 30, 1999, and the related statements of income, stockholders' equity and
cash flows for the period ended December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30, 1999. This financial
statement is the responsibility of eSAFETYWORLD's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of eSAFETYWORLD, Inc. as of June
30, 1999, and the results of its operations and its cash flows for the period
ended December 31, 1997, for the year ended December 31, 1998 and for the six
months ended June 30, 1999 in conformity with generally accepted accounting
principles.
/s/ EICHLER BERGSMAN & CO., LLP
New York, New York
August 25, 1999
F-2
<PAGE>
ESAFETYWORLD, INC.
BALANCE SHEET
JUNE 30, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
10/31/99
6/30/99 (UNAUDITED)
--------- -------------------
<S> <C> <C>
ASSETS
Current:
Cash............................................................................. $ -- $ 118,000
Accounts receivable.............................................................. -- 158,775
Note receivable--Laminaire....................................................... 102,000
Inventory........................................................................ 5,500
------- -----------
Total.................................................................... 384,275
Customer and vendor lists.......................................................... -- 629,200
Deferred offering costs............................................................ 10,000 177,000
Goodwill--net...................................................................... -- 629,200
------- -----------
Total.................................................................... $10,000 $ 1,819,675
------- -----------
------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Notes payable.................................................................... $ -- $ 282,667
Accounts payable and accrued expenses............................................ -- 409,004
------- -----------
Total current liabilities........................................................ -- 691,671
------- -----------
Long-term debt..................................................................... 373,333
------- -----------
Stockholders' equity:
Preferred stock; 1,000,000 shares authorized, none issued........................ -- --
Common stock, par value $.001; 20,000,000 authorized; 1,900,000 and 2,000,000
issued........................................................................ 1,900 2,000
Paid-in capital.................................................................... 8,100 708,000
Retained earnings.................................................................. -- 44,671
------- -----------
Total stockholders' equity......................................................... 10,000 754,671
------- -----------
Total liabilities and stockholders' equity......................................... $10,000 $ 1,819,675
------- -----------
------- -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ESAFETYWORLD, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD JULY 17, 1997 (INCEPTION) TO DECEMBER 31, 1997,
THE YEAR ENDED DECEMBER 31, 1998 AND THE
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
FOUR MONTHS
SIX MONTHS ENDED
ENDED YEAR ENDED JULY 17, 1997 TO OCTOBER 31, 1999
JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 (UNAUDITED)
------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues............................ $ -0- $ -0- $ -0- $ 355,969
Cost of sales....................... -0- -0- -0- 213,110
----------- ----------- ----------- -----------
Gross profit........................ -0- -0- -0- 142,859
----------- ----------- ----------- -----------
Operating costs..................... -0- -0- -0- 33,949
Amortization........................ 41,600
Interest--net....................... 3,494
----------- ----------- ----------- -----------
Total expenses...................... -0- -0- -0- 79,043
----------- ----------- ----------- -----------
Operating profit.................... -0- -0- -0- 63,816
Income taxes........................ -0- -0- -0- 19,145
----------- ----------- ----------- -----------
Net income.......................... $ -0- $ -0- $ -0- $ 44,671
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share.................. $ -- $ -- $ -- $ .02
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares outstanding.................. 1,900,000 1,900,000 1,900,000 2,000,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ESAFETYWORLD, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD JULY 17, 1997 (INCEPTION) TO DECEMBER 31, 1997,
THE YEAR ENDED DECEMBER 31, 1998 AND THE
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
FOUR MONTHS
SIX MONTHS ENDED
ENDED YEAR ENDED JULY 17, 1997 TO OCTOBER 31, 1999
JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 (UNAUDITED)
------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Cash from operating activities........ $ -0- $ -0- $ -0- $ 12,000
------- ------- ------- --------
Cash from financing activities:
Capital contribution.................. 10,000 -- --
Net proceeds from loans............... -- -- -- 273,000
Deferred offering costs............... (10,000) -- -- (167,000)
------- ------- ------- --------
(10,000) -- -- 106,000
------- ------- ------- --------
Cash end of period.................... $ -0- $ -0- $ -0- $118,000
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ESAFETYWORLD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE PERIODS IN THE PERIOD ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ -------- -------- --------
<S> <C> <C> <C> <C>
Initial capital contribution................................... $1,900 $ 8,100 $ 10,000
------ -------- -------- --------
Balance December 31, 1997...................................... 1,900 8,100 -- 10,000
1998 activity.................................................. -- -- -- --
------ -------- -------- --------
1,900 8,100 -- 10,000
Six months ended June 30, 1999................................. -- -- -- --
------ -------- -------- --------
Balance June 30, 1999.......................................... 1,900 8,100 -- 10,000
Issuance of shares to Laminaire................................ 100 699,900 -- 700,000
Net income..................................................... $ 44,671 44,671
------ -------- -------- --------
Balance October 31, 1999....................................... $2,000 $708,000 $ 44,671 $754,671
------ -------- -------- --------
------ -------- -------- --------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ESAFETYWORLD, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION
eSAFETYWORLD was established as a Nevada corporation in July 1997 as The SL
Group, Inc. and changed its name to eSAFETYWORLD, Inc. in August 1999. Its
purpose is to develop and operate a business-to-business E-Commerce site on the
world wide web selling industrial safety products.
2. ACCOUNTING AND REPORTING POLICIES
A summary of eSAFETYWORLD's principal accounting and financial reporting
policies is as follows:
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods, The principal assumptions
inherent in the accompanying financial statements relate to the allocation of
expenses included in the financial statements.
Revenue Recognition--Revenue for product sales is recognized in the period
in which the product is shipped.
Advertising--eSAFETYWORLD will charge advertising costs to expense as
incurred. Costs related to CD-ROMs, promotional literature and catalogs will be
charged to operations when mailed or distributed.
Long-lived Assets--Long lived assets, including intangibles, to be held and
used are reviewed for impairment whenever events or changes in circumstances
indicate that the related carrying amount may not be recoverable. If required,
impairment losses on assets to be held and used are recognized based on the
excess of the asset's carrying value over its fair value. Long-lived assets to
be sold are reported at the lower of carrying amount or fair value reduced by
estimated disposal costs.
Fiscal Year--eSAFETYWORLD's fiscal year ends on June 30.
3. STOCKHOLDERS' EQUITY
eSAFETYWORLD's certificate of incorporation provides that its authorized
capital stock consists of one million shares of blank check preferred stock and
20 million shares of common stock, par value $.001 per share. The holders of the
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders. Holders of common stock are
entitled to receive ratably the dividends as may be declared by the board of
directors out of funds legally available to pay dividends. The board of
directors, without shareholder approval, could issue shares of common stock upon
the terms as it determines to whomever it pleases, including persons who or
entities that would help present management maintain control.
eSAFETYWORLD has a stock option plan that expires in 2009 and enables it to
grant incentive stock options, non-qualified options and stock appreciation
rights for up to an aggregate of 450,000 shares of its common stock. Incentive
stock options granted under the plan must conform to applicable federal income
tax regulations and have an exercise price not less than the fair market value
of shares at the date of grant or 110% of fair market value for ten percent or
more stockholders. Other options and stock appreciation rights may be granted on
terms determined by the compensation committee of the board of directors. No
options are outstanding at October 31, 1999.
4. SUBSEQUENT EVENTS (UNAUDITED)
In August 1999, eSAFETYWORLD entered into an agreement under which it
acquired the distribution business of Laminaire Corporation in exchange for
100,000 shares of its common stock, notes in the principal amount of $500,000
and the assumption of accounts payables in an amount up to $125,000. The total
F-7
<PAGE>
ESAFETYWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
4. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
purchase price of $1,325,000 was accounted for as a purchase in conformity with
Opinion No. 25 of the Accounting Principles board. All assets acquired,
including goodwill, will be amortized on a straight line basis over five years.
The notes payable bear interest at eight percent per annum. One of the
notes in the principal amount of $200,000 is payable in 12 equal quarterly
instalments, and the other note in the principal amount of $300,000 is payable
in 20 equal quarterly instalments. We have the right to offset the principal
amount of a $102,000 demand note that we made to Laminaire (see Note 4), in
whole or in part against any payment due by us to Laminaire under these note
agreements. In addition, we can offset any amounts that we pay to satisfy
amounts due by Laminaire to its vendors against any amount due by us to
Laminaire under the note agreements. The first instalments under the note
agreements are payable at the earlier of our completion of the offering or March
31, 2000. In September 1999, eSAFETYWORLD also guaranteed the payment of
Laminaire's trade obligations to three of Laminaire's vendors, including
obligations to these vendors incurred subsequent to the purchase of the
Division. To the extent that eSAFETYWORLD makes payments to these vendors, the
amount paid will be treated as a direct offset to the $500,000 notes payable due
to Laminaire. All parties expect eSAFETYWORLD to pay the amounts guaranteed.
Therefore, that amount has been offset against notes payable and is reflected in
accounts payable in the accompanying balance sheet at October 31, 1999. At
November 30, 1999, the amount guaranteed was approximately $200,000. Laminaire
is no longer involved in the distribution industry, and no additional
liabilities will result under these guarantees.
eSAFETYWORLD also acquired the customer and vendor base and lists but
acquired no tangible assets including inventory or accounts receivable as part
of the transaction. The acquired business distributes disposable products used
in Cleanrooms to a wide variety of commercial customers. The transaction was
accounted for as a purchase in conformity with Opinion No. 16 of the Accounting
Principles Board.
In July and August 1999, eSAFETYWORLD received one year loans from
unrelated parties in the principal amounts of $250,000 and $125,000,
respectively. Both loans bear interest at the rate of 8% per annum, are
repayable one year from the date of issue and are prepayable upon the completion
of a public offering or private placement of equity securities.
The unaudited pro forma financial information set forth on the balance
sheet was prepared assuming that the following events had occurred on June 30,
1999:
o the acquisition described in Note 1 and
o the loans described in the first paragraph of this note.
For the purposes of preparing the pro forma information, the shares of
common stock issued were valued at the estimated public offering price. The
acquired business, which functioned as a product group of Laminaire Corporation,
reported the following results in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues.......................................................... $2,267,846 $1,506,607
Cost of revenues.................................................. 2,070,174 1,117,464
Gross profit...................................................... 197,672 389,143
Operating profit.................................................. 54,067 204,106
</TABLE>
In August 1999, eSAFETYWORLD made a demand loan to Laminaire Corporation in
the principal amount of $102,000. The loan bears interest at the rate of 9% per
annum and is convertible, at the holder's option, into shares of Laminaire's
common stock at a price of $.08 per share based on the bid price of Laminaire's
shares on the date that the note was issued.
F-8
<PAGE>
ESAFETYWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
5. RELATED PARTY TRANSACTIONS
eSAFETYWORLD has an agreement with EH Associates, LLC, an entity controlled
by its president, Mr. Heil, under which eSAFETYWORLD will pay annual consulting
fees of $125,000, $140,000 and $150,000 in each of the three years in the period
ended December 31, 2002. Mr. Heil receives reimbursement for expenses, but
receives no other cash compensation from eSAFETYWORLD.
EDK Associates, LLC, an entity controlled by a director, Ms. Owens, has a
contract with eSAFETYWORLD under which eSAFETYWORLD has agreed to pay annual
fees of $58,000, $65,000 and $75,000 in each of the three years in the period
ended December 31, 2002 for administrative, marketing and investor relations
services. Ms. Owens, who will devote 30 to 35 hours per week to eSAFETYWORLD,
receives reimbursement for expenses, but receives no other cash compensation
from eSAFETYWORLD.
JP Inc., an entity controlled by a director, Mr. Jenkins, has a contract
with eSAFETYWORLD under which eSAFETYWORLD has agreed to pay minimum annual fees
of $50,000 in each of the three years in the period ended December 31, 2002 for
legal, marketing and other business services. Mr. Jenkins, who will devote 40 to
50 hours per month to eSAFETYWORLD, receives reimbursement for expenses, but
receives no other cash compensation from eSAFETYWORLD. JP Inc. is entitled to
additional compensation in amounts to be negotiated if Mr. Jenkins devotes more
than five days per month to eSAFETYWORLD.
eSAFETYWORLD has an agreement with Spider Inc. under which Spider Inc.
provides software, webhosting and promotional services to eSAFETYWORLD for
$10,000 per month commencing in February 2000. eSAFETYWORLD's technical advisor
is the President and majority shareholder of Spider, Inc.
6. COMMITMENTS
eSAFETYWORLD is obligated under the terms of a verbal month-to-month
operating lease to be entirely controlled by an individual who holds 5% of
eSAFETYWORLD's common stock for office space which calls for monthly rentals of
$1,000.
eSAFETYWORLD is obligated under the terms of employment agreements to pay
salaries of $200,000 in 2000, $210,000 in 2001 and $225,000 in 2002. These
employment agreements became effective upon the completion of an initial public
offering. eSAFETYWORLD filed a Registration Statement for this offering in
September 1999 as well as pre-effective amendments in November and December
1999.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Cleanroom Distribution Product Group
We have audited the accompanying balance sheet of Cleanroom Distribution
Product Group as of December 31, 1998 and the related statements of income and
cash flows for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of eSAFETYWORLD's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cleanroom Distribution
Product Group as of December 31, 1998 and the results of its operations and its
cash flows for the two years ended December 31, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/ EICHLER, BERGSMAN & CO., LLP
New York, New York
August 12, 1999
F-10
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Accounts receivable................................................................................... $213,935
Inventory............................................................................................. 75,174
--------
Total.......................................................................................... $289,109
--------
--------
LIABILITIES AND OTHER
Accounts payable...................................................................................... $318,899
Deficit............................................................................................... (30,790)
--------
Total.......................................................................................... $289,109
--------
--------
</TABLE>
See notes to financial statements.
F-11
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues.............................................................................. $2,267,846 $1,506,607
Cost of revenues...................................................................... 2,070,174 1,117,464
---------- ----------
Gross profit.......................................................................... 197,672 389,143
Selling............................................................................... 98,148 154,905
General and administrative............................................................ 45,457 30,132
---------- ----------
Operating profit...................................................................... 54,067 204,106
Transferred to Laminaire Corporation.................................................. (54,067) (204,106)
---------- ----------
Division equity, end of year.......................................................... $ -0- $ -0-
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements
F-12
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Cash from operations....................................................................... $54,067 $204,106
Cash transferred to Laminaire.............................................................. (54,067) (204,106)
------- --------
Cash, end of year.......................................................................... $ -0- $ -0-
------- --------
------- --------
</TABLE>
See Notes to Financial Statements.
F-13
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. OPERATIONS AND ORGANIZATION
The Cleanroom Distribution Product Group is a division of Laminaire
Corporation and is engaged in the sale and distribution of disposable safety
garments and equipment. In August 1999, Laminaire entered into an agreement
under which its distribution business was sold to The SL Group, Inc. in exchange
for common shares of The SL Group, Inc., notes and the assumption of certain
payables.
2. ACCOUNTING AND REPORTING POLICIES
A summary of the Division's principal accounting and financial reporting
policies is as follows:
Assets and Liabilities
The operating assets and liabilities used by Laminaire are commingled. The
accompanying balance sheet reflects the direct assets and liabilities of the
Cleanroom Product Distribution Group of Laminaire Corporation. All earnings
prior to December 31, 1998 were retained by Laminaire. The cash associated with
such earnings was commingled with other Laminaire cash and was not necessarily
used to satisfy the Group's trade obligations. The deficit represents the extent
to which cash generated by the Group was used for other Laminaire purposes. No
such assets or liabilities were included in the sale to The SL Group, Inc.
The inventories included in the accompanying balance sheet are recorded at
the lower of cost (determined on a FIFO basis) or market.
Revenue Recognition
Revenue for product sales is recognized in the period in which the product
is shipped.
Expenses
The operations of the Division were conducted in Laminaire's facility
during 1998 and 1997. Accordingly, such operations utilized Laminaire's building
and administrative staff. Cost of sales in the accompanying Statement of
Operations consists of direct product costs and an allocation of joint overhead
costs. Payroll costs represent the payroll costs of people directly associated
with the Division's operations. All other expenses represent an allocation of
corporate and joint expenses. Joint costs were allocated on a percentage basis
using relative amounts of physical space used in Laminaire's facility and
payroll costs as the allocation bases. Management believes that the allocated
costs allocated on that basis reflects a reasonable amount for the services
performed for a privately owned distribution business. The Division believes
that the cost of obtaining the services represented by the allocated costs and
expenses from outside sources would not be materially higher than the amount
allocated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. The principal assumptions inherent in the
accompanying financial statements relate to the allocation of expenses included
in such financial statements.
F-14
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
2. ACCOUNTING AND REPORTING POLICIES--(CONTINUED)
Advertising
The Division charges advertising costs to expense as incurred. Costs
related to mail order catalogs and promotional materials are charged to
operations when mailed or distributed.
Income Taxes
The operating results of the Division were included in the consolidated
income tax returns of Laminaire Corporation. If the Division filed its own
returns pro forma income taxes would have been approximately $18,923 in 1998 and
$71,437 in 1997.
F-15
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Accounts receivable................................................................................... $156,403
Inventory............................................................................................. 70,680
Total.......................................................................................... $227,083
--------
--------
LIABILITIES AND OTHER
Accounts payable...................................................................................... $325,859
Deficit............................................................................................... (98,776)
Total.......................................................................................... $227,083
--------
--------
</TABLE>
See notes to condensed financial statements.
F-16
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revenues.................................................................................. $746,325 $867,770
Cost of revenues.......................................................................... 565,333 652,738
-------- --------
Gross profit.............................................................................. 180,992 215,032
Selling................................................................................... 70,081 55,513
General and administrative................................................................ 14,927 17,355
-------- --------
Operating profit.......................................................................... 95,984 142,164
Transferred to Laminaire Corporation...................................................... (95,984) (142,164)
-------- --------
Division equity, end of period............................................................ $ -0- $ -0-
-------- --------
-------- --------
</TABLE>
See notes to condensed financial statements.
F-17
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Cash from operations....................................................................... $95,984 $142,164
Cash transferred to Laminaire.............................................................. (95,984) (142,164)
------- --------
Cash, end of period........................................................................ $ -0- $ -0-
------- --------
------- --------
</TABLE>
See notes to condensed financial statements.
F-18
<PAGE>
CLEANROOM DISTRIBUTION PRODUCT GROUP
NOTES TO STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim condensed statements are for the six-month periods
ended June 30, 1999 and 1998 are unaudited and include all adjustments
considered necessary by management for a fair presentation. The results of
operations realized during an interim period are not necessarily indicative of
results to be expected for a full year.
F-19
<PAGE>
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<PAGE>
[This page intentionally left blank]
<PAGE>
------------------------------------------------------
------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY
IN STATES WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus summary............................. 2
Risk factors................................... 4
Use of proceeds................................ 5
Dilution....................................... 6
Capitalization................................. 6
Management's discussion and analysis of results
of operation and financial
condition.................................... 7
Business....................................... 13
Management..................................... 26
Certain relationships and related
transactions................................. 28
Principal shareholders......................... 30
Description of our securities.................. 32
Indemnification of officers and directors...... 32
Underwriting................................... 33
Legal matters.................................. 36
Experts........................................ 36
Additional information......................... 36
Financial statements........................... F-1
</TABLE>
------------------------
UNTIL , 2000, 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED IN THIS PROSPECTUS,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH REGARD TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTION.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,000,000 SHARES
OF COMMON STOCK
ESAFETYWORLD, INC.
------------------------
PROSPECTUS
------------------------
KASHNER DAVIDSON
SECURITIES CORP.
FEBRUARY , 2000
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Subsection 1 of Section 78.7302 of Chapter 78 of the Nevada General
Corporation Law ("NGCL") empowers a corporation to 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 (except in an action by or in the right of the corporation) by
reason of the fact that he 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 or enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding, if he 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 proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.7502 of the NGCL empowers a corporation to
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 he
acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably incurred
by him in connection with the defense or settlement of the action or suit if he
acted in accordance with the standard set forth above, except that no
indemnification may be made in respect of any claim, issue or matter as to which
that person shall have been adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent that
the court in which the action or suit was brought or other court of competent
jurisdiction determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for these expenses as the
court deems proper.
Section 78.751 of the NGCL provides that unless indemnification is ordered
by a court, the determination to provide indemnification must be made by the
stockholders, by a majority vote of a quorum of the board of directors who were
not parties to the action, suit or proceeding, or in specified circumstances by
independent legal counsel in a written opinion. In addition, the articles of
incorporation, bylaws or an agreement made by the corporation may provide for
the payment of the expenses of a director or officer of the expenses of
defending an action as incurred upon receipt of an undertaking to repay the
amount if it is ultimately determined by a court of competent jurisdiction that
the person is not entitled to indemnification. Section 78.751 of the NGCL
further provides that, to the extent a director or officer of a corporation has
been successful on the merits or otherwise in the defense of any action, suit or
proceeding referred to in subsection (1) and (2), or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 78.751 of the
NGCL shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled and that the scope of indemnification shall continue as to
directors, officers, employees or agents who have ceased to hold such positions,
and to their heirs, executors and administrators.
Finally, Section 78.752 of the NGCL empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any capacity or arising out of his status as such whether or not the corporation
would have the authority to indemnify him against these liabilities and
expenses.
The Registrant's bylaws provide for indemnification of officer, directors
and others to the fullest extent permitted by the laws of the state of Nevada.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Fees............................................................... $ 2,530
Accounting Fees and Expenses.......................................................................... 15,000
Blue Sky Fees and Expenses (including NASDAQ and Boston Exchange filing fees of $11,500) ............. 35,000
Printing Expenses (including Securities).............................................................. 50,000
Legal Fees............................................................................................ 85,000
Miscellaneous......................................................................................... 12,470
--------
Total............................................................................................ $200,000
--------
--------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
All issuances were under Section 4(2) unless otherwise indicated. The
issuances under 4(2) were to officers, directors or employees or a limited
number of unaffiliated persons or entities.
On July 17, 1997, the Company issued common stock at a price of $.001 to
the persons listed below, after giving effect to a subsequent 2,000 for one
stock split. Each of these persons may be considered promoters of the Company.
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIAL OWNER SHARES
- ------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Edward A. Heil........................................................................................ 443,000
J.P. Inc.............................................................................................. 225,000
Donald Arbisi......................................................................................... 147,000
Shannon White......................................................................................... 145,000
Windsor Fund.......................................................................................... 145,000
Raymond Burghard...................................................................................... 100,000
Ben Hoskins........................................................................................... 100,000
R. Bret Jenkins....................................................................................... 150,000
Steven W. Schuster.................................................................................... 100,000
Hyett Fund............................................................................................ 75,000
Balmore Fund.......................................................................................... 75,000
Chamberlain Fund...................................................................................... 75,000
John C. Dello-Iacono.................................................................................. 50,000
Bridget C. Owens...................................................................................... 50,000
David McClelland...................................................................................... 20,000
</TABLE>
On August 20, 1999, we issued 100,000 shares of common stock to Laminaire
Corporation as partial consideration for our purchase of the Products
Distribution Division.
On July 15, 1999, we issued an 8% promissory note in favor of Arcadia
Mutual Fund, Ltd. in the principal amount of $250,000.
On August 9, 1999, we issued an 8% promissory note in favor of the
Chamberlain Fund in the principal amount of $125,000.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Registrant's Articles of Incorporation dated July 21, 1997(1)
3.2 -- Registrant's Amendment to Articles of Incorporation dated August 23, 1999(3)
3.3 -- Registrant's Certificate of Correction to Articles of Incorporation dated November 19, 1999(3)
3.4 -- Registrant's By-laws(1)
4.1 -- Form of common stock certificate
4.2 -- 1999 stock option plan(3)
4.3 -- Form of underwriter's Warrant Agreement(3)
5.1 -- Opinion of McLaughlin & Stern, LLP
10.1 -- Asset Purchase Agreement with Laminaire Corp.(3)
10.2 -- Agreement with EH Associates, LLC(1)
10.3 -- Agreement with J.P. Inc.(1)
10.4 -- Agreement with EDK Associates, LLC
10.5 -- Form of Employment Agreement with David McClelland(2)
10.6 -- Employment Agreement with James Brownfiel(2)
10.7 -- Form of Advisory Investment Banking Agreement between Registrant and Kashner Davidson Securities
Corp.(1)
10.8 -- Agreement with Spider, Inc. dated August 11, 1999(2)
10.9 -- Promissory Note in favor of the Registrant from Laminaire Corporation in the principal amount of
$102,000 dated August 11, 1999(3)
10.10 -- Promissory Note in favor of Laminaire Corporation in the principal amount of $200,000 dated
August 11, 1999(3)
10.11 -- Promissory Note in favor of Laminaire Corporation in the principal amount of $300,000 dated
August 11, 1999(3)
10.12 -- Agreement with Kimberly-Clark Corporation dated September 29, 1999(3)
10.13 -- Agreement with The Texwipe Company, LLC dated September 29, 1999(3)
10.14 -- Agreement with Alma, Inc. dated September 29, 1999(3)
10.15 -- Agreement with Ideal Sales, Inc. dated December 8, 1999(3)
10.16 -- Promissory Note in favor of the Arcadia Mutual Fund, Ltd. dated July 15, 1999(3)
10.17 -- Promissory Note in favor of the Chamberlain Fund dated August 6, 1999(3)
10.18 -- Amendment to Asset Purchase Agreement(3)
23.1 -- Consent of Eichler Bergsman & Co., LLP
23.2 -- Consent of McLaughlin & Stern, LLP (included in Exhibit 5.1)
24 -- Power of Attorney (contained on signature page).
27 -- Financial Data Schedule(3).
</TABLE>
- ------------------
(1) Filed with the Registration Statement on September 2, 1999.
(2) Filed with Amendment No. 1 on November 3, 1999.
(3) Filed with Amendment No. 2 on December 28, 1999.
Schedules other than those listed above have been omitted since they are
either not required, are not applicable or the required information is shown in
the financial statements or related notes.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant undertakes to:
(a) (1) File, during any period in which it offers or sells securities, 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. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of a prospectus filed with the Commission under
rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(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 for 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; and
(b) Provide to the underwriter at the closing specified in the underwriting
agreement certificates in the denominations and registered in the names as
required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer under the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against the liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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.
The undersigned Registrant undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon rule 430A and
contained in a form of prospectus filed by the Registrant under
rule 424(b) (1) or (4) or 497 (h) under the Securities Act shall be deemed
to be part of this registration as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this amendment of the
registration statement to be signed on its behalf by the undersigned, in the
Town of Setauket, state of New York, on February 8, 2000.
ESAFETYWORLD, INC.
By: /s/ EDWARD A. HEIL
----------------------------------
Edward A. Heil
By: /s/ R. BRET JENKINS
----------------------------------
R. Bret Jenkins,
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Edward A. Heil and Peter Daniele and each of them
his true and lawful attorney-in-fact and agent with power of substitution and
resubstitution, for him or her, and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post effective
amendments) to this registration statement on Form SB-2, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done to comply with the provisions of the
Securities Act and all requirements of the Commission, hereby ratifying and
confirming all that said attorneys-in-fact or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ -------- -----------------
<S> <C> <C>
By: /s/ EDWARD A. HEIL
- ----------------------------------------
Edward A. Heil Director February 8, 2000
By: /s/ *
- ----------------------------------------
Steven W. Schuster Director February 8, 2000
By: /s/ *
- ----------------------------------------
Bridget C. Owens Director February 8, 2000
By: /s/ *
- ----------------------------------------
John C. Dello-Iacono Director February 8, 2000
By: *
- ----------------------------------------
R. Bret Jenkins Director February 8, 2000
* Under Power-of-Attorney
/s/ EDWARD A. HEIL
*
- ----------------------------------------
Edward A. Heil
</TABLE>
II-5
<PAGE>
EXHIBITS
AMENDMENT NO. 3
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of underwriting agreement
4.1 -- Form of common stock certificate
5.1 -- Opinion of McLaughlin & Stern, LLP.
10.2 -- Consulting agreement with EH Associates, LLC
23.1 -- Consent of Eichler Bersman & Co., LLP
</TABLE>
<PAGE>
EXHIBIT 1.1
eSAFETYWORLD, Inc.
1,000,000 Shares of Common Stock
UNDERWRITING AGREEMENT
[_______], 2000
Kashner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, Florida 34326
Gentlemen:
eSafetyworld, Inc., a corporation organized under the laws of the State
of Nevada (the "Company"), hereby confirms its agreement with Kashner Davidson
Securities Corporation, ("Kashner") as the underwriter of its securities (the
"Underwriter"), as set forth below.
The Company proposes to issue and sell to the Underwriters 1,000,000
shares of the Company's common stock, $.001 par value per share (the "Common
Stock"). The shares of Common Stock being sold by the Company are referred to as
the "Firm Shares."
In addition, for the sole purpose of covering over-allotments from the
sale of the Firm Shares the Company proposes to grant to the Underwriters an
option to purchase an additional 150,000 shares of Common Stock, (the "Firm
Option Shares" or the "Option Shares"), all as provided in Section 2(c) of this
agreement (the "Agreement") and to issue to you the Underwriter's Warrant (as
defined in Section 2 hereof) to purchase certain further additional shares of
Common Stock. The Firm Shares and the Option Shares are collectively referred to
herein as either the "Shares" or the "Securities."
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333- ), with
respect to the Securities and the Underwriter's Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to that registration statement may have been so filed. Copies
of such registration statement and of each amendment heretofore filed by the
Company with the Commission have been delivered to the Underwriters. After the
execution of this Agreement, the Company will
<PAGE>
file with the Commission either (i) if the registration statement, as it may
have been amended, has been declared by the Commission to be effective under the
Act, a prospectus in the form most recently included in that registration
statement (or, if an amendment thereto shall have been filed, in such
amendment), with such changes or insertions as are required by Rule 430A under
the Act, or permitted by Rule 424(b), under the Act and as have been provided to
and approved by the Underwriters prior to the execution of this Agreement, or
(ii) if that registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment to that
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Underwriters prior to the
execution of this Agreement. The Company also may file a related registration
statement with the Commission pursuant to Rule 462(b) under the Act for purposes
of registering certain additional Securities, which registration statement shall
become effective upon filing with the Commission (the "Rule 462(b) Registration
Statement"). As used in this Agreement, the term "Registration Statement" means
that registration statement, as amended at the time it was or is declared
effective, and any amendment thereto that was or is thereafter declared
effective, including all financial schedules and exhibits thereto and any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Registration Statement (including the
prospectus subject to completion, if any, included in the Registration Statement
at the time it was or is declared effective); and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to the Underwriters copies of each Preliminary Prospectus and has consented to
the use of those copies for the purposes permitted by the Act. If the Company
has elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement
has not been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and (ii)
the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and
2
<PAGE>
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus and
each amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required so to be filed, when the Registration Statement containing such
Prospectus or amendment or supplement thereto was or is declared effective) and
on the Firm Closing Date and any Option Closing Date (as each such term is
hereinafter defined), the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated therein
in accordance with, and complied or will comply with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriters specifically for use
therein.
(c) The Company is duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdictions of
incorporation, and duly qualified or authorized to transact business as a
foreign corporation and is in good standing in each jurisdiction where the
ownership or leasing of its properties or the conduct of its businesses require
such qualification or authorization.
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, an interest in
any corporation, partnership, limited liability company, joint venture, trust or
other business entity.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company, have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Shares have been duly authorized, by all necessary
corporate action on the part of the Company and, when the Shares are issued and
3
<PAGE>
delivered to and paid for by the Underwriter pursuant to this Agreement, the
Shares will be validly issued, fully paid, nonassessable and free of preemptive
rights and will conform to the description thereof in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus). No
holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Securities, and no person
is entitled to have securities registered by the Company under the Registration
Statement or otherwise under the Act other than as described in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been effected
pursuant to an exemption from the registration requirements of the Act. No
compensation was paid to or on behalf of any member of the National Association
of Securities Dealers, Inc. ("NASD"), or any affiliate or employee thereof, in
connection with any such issuance.
(i) The financial statements of the Company included in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company as of the dates indicated and the results of operations
of the Company for the periods specified. Such financial statements have been
prepared in accordance with accounting principles generally accepted in effect
in the United States of America, consistently applied, except to the extent that
certain footnote disclosures regarding unaudited interim periods may have been
omitted in accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The financial data
set forth under the captions "Summary Financial Information" and "Selected
Financial Information" in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present, on the basis
stated in the Prospectus (or such Preliminary Prospectus), the information
included therein.
(j) Eichler Bergsman & Co., LLP has audited certain financial
statements of the Company and delivered their report with respect to the
financial statements included in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and are independent public accountants with respect to the Company
as required by the Act and the applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change
4
<PAGE>
in the business, operations, condition (financial or otherwise), earnings or
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) except as otherwise stated therein, there have been no
transactions entered into by the Company and no commitments made by the Company
that, individually or in the aggregate, are material with respect to the
Company, (iii) there has not been any change in the capital stock or
indebtedness of the Company, and (iv) there has been no dividend or distribution
of any kind declared, paid or made by the Company in respect of any class of its
capital stock.
(l) The Company has full corporate power and authority to enter into
and perform its obligations under this Agreement and the Underwriter's Warrant
Agreement (as hereinafter defined). The execution and delivery of this Agreement
and the Underwriter's Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and this Agreement and the
Underwriter's Warrant Agreement have each been duly executed and delivered by
the Company and each is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except as
rights to indemnity and contribution under this Agreement may be limited by
applicable law. The issuance, offering and sale by the Company to the
Underwriters of the Securities pursuant to this Agreement or the Underwriter's
Securities pursuant to the Underwriter's Warrant Agreement, the compliance by
the Company with the provisions of this Agreement and the Underwriter's Warrant
Agreement, and the consummation of the other transactions contemplated by this
Agreement and the Underwriter's Warrant Agreement do not (i) require the
consent, approval, authorization, registration or qualification of or with any
court or governmental or regulatory authority, except such as have been obtained
or may be required under state securities or blue sky laws and, if the
registration statement filed with respect to the Securities (as amended) is not
effective under the Act as of the time of execution hereof, such as may be
required (and shall be obtained as provided in this Agreement) under the Act, or
(ii) conflict with or result in a breach or violation of, or constitute a
default under, any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or instrument to which the
Company is a party or by which the Company or any of its property is bound or
subject, or the certificate of incorporation or by-laws of the Company, or any
statute or any rule, regulation, judgment, decree or order of any court or other
governmental or regulatory authority or any arbitrator applicable to the
Company.
(m) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject, and no
such proceedings have been threatened against the Company or with respect to any
of its property, except such as are described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). No
contract or other document is required to be described in the Registration
Statement or the
5
<PAGE>
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein (and, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus) or filed as required.
(n) The Company is not in (i) violation of its certificate of
incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) other than as described in the Prospectus, default in
any material respect in the performance or observance of any obligation,
agreement, covenant or condition contained in any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument to which it is a party or by which it or any of its property may
be bound or subject, and no event has occurred which with notice or lapse of
time or both would constitute such a default.
(o) The Company currently owns or possesses adequate rights to use all
intellectual property, including all trademarks, service marks, trade names,
copyrights, inventions, know-how, trade secrets, proprietary technologies,
processes and substances, or applications or licenses therefor, that are
described in the Prospectus (and if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and any other rights or interests in items of
intellectual property as are necessary for the conduct of the business now
conducted or proposed to be conducted by them as described in the Prospectus
(or, such Preliminary Prospectus), and, except as disclosed in the Prospectus
(and such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others, nor is
the Company aware of, nor has the Company received notice of, infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
All such intellectual property rights and interests are (i) valid and
enforceable and (ii) to the best knowledge of the Company, not being infringed
by any third parties.
(p) The Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
foreign regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and,
except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of the properties
and assets reflected in the Company's financial statements or as described in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind, except those reflected in
such financial statements or as described in the Registration Statement and the
Prospectus (and such
6
<PAGE>
Preliminary Prospectus). Except as disclosed in the Prospectus, the Company
occupies its leased properties under valid and enforceable leases conforming to
the description thereof set forth in the Registration Statement and the
Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business in a
manner in which it would be an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940 (the "Investment Company Act").
(s) The Company has obtained and delivered to the Underwriter the
agreements (the "Lock-up Agreements") with the officers, directors and principal
shareholders of the Company substantially to the effect that, among other
things, each such person will not, commencing on the date that the Registration
Statement is declared effective by the SEC (the "Effective Date") and continuing
for a period of eighteen (18) months thereafter, without the prior written
consent of the Underwriter, directly or indirectly, publicly sell, offer or
contract to sell or grant any option to purchase, transfer, assign or pledge, or
otherwise encumber, or dispose of any shares of Common Stock now or hereafter
owned by such person and that the purchaser or transferee in any private sale
agrees to be bound by the Lock-Up Agreement.
(t) No labor dispute with the employees of the Company exists, is
threatened or, to the best of the Company's knowledge, is imminent that could
result in a material adverse change in the condition (financial or otherwise),
business, prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Underwriter's Warrant (as hereinafter defined) will conform to
the description thereof in the Registration Statement and in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and, when sold to and paid for by the Underwriter in accordance with
the Underwriter's Warrant Agreement, will have been duly authorized and validly
issued and will constitute valid and binding obligations of the Company entitled
to the benefits of the Underwriter's Warrant Agreement. The shares of Common
Stock
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<PAGE>
issuable upon exercise of the Underwriter's Warrant (the "Underwriter's Warrant
Shares") have been duly authorized and reserved for issuance upon exercise of
the Underwriter's Warrant by all necessary corporate action on the part of the
Company and, when issued and delivered and paid for upon such exercise in
accordance with the terms of the Underwriter's Warrant Agreement and the
Underwriter's Warrant, respectively, will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus (and, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or is entitled
to any commission, fee or other compensation or payment for services as a finder
for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Underwriter.
(x) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has received
extensions thereof, and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same are material and have
become due.
(y) Neither the Company nor any director, officer, agent, employee or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the completion of the Offering, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Securities or the
Option Securities.
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<PAGE>
(aa) The Company has obtained, and delivered to the Underwriter,
agreements with the officers, directors and principal shareholders of the
Company substantially to the effect that, among other things, commencing on the
Effective Date and continuing for a period of two years thereafter: (i) the
Underwriter shall have the right to purchase for its own account or to sell for
the account of the such parties any securities sold by the such parties in the
open market or pursuant to Rule 144 under the Act; (ii) such parties will agree
to consult with the Underwriter and offer the exclusive opportunity to purchase
or sell such securities on terms at least as favorable as such parties can
secure elsewhere, unless such offer of "an exclusive opportunity" is considered
"acting in concert" for purposes of Rule 144; and (iii) if the Underwriter fails
to accept any such offer, in writing, within one business day after the receipt
thereof by verified fax or e-mail, then the Underwriter shall have no claim or
right with respect to sales of the securities in the offer. If, thereafter, the
terms of the sale as provided in the original offer is modified in any material
respect, the parties shall again notify the Underwriter as provided above.
2. Purchase, Sale and Delivery of the Securities, the Underwriter's
Warrant and Consulting Agreement.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees, to purchase from the Company, the number of Firm Shares as
set forth opposite its name on Schedule 1 annexed hereto, at a purchase price of
$[___] per share.
(b) Certificates in definitive form for the Firm Securities that the
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriters request
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriter, against
payment by or on behalf of the Underwriters of the purchase prices therefor by
wire transfer of immediately available funds to a bank account specified by the
Company. Such delivery of the Firm Securities shall be made at the offices of
Sichenzia, Ross & Friedman LLP, Counsel for the Underwriter, 135 West 50th
Street, New York, New York 10020 at 9:30 A.M., New York City time on [______],
2000, within ten (10) business days from the Effective Date, or at such other
place, time or date as the Underwriter and the Company may agree upon, such time
and date of delivery against payment being herein referred to as the "Firm
Closing Date". The Company will make such certificates for the Firm Securities
available for checking and packaging by the Underwriter, at such offices as may
be designated by the Underwriter, at least 24 hours prior to the Firm Closing
Date. In lieu of physical delivery, the closing may occur by "DTC" delivery.
(c) For the purpose of covering any over-allotments in connection with
the
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<PAGE>
distribution and sale of the Firm Securities as contemplated by the Prospectus,
the Company hereby grants to the Underwriter an option to purchase any or all of
the Option Shares, which options are exercisable by the Underwriter on behalf of
and for the account of the Underwriter. The purchase price to be paid for any of
the Option Shares shall be the same price per share for the Firm Securities set
forth above in paragraph (a) of this Section 2. The option granted hereby may be
exercised as to all or any part of the Option Shares from time to time within 45
calendar days after the Firm Closing Date. The Underwriter shall not be under
any obligation to purchase any of the Option Shares prior to the exercise of
such option. The Underwriter may from time to time exercise the option granted
hereby by giving notice in writing or by telephone (confirmed in writing) to the
Company setting forth the aggregate number of Option Shares as to which the
Underwriter is then exercising the option and the date and time for delivery of
and payment for such Option Shares. Any such date of delivery shall be
determined by the Underwriter but shall not be earlier than two business days or
later than three business days after such exercise of the option and, in any
event, shall not be earlier than the Firm Closing Date. The time and date set
forth in such notice, or such other time on such other date as the Underwriter
and the Company may agree upon, is herein called the "Option Closing Date" with
respect to such Option Shares. Upon exercise of the option as provided herein,
the Company shall become obligated to sell to the Underwriter, and, subject to
the terms and conditions herein set forth, the Underwriter shall become
obligated to purchase from the Company, the Option Shares as to which the
Underwriter is then exercising its option. If the option is exercised as to all
or any portion of the Option Shares, certificates in definitive form for such
Option Shares, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (b) of this Section 2, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (c), to refer to such Option Shares and Option Closing Date,
respectively.
(d) On the Firm Closing Date, the Company will further issue and sell
to the Underwriter or, at the direction of the Underwriter, to bona fide
officers of the Underwriter, for an aggregate purchase price of $100, a warrant
to purchase Common Stock (the "Underwriter's Warrant") entitling the holders
thereof to purchase an aggregate of 100,000 shares of Common Stock for a period
of four years, such period to commence on the first anniversary of the Effective
Date. The Underwriter's Warrant shall be exercisable at a price equal to 150% of
the public offering price of the Common Stock, and shall contain terms and
provisions more fully described herein below and as set forth more particularly
in the warrant agreement relating to the Underwriter's Warrant to be executed by
the Company on the Effective Date (the "Underwriter's Warrant Agreement"),
including, but not limited to, (i) customary anti-dilution provisions in the
event of stock dividends, split mergers, sales of all or substantially all of
the Company's assets, sales of stock below then prevailing market or exercise
prices and other events and (ii) prohibitions of mergers, consolidations or
other reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless adequate
provision is made to preserve, in substance, the rights and powers incidental to
the Underwriter's Warrant. As provided in the
10
<PAGE>
Underwriter's Warrant Agreement, the Underwriter may designate that the
Underwriter's Warrant be issued in varying amounts directly to bona fide
officers of the Underwriter. As further provided, no sale, transfer, assignment,
pledge or hypothecation of the Underwriter's Warrant shall be made for a period
of 12 months from the Effective Date, except (i) by operation of law or
reorganization of the Company, or (ii) to the Underwriter and bona fide
partners, officers of the Underwriter and selling group members.
(e) On the Firm Closing Date, the Company and the Underwriter will
execute a non-exclusive corporate finance agreement pursuant to which the
Underwriter will perform consulting services to the Company for a twenty four
month period for an aggregate fee of $96,000. The entire fee due to the
Underwriter pursuant to the corporate finance agreement shall be pre-paid at the
Firm Closing Date.
3. Offering by the Underwriter. The Underwriter propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus (the "Offering").
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. During
any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
section (a) (i) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriter shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriter
shall not have given its consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriter or counsel to the Underwriter, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the Underwriter, and will use its best efforts
to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise the
Underwriter, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment
11
<PAGE>
or supplement thereto as been filed and will provide evidence satisfactory to
the Underwriter of each such filing or effectiveness.
(b) The Company will advise the Underwriter, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of any Securities for offering or sale in any jurisdiction, (iii)
the institution, threat or contemplation of any proceeding for any such purpose,
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the Underwriter,
arrange for the qualification of the Securities for offering and sale under the
blue sky or securities laws of such jurisdictions as the Underwriter may
designate and will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriter thereof and, subject to Section 4(a) hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) During a period of one year commencing on the Effective Date, the
Company will not, at any time, directly or indirectly, pay any of its employees,
officers or directors an annual salary in excess of $200,000.
(f) The Company will, without charge, provide to the Underwriter and to
counsel for the Underwriter (i) as many signed copies of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriter may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriter may reasonably request, and (iii) so long as a prospectus relating
to the Securities is required to be
12
<PAGE>
delivered under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as the Underwriter may
reasonably request.
(g) The Company, as soon as practicable, will make generally available
to its security holders and to the Underwriter an earnings statement of the
Company that satisfies the provisions of Section 11 (a) of the Act and Rule 158
thereunder.
(h) The Company will reserve and keep available for issuance that
maximum number of authorized but unissued shares of Common Stock which are
issuable upon exercise of any outstanding warrants and the Underwriter's Warrant
(including the underlying securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of the
Securities being sold by it as set forth under "Use of Proceeds" in the
Prospectus.
(j) The Company shall continue to retain Eichler Bergsman &Co., LLP as
its accountants, or another firm of independent certified public accountants
acceptable to the Underwriter. Such accounting firm shall have responsibility to
audit and report on the financial statements and financial exhibits, if any, to
be included in the Registration Statement, and shall prepare all certified
financial statements and schedules to be included in the Registration Statement.
The Company shall retain McLaughlin & Stern, LP as its attorneys, or such other
firm that is acceptable to the Underwriter and is expert in securities law
maters, and in the regulatory aspects of the Company's proposed business. The
Company shall also retain a public relations firm acceptable to the Underwriter
for a period of three years commencing on the Effective Date. The acceptance by
the Underwriter of the Company's accountants, its attorneys and/or public
relations firm will not be unreasonably withheld.
(k) Prior to the Closing Date or the Option Closing Date (if any), the
Company will not, directly or indirectly, without prior written consent of the
Underwriter, issue any press release or other public announcement or hold any
press conference with respect to the Company or its activities with respect to
the Offering (other than trade releases issued in the ordinary course of the
Company's business consistent with past practices with respect to the Company's
operations).
(l) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A
under the Act, then immediately following the execution of this Agreement, the
Company will prepare, and file or transmit for filing with the Commission in
accordance with Rule 430A and Rule 424(b) under the Act, copies of the
Prospectus including the information omitted in reliance on Rule 430A, or, if
required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
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<PAGE>
(m) The Company will assist the Underwriter in causing the Securities
to be listed on the Nasdaq SmallCap Market and the Boston Stock Exchange on the
Effective Date and to maintain such listing thereafter.
(n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, not to exceed 135 days, after each annual
fiscal period render and distribute reports to its stockholders which will
include audited statements of its operations and changes of financial position
during such period and its audited balance sheet as of the end of such period,
as to which statements the Company's independent certified public accountants
shall have rendered an opinion and shall timely file all reports required to be
filed under the securities laws.
(o) During a period of two years commencing with the Firm Closing Date,
the Company will furnish to the Underwriter, at the Company's expense, copies of
all periodic and special reports furnished to stockholders of the Company and of
all information, documents and reports filed with the Commission.
(p) The Company has appointed Standard Registrar & Transfer Company as
transfer agent for the Common Stock, subject to the Closing. The Company will
not change or terminate such appointment for a period of three years from the
Firm Closing Date without first obtaining the written consent of the
Underwriter. For a period of three years after the Effective Date, the Company
shall cause the transfer agent to deliver promptly to the Underwriter a
duplicate copy of the daily transfer sheets relating to trading of the
Securities. The Company shall also provide to the Underwriter, on a weekly
basis, copies of the DTC special securities positions listing report.
(q) During the period of 180 days after the date of this Agreement, the
Company will not at any time, directly or indirectly, take any action designed
to or that will constitute, or that might reasonably be expected to cause or
result in, the stabilization of the price of the Common Stock to facilitate the
sale or resale of any of the Securities.
(r) The Company will not take any action to facilitate the sale of any
shares of Common Stock pursuant to Rule 144 under the Act if any such sale would
violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the Company
will provide the Underwriter and their designees with four bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Underwriter.
(t) The Company shall consult with the Underwriter prior to the
distribution to
14
<PAGE>
third parties of any financial information news releases or other publicity
regarding the Company, its business, or any terms of this offering and the
Underwriter will consult with the Company prior to the issuance of any research
report or recommendation concerning the Company's securities. Copies of all
documents that the Company or its public relations firm intend to distribute
will be provided to the Underwriter for review prior to such distribution.
(u) The Company and the Underwriter will advise each other immediately
in writing as to any investigation, proceeding, order, event or other
circumstance, or any threat thereof, by or relating to the Commission or any
other governmental authority, that could impair or prevent the Offering. Except
as required by law or as otherwise mutually agreed in writing, neither the
Company nor the Underwriter will acquiesce in such circumstances and each will
actively defend any proceedings or orders in that connection.
(v) The Company shall first submit to the Underwriter certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(w) The Company will prepare and file a registration statement with the
Commission pursuant to section 12 of the 1934 Act, and will use its best efforts
to have such registration statement declared effective by the Commission on an
accelerated basis on the day after the Effective Date. For this purpose the
Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(x) For so long as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(y) The Company will take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date. Such application shall be made on an accelerated basis no
more than two days following the Effective Date.
(z) On or prior to the Effective Date, the Company will give written
instructions to the transfer agent for the Common Stock directing said transfer
agent to place stop-order restrictions against, and appropriate legends advising
of the Lock-Up Agreements on, the certificates representing the securities of
the Company owned by the persons who have entered into the Lock-up
15
<PAGE>
Agreements.
(aa) For a period of one year commencing on the Effective Date, the
Company will not, without the prior consent of the Underwriter: (i) file a
registration statement on Form S-8 (or any similar or successor form) with the
exception of any Form S-8 registration statement relating to the 500,000 shares
of the Company's common stock reserved for issuance upon exercise of options
issued in connection with the Company's 1999 Stock Option Plan; and (ii)
consummate any private transactions in its securities.
(bb) For a period of six months commencing on June 17, 1999, In the
event that the Company either (i) executes a definitive agreement to be acquired
or (ii) has concluded an alternative financing with an underwriter other than
the Underwriter, and Underwriter has continued to pursue the offering
contemplated hereby with reasonable diligence, except to the extent requested
not to do so by the Company, and the Underwriter is thereby prevented from
proceeding with the offering contemplated hereby, then the Company will promptly
reimburse the Underwriter for its actual accountable out-of-pocket expenses.
(cc) The Company agrees that it will, upon the Effective Date, for a
period of no less than three (3) years, engage a designee of the Underwriter as
advisors (the "Advisors") to its Board of Directors or elect a designees of the
Underwriter as Director, where such Advisors or Directors shall attend meetings
of the Board, receive all notices and other correspondence and communications
sent by the Company to members of its Board of Directors and will receive the
same compensation as other Directors. Such Advisors or Directors shall be
entitled to receive reimbursement for all reasonable costs incurred in attending
such meetings including, but not limited to, food, lodging, and transportation.
The Company further agrees that, during said three (3) year period, it shall
schedule no less than four (4) formal and "in person" meetings of its Board of
Directors in each such year. Further, during such three (3) year period, the
Company shall give notice to the Underwriter with respect to any proposed
acquisitions, mergers, reorganizations or other similar transactions.
The Company agrees to indemnify and hold the Underwriters and such
Advisor or Director harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, it agrees, if possible, to include the
Underwriters' designees as an insured under such policy.
(dd) For a period of at least two (2) years commencing on the Effective
Date, the Company shall maintain the $1 million life insurance policy on Paul
White for which it is the named beneficiary.
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<PAGE>
5. Expenses
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the Registration
Statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriter of copies of the foregoing documents, and the costs
and expenses of the Underwriter in mailing or otherwise distributing the same
including telephone charges, duplications and other accountable expenses, (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Company, (iv) the preparation, issuance and delivery
to the Underwriter of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state blue
sky or securities laws, including filing fees and fees and disbursements of
counsel relating thereto and any fees and disbursements of local counsel, if
any, retained for such purpose, (vi) the filing fees of the Commission and the
NASD relating to the Securities, (vii) the inclusion of the Securities on The
Nasdaq SmallCap Market and in the Standard and Poor's Corporation Descriptions
Manual, (viii) any "road shows" or other meetings with prospective investors in
the Securities, including transportation, accommodation, meal, conference room,
audio-visual presentation an similar expenses, and (ix) the publication of
"tombstone advertisements" in newspapers or other publications selected by the
Underwriter, and the manufacture of prospectus memorabilia. In addition to the
foregoing, the Company, shall reimburse the Underwriter for its expenses on the
basis of a non-accountable expense allowance in the amount of 3.00% of the gross
offering proceeds to be received by the Company. The non-accountable expense
allowance, based on the gross proceeds from the sale of the Firm Securities,
shall be deducted from the funds to be paid by the Underwriter in payment for
the Firm Securities, pursuant to Section 2 of this Agreement, on the Firm
Closing Date. To the extent any Option Shares are sold, any remaining
non-accountable expense allowance based on the gross proceeds from the sale of
the Option Shares shall be deducted from the funds to be paid by the Underwriter
in payment for the Option Shares, pursuant to Section 2 of this Agreement, on
the Option Closing Date. The Company warrants, represents and agrees that all
such payments and reimbursements will be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement, if the
Offering is terminated in accordance with the provisions of Section 7 or Section
11, the Company agrees that, in addition to the Company paying its own expenses
as described in subparagraph (a)
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<PAGE>
above, the Company shall reimburse the Underwriter for its actual accountable
out-of-pocket expenses (in addition to blue sky legal fees and expenses referred
to in subparagraph (a) above) net of the $25,000 which has previously been
advanced to the Underwriter. Such expenses shall include, but are not to be
limited to, fees for the services and time of counsel for the Underwriter to the
extent not covered by clause (a) above.
6. Intentionally left blank.
7. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter to purchase and pay for the Firm Shares shall be subject, in the
Underwriter's sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the Registration Statement, as heretofore amended, has not been
declared effective as of the time of execution hereof, the Registration
Statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 5:30 P.M., New York City time, on the date on which the amendment to
such Registration Statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriter; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Underwriter shall have received an opinion, dated the Firm
Closing Date, of McLaughlin & Stern, LLP, counsel to the Company, substantially
to the effect that:
(1) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
organization and is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction in which its
ownership or leasing of any properties or the conduct of its business requires
such qualification, except where the failure to be in good standing or so
qualify would not have a materially adverse effect upon the Company;
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(2) the Company has full corporate power and authority to own or lease
its property and conduct its business as it is now being conducted and as it is
proposed to be conducted, as described in the Registration Statement and the
Prospectus, and the Company has full corporate power and authority to enter into
this Agreement and the Underwriter's Warrant Agreement and to carry out all the
terms and provisions hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no outstanding options,
warrants or other rights granted by the Company to purchase shares of its Common
Stock, preferred stock or other securities other than as described in the
Prospectus; the Shares have been duly authorized and the Underwriter's Warrant
Shares have been duly reserved for issuance by all necessary corporate action on
the part of the Company and the Shares when issued and delivered to and paid for
by the Underwriter, pursuant to this Agreement, the Underwriter's Warrant when
issued and delivered and paid for in accordance with this Agreement and the
Underwriter's Warrant Agreement by the Underwriter, and the Underwriter's
Warrant Shares when issued upon payment of the exercise price specified in the
Underwriter's Warrant, will be validly issued, fully paid, nonassessable and
free of preemptive rights and will conform to the description thereof in the
Prospectus; to the knowledge of such counsel, no holder of outstanding
securities of the Company is entitled as such to any preemptive or other right
to subscribe for any of the Shares or the Underwriter's Warrant Shares; and to
the knowledge of such counsel, no person is entitled to have securities
registered by the Company under the Registration Statement or otherwise under
the Act other than as described in the Prospectus;
(4) the execution and delivery of this Agreement and the Underwriter's
Warrant Agreement have been duly authorized by all necessary corporate action on
the part of the Company and this Agreement and the Underwriter's Warrant
Agreement have been duly executed and delivered by the Company, and each is a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement and the Underwriter's Warrant Agreement may be
limited by applicable securities laws and the public policy underlying such
laws;
(5) the Underwriter's Warrant is duly authorized and upon payment of
the purchase price therefore specified in Section 2(d) of this Agreement will be
validly issued and constitute valid and binding obligations of the Company; and
the certificates representing the Securities are in due and proper form under
law;
(6) the statements set forth in the Prospectus under the caption
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"Description of Securities" insofar as those statements purport to summarize the
terms of the capital stock and warrants of the Company, provide a fair summary
of such terms; to the knowledge of such counsel, the statements set forth in the
Prospectus describing statutes and regulations and the descriptions of the
consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all material
respects; to the knowledge of such counsel, the statements in the Prospectus,
insofar as those statements constitute summaries of the contracts, instruments,
leases or licenses referred to therein, constitute a fair summary in all
material respects of those contracts, instruments, leases or licenses and
include all material terms thereof, as applicable;
(7) none of (A) the execution and delivery of this Agreement and the
Underwriter's Warrant Agreement, (B) the issuance, offering and sale by the
Company to the Underwriter of the Securities pursuant to this Agreement and the
Underwriter's Warrant Shares pursuant to the Underwriter's Warrant Agreement, or
(C) the compliance by the Company with the other provisions of this Agreement
and the Underwriter's Warrant Agreement and the consummation of the transactions
contemplated hereby and thereby, to the knowledge of such counsel (1) requires
the consent, approval, authorization, registration or qualification of or with
any court or governmental authority known to us, except such as have been
obtained and such as may be required under state blue sky or securities laws as
to which we express no opinion or (2) conflicts with or results in a breach or
violation of, or constitutes a default under, any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument known to such counsel to which the Company is a party or by which
the Company or any of its property is bound or subject, or the certificate of
incorporation or by-laws of the Company, or any material statute or any
judgment, decree, order, rule or regulation of any court or other governmental
or regulatory authority known to us applicable to the Company;
(8) to the knowledge of such counsel, (A) no legal or governmental
proceedings are pending to which the Company is a party or to which the property
of the Company is subject except those arising in the ordinary course of
business and fully covered by insurance and (B) no contract or other document is
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required;
(9) to the knowledge of such counsel, the Company possesses adequate
licenses, orders, authorizations, approvals, certificates or permits issued by
the appropriate federal, state or local regulatory agencies or bodies necessary
to conduct its business as described in the Registration Statement and the
Prospectus, and, there are no pending or threatened proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit, except as disclosed in the Registration Statement and the
Prospectus, which would have a material adverse effect on the Company;
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(10) The Company is not in violation or breach of, or in default with
respect to, any term of its certificate of incorporation or by-laws, and to the
knowledge of such counsel, the Company is not in (i) violation in any material
respect of any law, statute, regulation, ordinance, rule, order, judgment or
decree of any court or any governmental or regulatory authority applicable to
it, or (ii) default in any material respect in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, deed of trust, loan agreement, note, lease or
other material agreement or instrument to which it is a party or by which it or
any of its property may be bound or subject, and no event has occurred which
with notice, lapse of time or both would constitute such a default;
(11) the Shares have been approved for inclusion on the Nasdaq SmallCap
Market and the Boston Stock Exchange;
(12) the Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and to our knowledge,
no stop order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(13) the Registration Statement originally filed with respect to the
Securities and each amendment thereto and the Prospectus (in each case, other
than the financial statements, the notes, schedules and other financial and
statistical information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act and the rules and regulations of the Commission
thereunder; and
(14) the Company is not an "investment company" as defined in Section
3(a) of the Investment Company Act of 1940 and, if the Company conducts its
business as set forth in the Prospectus, it will not become an Investment
company" and will not be required to register under the Investment Company.
Such counsel also shall state in its opinion that it has participated
in the preparation of the Registration Statement and the Prospectus and that
nothing has come to its attention that has caused it to believe that the
Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriter, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriter, in form and substance acceptable to
the Underwriter, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriter's reliance upon such opinion is justified.
(c). A. At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriter and Underwriter's counsel, from Eichler Bergsman & Co., LLP:
i. confirming that it is a independent certified public accountant with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations;
ii. stating that it is their opinion that the financial statements of
the Company as included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Underwriter may rely upon the
opinion of Eichler Bergsman & Co., LLP with respect to the financial statements
included in the Registration Statement;
iii. stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of the
Company, a reading of the latest available minutes of the stockholders and board
of directors and the various committees of the boards of directors of the
Company, consultations with officers and other employees of the Company
responsible for financial and accounting matters and other specified procedures
and inquiries (which, as to the interim financial statements included in the
Registration Statement, shall constitute a review as described in SAS No. 71,
Interim Financial Statements), nothing has come to the attention of Eichler
Bergsman & Co., LLP which would lead it to believe that (A) the unaudited
financial statements of the Company included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements
of the Company included in the Registration Statement, or (B) at a specified
date not more than five (5) days prior to the Effective Date, there has been any
change in the capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the December 31, 1998 consolidated balance sheet
included in the Registration Statement, other than as set forth in or
contemplated by the Registration
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Statement, or, if there was any change or decrease, setting forth the amount of
such change or decrease, and (C) during the period from June 30, 1999 to a
specified date not more than five (5) days prior to the Effective Date, there
was any decrease (increase) in net revenues, net income (loss) or in net
earnings (loss) per common share of the Company, in each case as compared with
the corresponding period December 31, 1998 beginning, other than as set forth in
or contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease (increase);
iv. setting forth, at a date not later than five (5) days prior to the
Effective Date, the amount of liabilities of the Company;
v. stating that they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each case
to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
vi. statements as to such other matters incident to the transaction
contemplated hereby as the Underwriter may request.
B. At the Firm Closing Date and the Option Closing Date, if any, the
Underwriter shall have received from Eichler Bergsman & Co., LLP a letter, dated
as of the Firm Closing Date or the Option Closing Date, as the case may be, to
the effect that it reaffirms that statements made in the letter furnished
pursuant to subsection A of this Section 7(c), except that the specified date
referred to shall be a date not more than five (5) days prior to the Firm
Closing Date or the Option Closing Date, as the case may be, and, if the Company
has elected to rely on Rule 430A of the Rules and Regulations, to the further
effect that they have carried out procedures as specified in clause (v) of
subsection A of this Section 7(c) with respect to certain amounts, percentages
and financial information as specified by the Underwriter and deemed to be a
part of the Registration Statement pursuant to Rule 430A(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (v).
(d) The representations and warranties of the Company contained in this
Agreement shall be true and correct as if made on and as of the Firm Closing
Date; the Registration Statement shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
in order to make the statements therein not misleading, and the Prospectus, as
amended or supplemented as of the Firm Closing Date, shall not include any
untrue
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<PAGE>
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and the Company shall have performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date.
(e) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(f) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective material
adverse change, in the business, operations, condition (financial or otherwise),
earnings or prospects of the Company, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).
(g) The Underwriter shall have received a certificate, dated the Firm
Closing Date, of the Chief Executive Officer and the Secretary of the Company to
the effect set forth in subparagraphs (d) through (f) above.
(h) The Common Stock shall be qualified in such jurisdictions as the
Underwriter may reasonably request pursuant to Section 4(c), and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Firm Closing Date.
(i) The Company shall have executed and delivered to the Underwriter
the Underwriter's Warrant Agreement and a certificate or certificates evidencing
the Underwriter's Warrant, in each case in a form acceptable to the Underwriter.
(i) The Underwriter shall have received Lock-up Agreements executed by
the persons listed on Schedule 2 annexed hereto.
(j) On or before the Firm Closing Date, the Underwriter and counsel for
the Underwriter shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company and other security holders of the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriter and counsel
for the Underwriter. The Company shall furnish to the Underwriter such conformed
copies of such opinions, certificates, letters and documents in such quantities
as the Underwriter and counsel for the Underwriter shall reasonably request.
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<PAGE>
The obligation of the Underwriter to purchase and pay for any Option
Shares shall be subject, in its discretion, to each of the foregoing conditions,
except that all references to the Firm Securities and the Firm Closing Date
shall be deemed to refer to such Option Shares and the related Option Closing
Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the 1984 Act against any losses, claims,
damages, or liabilities, joint or several, to which the Underwriter, or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the Blue Sky or securities laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or
(2) the omission or alleged omission to state in such Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse, as incurred, the Underwriter and such
controlling person for any legal or other expenses reasonably incurred by the
Underwriter or such controlling person in connection with investigating or
defending against any loss, claim, damage, liability, action, investigation,
litigation or proceeding; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or any Application in reliance upon and in conformity
with written information furnished to the Company by the Underwriter,
specifically for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Underwriter, or controlling person,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Underwriter or any person who
controls the Underwriter or within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act is a party
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<PAGE>
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of the Underwriter and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding.
(b) The Underwriter will indemnify and hold harmless the Company, each
of its directors, each of its officers who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the 1934 Act against, any losses, claims, damages
or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, but only
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application, or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company or any such director, officer,
or controlling person in connection with investigating or defending against any
such loss, claim, damage, liability, action investigation, litigation or
proceedings, in respect thereof. This indemnity agreement will be in addition to
any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on
26
<PAGE>
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the next preceding
sentence or (ii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. After such
notice from the indemnifying party to such indemnified party, the indemnifying
party will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the consent of the
indemnifying party.
(d) In circumstances in which the indemnity obligation provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities, or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total proceeds from
the Offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriter, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriter agree tat it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriter shall
not be obligated to make contributions hereunder that in the aggregate exceed
the total public offering price of the Securities purchased by the Underwriter
under this Agreement, less the aggregate amount of any damages that the
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar
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<PAGE>
claim, and no person guilty of fraudulent misrepresentation (within the meaning
of Section 11 (f) of the Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the 1934 Act shall have the
same rights to contribution as the Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the 1934 Act, shall have the same rights to
contribution as the Company.
9. Substitution of Underwriter.
If any Underwriter shall for any reason not permitted hereunder cancel
its obligations to purchase the Firm Securities hereunder, or shall fail to take
up and pay for the number of Firm Securities set forth opposite names in
Schedule 1 hereto upon tender of such Firm Securities in accordance with the
terms hereof, then:
(a) If the aggregate number of Firm Securities which such Underwriter
or Underwriter agreed but failed to purchase does not exceed 10% of the total
number of Firm Securities, the other Underwriter shall be obligated to purchase
the Firm Securities which such defaulting Underwriter agreed but failed to
purchase.
(b) If any Underwriter so defaults and the agreed number of Firm
Securities with respect to which such default or defaults occurs is more than
10% of the total number of Firm Securities, the remaining Underwriter shall have
the right to take up and pay for the Firm Securities which the defaulting
Underwriter agreed but failed to purchase. If such remaining Underwriter do not,
at the Firm Closing Date, take up and pay for the Firm Securities which the
defaulting Underwriter agreed but failed to purchase, the time for delivery of
the Firm Securities shall be extended to the next business day to allow the
remaining Underwriter the privilege of substituting within twenty-four hours
(including nonbusiness hours) another underwriter or Underwriter satisfactory to
the Company. If no such underwriter or Underwriter shall have been substituted
as aforesaid, within such twenty-four hour period, the time of delivery of the
Firm Securities may, at the option of the Company, be again extended to the next
following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including nonbusiness hours) another
underwriter or Underwriter to purchase the Firm Securities which the defaulting
Underwriter or Underwriter agreed but failed to purchase. If it shall be
arranged for the remaining Underwriter or substituted Underwriter to take up the
Firm Securities of the defaulting Underwriter as provided in this section, (i)
the Company or the Underwriter shall have the right to postpone the time of
delivery for a period of not more than seven business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other document or arrangements, and the Company agrees
promptly to file any amendments to the Registration
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Statement or supplements to the Prospectus which may thereby be made necessary,
and (ii) the respective numbers of Firm Securities to be purchased by the
remaining Underwriter or substituted Underwriter shall be taken as the basis of
the underwriting obligation for all purposes of this agreement.
If in the event of a default by any Underwriter and the remaining
Underwriter shall not take up and pay for all the Firm Securities agreed to be
purchased by the defaulting Underwriter or substitute another underwriter or
Underwriter as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or Underwriter for such Firm Securities as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 2(c) hereof,
any Underwriter or Underwriter shall for any reason not permitted hereunder
cancel their obligations to purchase Option Shares at the Option Closing Date,
or shall fail to take up and pay for the number of Option Shares, which it
became obligated to purchase at the Option Closing Date upon tender of such
Option Shares in accordance with the terms hereof, then the remaining
Underwriter or substituted Underwriter may take up and pay for the Option Shares
of the defaulting Underwriter in the manner provided in Section 9(b) hereof. If
the remaining Underwriter or substituted Underwriter shall not take up and pay
for all such Option Shares, the Underwriter shall be entitled to purchase the
number of Option Shares for which there is no default or, at their election, the
option shall terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 8 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in Section 8 hereof, and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 5 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination. This Agreement may be terminated with respect to the
Firm Securities or any Option Shares in the sole discretion of the Underwriter
by notice to the Company given prior to the Firm Closing Date or the related
Option Closing Date, respectively, in the event
29
<PAGE>
that the Company shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
under Section 7 hereunder at or prior thereto or if at or prior to the Firm
Closing Date or such Option Closing Date, respectively:
(1) the Company sustains a loss by reason of explosion, fire, flood,
accident or other calamity, which, in the opinion of the Underwriter,
substantially affects the value of the properties of the Company or which
materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be threatened, instituted or
pending, at law or in equity, against the Company, by any person or by any
federal, state, foreign or other governmental or regulatory commission, board or
agency wherein any unfavorable result or decision could materially adversely
affect the business, operations, condition (financial or otherwise), earnings or
prospects of the Company;
(3) trading in the Common Stock shall have been suspended by the
Commission, the NASD or on Nasdaq, or trading in securities generally on the New
York Stock Exchange shall have been suspended or minimum or maximum prices shall
have been established on either such exchange or quotation system;
(4) a banking moratorium shall have been declared by New York or United
States authorities;
(5) there shall have been (A) an outbreak of hostilities between the
United States and any foreign power (or, in the case of any ongoing hostilities,
a material escalation thereof), (B) an outbreak of any other insurrection or
armed conflict involving the United States or (C) a material and adverse effect
on the financial markets and any other calamity or crisis or material change in
financial, political or economic conditions, having an effect on the financial
markets that, in any case referred to in this clause (5), in the sole judgment
of the Underwriter makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities as contemplated by the
Registration Statement; and
(6) termination of this Agreement pursuant to this Section 11 shall --
be without liability of any party to any other party, except as provided in
Section 7(b) and Section 8 hereof.
30
<PAGE>
12. Information Supplied by the Underwriter. The statements set forth
in the first paragraph under the heading "Underwriting" (as to the underwriting
commitment of the Underwriter) and under the heading
"Underwriting--Discretionary Accounts" in any Preliminary Prospectus or the
Prospectus (to the extent such statements relate to the Underwriter) constitute
the only information furnished by the Underwriter to the Company for the
purposes of Section 8(b) hereof. The Underwriter confirms that such statements
(to such extent) are correct.
13. Notices. All notice hereunder to or upon either party hereto shall
be deemed to have been duly given for all purposes if in writing and (i)
delivered in person or by messenger or an overnight courier service against
receipt, or (ii) sent by certified or registered mail, postage paid, return
receipt requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: eSafetyworld, Inc.
11-31 South Jersey Avenue
Setauket, NY 11733
Attn: Edward A. Heil
To the Underwriter: Kashner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, Florida 34326
Attn: Matthew Meister
with a copy to: Sichenzia, Ross & Freidman, LLP
135 West 50th Street, 20th Floor
New York, New York 10020
Attn: Gregory Sichenzia, Esq.
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.
14. Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective, unless in writing and signed by or
on behalf of the parties hereto.
31
<PAGE>
15. Waiver. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
16. Applicable Law. This agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
17. Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of the Supreme Court of the
State of New York and the United States District Court for the Southern District
of New York in connection with any suit, action or other proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby, waives
any objection to venue in the County of New York, State of New York, or such
District and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 13.
18. Remedies. In the event of any actual or prospective breach or
default by either party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
19. Attorneys' Fees. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
20. Severability. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
21. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and which together shall constitute one and
the same agreement.
22. Successors. This Agreement shall inure to the benefit of and be
binding upon
32
<PAGE>
the Underwriter, the Company and their respective successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
Section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the 1934 Act, and (ii) the indemnities of the Underwriter
contained in Section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of Section 15 of the Act or Section 20 of the 1934 Act. No purchaser
of Securities from the Underwriter shall be deemed a successor because of such
purchase.
23. Titles and Captions. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
24. Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
25. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
26. Entire Agreement. This Agreement embodies the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
[Signatures on following page]
33
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, and the
Underwriter.
Very truly yours,
eSafetyworld, INC.
By:_____________________________________
Name: Edward A. Heil
Title: Chief Executive Officer
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
KASHNER DAVIDSON SECURITIES CORPORATION
By:______________________________________
Name: Matthew Meister
Title: Chief Executive Officer
34
<PAGE>
SCHEDULE 1
Underwriter Securities Purchased
- ----------- --------------------
Kashner Davidson Securities Corp. [----------]
[----------------] [----------]
[----------------] [----------]
35
<PAGE>
SCHEDULE 2
Name of Beneficial Owner Shares Owned
------------------------ ------------
Edward A. Heil 443,000
R. Bret Jenkins 150,000
J.P., Inc. 225,000
Donald Arbisi 147,000
Shannon White 145,000
Windsor Fund 145,000
Raymond Burghard 100,000
Ben Hoskins 100,000
Laminaire Corp. 100,000
Steven W. Schuster 100,000
John C. Dello-Iacono 50,000
Bridget C. Owens 50,000
David McClelland 20,000
36
<PAGE>
EXHIBIT 4.1
Number Shares
/---------/ /--------/
eSAFETYWORLD, INC.
AUTHORIZED COMMON STOCK: 20,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT
---------------------------------------------
IS THE RECORD HOLDER OF
Shares of eSAFETYWORLD, Inc. Common Stock transferable on the books of
the Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
- -------------------------- -----------------------------
Secretary President
eSAFETYWORLD, INC.
CORPORATE
SEAL
NEVADA
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common unif gift min act-
.........Custodian...........
TEN ENT - as tenants by the entireties (Cust (Minor)
JF TEN - as joint tenants with right under Uniform Gifts to
of survivorship and not as Minors Act ...........
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For Value Received, ____________ hereby sell, assign and
transfer unto Please insert Social Security or Other Identifying Number
of Assignee / /
--------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code of Assignee)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
_____________________________________________________________Shares of
the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated _______________________
- ------------------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without
alteration or enlargement or any change whatever
<PAGE>
EXHIBIT 5.1
MCLAUGHLIN & STERN, LLP
JENNIFER J. MALONI
Direct Fax: (212) 448-6260
E-Mail: [email protected]
260 MADISON AVENUE
NEW YORK, NEW YORK 10016
(212) 448-1100
FAX (212) 448-0066
MILLBROOK OFFICE
Franklin Avenue
P.O. Box 1369
Millbrook, New York 12545
(914) 677-5700
Fax (914) 677-0097
February 8, 2000
eSAFETYWORLD, Inc.
100-31 South Jersey Avenue
Setauket, New York 11733
RE: Registration Statement on Form SB-2
eSAFETYWORLD, Inc.
Gentlemen:
We refer to the public offering of up to 1,250,000 shares of common
stock, $.001 par value (the "Common Stock"), $.001 par value, of eSAFETYWORLD,
Inc., a Nevada corporation (the "Company"), which includes 150,000 Shares at the
initial offering price, less the Underwriter's discount, to cover
over-allotments (the "Over-Allotment Option"), and also includes 100,000 shares
of Common Stock underlying a warrant issued to the Underwriter sold pursuant to
the Registration Statement on Form SB-2 filed with the Securities Exchange
Commission on February 8, 2000 (Registration No. 333-86479) (the "Registration
Statement"), as subsequently amended from time to time.
In furnishing our opinion, we have examined copies of said Registration
Statement under the Securities Act of 1933, as amended. We have conferred with
officers of the Company and have examined the originals or certified, conformed
or photostatic copies of such records of the Company, certificates of officers
of the Company, certificates of public officials, and such other documents as we
have deemed relevant and necessary under the circumstances as the basis of the
opinion expressed herein. In all such examinations, we have assumed the
authenticity of all documents submitted to us as originals or duplicate
originals, the conformity to original documents of all document copies, the
authenticity of the respective originals of such latter documents, and the
MCLAUGHLIN & STERN, LLP correctness and completeness of such certificates.
Finally, we have obtained from officers of the
<PAGE>
Company such assurances as we have considered necessary for the purposes of this
opinion.
Based upon and subject to the foregoing and such other matters of fact
and questions of law as we have deemed relevant in the circumstances, and in
reliance thereon, it is our opinion that, when and if:
(a) The Registration Statement shall have become effective, as the same
may hereafter be amended; and
(b) The Common Stock to be sold shall have been sold as contemplated in
the Prospectus forming part of the Registration Statement;
then and upon the happening of each of the events set forth in paragraphs (a)
and (b), inclusive above:
The Common Stock being sold, upon execution and delivery of
proper certificates therefor, will be duly authorized, validly
issued and outstanding, fully paid and nonassessable shares of
Common Stock of the Company.
The undersigned hereby consent to the use of their name int he
Registration Statement and in the Prospectus forming a part of the Registration
Statement, and to references in this opinion contained therein under the caption
of the Prospectus entitled "Legal Opinions."
This opinion is limited to the matters herein, and may not be relied
upon in any manner by any other person or used for any other purpose other than
in connection with the corporate authority for the issuance of Common Stock.
Very truly yours,
McLAUGHLIN & STERN, LLP
<PAGE>
EXHIBIT 10.2
CONSULTING AGREEMENT
AGREEMENT made this 28th day of July, 1999, by and betwee EH
Associates, LLC, a consulting firm domiciled in the State of New York
hereinafter referred to as the "Consultant", and The SL Group, Inc. whose
principal place of business is located at in East Setauket, New York hereinafter
referred to as "Company."
WHEREAS, the Company desires to engage the services of the Consultant
to perform consulting services for the Company regarding as an independent
contractor and not as an employee; and
WHEREAS, Consultant desires to consult with the Board of Directors, the
officers of the Company, and the administrative staff, and to undertake for the
Company consultation as to the direction of certain functions in said management
of;
NOW, THEREFORE, it is agreed as follows:
1. Term. The respective duties and obligations of the contracting parties
shall be for a period of five years commencing on July 15, 1999, and
may be terminated by either party after three years by giving ninety
(90) days' written notice to the other party at the addresses stated
above or at an address chosen subsequent to the execution of this
agreement and duly communicated to the party giving notice. This
Agreement shall automatically renew each year thereafter, unless either
party gives sixty (60) days written notice to the other party of his
intent not to renew for an additional period.
2. Consultations. Consultant shall be available to consult with the Board
of Directors, the officers of the Company, and the heads of the
administrative staff, at reasonable times, concerning matters
pertaining to the organization of the administrative staff, the fiscal
policies of the Company, the relationship of the Company with its
employees or with any organization representing its employees, and, in
general, the important problems of concern in the business affairs of
the
1
<PAGE>
Company. Consultant shall not represent the Company, its Board of
Directors, its officers or any other members of the Company in any
transactions or communications nor shall Consultant make claim to do
so.
3. Liability. With regard to the services to be performed by the
Consultant pursuant to the terms of this agreement, the Consultant
shall not be liable to the Company, or to anyone who may claim any
right due to any relationship with the Corporation, for any acts or
omissions in the performance of services on the part of the Consultant
or on the part of the agents or employees of the Consultant, except
when said acts or omissions of the Consultant are due to willful
misconduct or gross negligence. The Company shall hold the Consultant
free and harmless from any obligations, costs, claims, judgments,
attorneys' fees, and attachments arising from or growing out of the
services rendered to the Company pursuant to the terms of this
agreement or in any way connected with the rendering of services,
except when the same shall arise due to the willful misconduct or gross
negligence of the Consultant and the Consultant is adjudged to be
guilty of willful misconduct or gross negligence by a court of
competent jurisdiction.
4. Compensation. The Consultant shall receive compensation from the
Company for the performance of the services to rendered to the Company
pursuant to the terms of the agreement of not less than $125,000 per
year during Year 1, $140,000 during Year 2 and $150,000 in Year 3
payable in biweekly instalments. In addition, the Company shall
reimburse the Consultant for any reasonable out of pocket expenses
incurred by the Consultant pursuant to the terms of this agreement.
Consultant shall be paid a bonus or success fee, as determined by the
Board of Directors or the Compensation Committee thereof, for strategic
acquisitions or mergers in which Consultant participates.
5. Arbitration. Any controversy or claim arising out of or relating to
this contract, or the breach thereof, shall be settled by arbitration
in accordance of the rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) shall be entered
in any court having jurisdiction thereof. For that purpose, the parties
hereto consent to the jurisdiction and venue of an appropriate
2
<PAGE>
court located in Suffolk County, State of New York. In the event that
litigation results from or arises out of this Agreement or the
performance thereof, the parties agree to reimburse the prevailing
party's reasonable attorney's fees, court costs, and all other
expenses, whether or not taxable by the court as costs, in addition to
any other relief to which the prevailing party may be entitled. In such
event, no action shall be entertained by said court or any court of
competent jurisdiction if filed more than one year subsequent to the
date the cause(s) of action actually accrued regardless of whether
damages were otherwise as of said time calculable.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement
on the 27th day of July, 1999.
"Company"
SL Group, Inc.
- --------------------------------
Company Name
By:/s/ R. Bret Jenkins
------------------------------
"Consultant"
E.H. Associates, L.L.P.
By: /s/ Edward Heil
- --------------------------------
3
<PAGE>
Exhibit 23.1
Eichler Bergsman & Co., LLP Gilbert Bergsman
Certified Public Accountants Paul Eichler
404 Park Avenue South, New York, New York 10016 Richard M. Plutzer
Tel 212-447-9007 Michael E. Silverman
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of eSafetyworld, Inc.
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (form SB-2), and related prospects of eSafetyworld, Inc.
and to the incorporation by reference therein of our reports dated August 12,
1999, relating to the financial statements for the Clean Room Distribution
Product Group as of December 31, 1998 and for the years ended December 31, 1998
and 1997 and for our report dated August 25, 1999 relating to the balance sheet
of eSafetyworld , Inc., as of June 30, 1999, and the results of its operations
and its cash flows for the period ended December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30, 1999.
/s/Eichler Bergsman & Co., LLP
New York, New York
February 8, 2000
