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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR
12(g) OF THE SECURITIES AND EXCHANGE ACT OF 1934
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CREATIVE PRODUCTS INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 52-2158936
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5843 WOODLAWN AVENUE, NORTH
SEATTLE, WA 98103
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(ADDRESS OF PRINCIPAL OFFICES) (ZIP CODE)
(206) 523-7065
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK
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(TITLE OF CLASS)
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TABLE OF CONTENTS
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Page
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Part I: Information Required in a Registration Statement
Item 1. Description of Business 2
Item 2. Management's Discussion and Analysis 6
Item 3. Description of Property 7
Item 4. Security Ownership of Certain Beneficial Owners and Management 8
Item 5. Directors, Executive Officers 9
Item 6. Executive and Director's Compensation 10
Item 7. Certain Relationships and Related Party Transactions 10
Item 8. Description of Securities 10
Part II
Item 1. Market Price of Our Securities, Our Dividend Policy and
Other Shareholder Matters 12
Item 2. Legal Proceedings 12
Item 3. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 12
Item 4. Recent Sales of Unregistered Securities 12
Item 5. Indemnification of Directors and Officers 12
Part F/S
Financial Statements 13
Part III
Index to Exhibits 18
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INTRODUCTION
This is a Registration Statement on Form 10-SB for the common stock,
par value $0.01 per share (the "Common Stock"), of Creative Products
International, Inc., a Delaware corporation ("Creative Products" or the
"Company"). The Registration Statement contains the information required by
Alternative 3 of Form 10-SB. At the present time, there is no public market for
the Common Stock and the Common Stock is not traded on any exchange.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking
statements:
- statements set forth in this Registration Statement or
statements incorporated by reference from documents Creative
Products has filed with the Securities and Exchange
Commission, including possible or assumed future results of
our operations, including but not limited to any statements
contained herein or therein concerning:
- revenues for the near term;
- Creative Products' expectations concerning Creative
Products' future profitability, Creative Products'
ability to generate positive cash flows in the
future, and Creative Products' ability to expand its
operations;
- any statements preceded by, followed by or that include the
words "believes," "expects," "predicts," "anticipates,"
"intends," "estimates," "should," "may" or similar
expressions; and
- other statements contained or incorporated by reference in
this Information Statement regarding matters that are not
historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such factors include:
- general economic and business conditions;
- technology changes;
- competition;
- changes in business strategy or development plans;
- the ability to attract and retain qualified management and
staff;
- liability and other claims which might be asserted against
Creative Products;
You should not place undue reliance on such statements, which speak
only as of the date that they were made. Creative Products' independent public
accountant has not examined or compiled the forward-looking statements and,
accordingly, they do not provide any assurance with respect to such statements.
These cautionary statements should be considered in connection with any written
or oral forward-looking statements that Creative Products may issue in the
future. Creative Products does not undertake any obligation to release publicly
any revisions to such forward-looking statements after the effective date of
this Registration Statement.
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PART I: INFORMATION REQUIRED
IN A REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Creative Products was incorporated in the State of Delaware on March
25, 1999 as a wholly-owned subsidiary of Caring Products International, Inc.
("Caring Products"). The common stock of Caring Products trades on the OTC
Bulletin Board under the ticker symbol "BDRY." Since its inception in 1992,
Caring Products has primarily been engaged in the development and marketing of
certain highly absorbent pad and reusable pant products for adults and
handicapped children who experience chronic urinary incontinence. Caring
Products sells its products to chain drug stores, surgical supply stores,
pharmacies, drug wholesalers, the veteran's hospitals and other
healthcare-related entities.
In 1993, Caring Products began development and testing of a toilet
training product line for use by children under the age of six. One of the
toilet training products utilized Caring Product's proprietary two-piece, pant
and liner technology. The first toilet training product, called BumberChute, was
test marketed in various national chain stores and regional stores located in
New England in late 1994 through 1995. Test results indicated the need for
product revisions to lower suggested retail cost. In addition, the test market
demonstrated that while the toilet training concept was favorably received among
parents, Caring Products would need substantial advertising and promotion
resources to distribute its products to chain grocery, drug and mass marketers
on a national basis and ultimately gain strong brand recognition among
consumers. Since 1995, Caring Products has continued, on a limited basis, to
research, test and refine the range of products under development to serve
parents with children under the age of six.
In June 1999, the Board of Directors of Caring Products approved the
spin-off all of the shares of Creative Products owned by Caring Products, which
now represents 80% of the issued and outstanding common stock of Creative
Products, to shareholders of record as of June 30, 1999. As part of the
spin-off, each shareholder of record will receive one-half share of Creative
Products' Common Stock for each share of Caring Products common stock owned on
June 30, 1999. In addition, Caring Products transferred certain intellectual
property, including copyrights, trademarks and a patent, which relate to the
family of development stage children's products, to Creative Products.
The purpose of the spin-off is to separate the two highly dissimilar
business lines and permit Creative Products to develop a management team and
capital structure to commercialize the children's products through retail,
catalog and internet distribution channels as well as pursue other internet
business opportunities.
Neither Caring Products nor Creative Products has been involved in any
bankruptcy, receivership or similar proceeding. Neither Caring Products nor
Creative Products has had any material reclassification, merger, consolidation,
or purchase or sale of a significant amount of assets outside the ordinary
conduct of business.
OVERVIEW
Creative Products is a development stage company. Creative Products is
attempting to become the first company with a brand, "Booster," synonymous with
helping parents teach young children all "the basics" of good habits and good
behavior in a highly consistent and reliable way. Creative Products intends to
provide parents with young children a broad range of coordinated consumer
products, educational books and toys, and parenting information that help teach
young children good hygiene habits, manners, safety and how to behave when in
public. Creative Products' line of learning programs is designed to motivate
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children to learn new skills and accept new responsibilities, such as toilet
training, with less frustration. Creative Products' teaching techniques are
incorporated in playful games, activities and storylines that feature several
highly appealing animated characters called the Booster Kids and other animated
Booster animal characters.
Creative Products intends to employ an innovative cross-media strategy
to market and promote the Booster Basics' brand of products to parents and the
Booster Kids and other Booster animated characters to young children. The
management of Creative Products intends to develop loyalty to the animated
characters through BoosterBasics.com, an on-line internet site that will offer
interactive games, stories and Booster Kids club activities. Each on-line story
will contain certain positive habit-forming messages that parents can endorse
and encourage for its underlying educational value. Creative Products also
anticipates making certain Booster Basics' products available for sale at its
web site. The management of Creative Products also intends to explore
opportunities for developing a presence for the animated stories on cable or
public television through media companies with experience in the production of
animation or children's programming.
Creative Products anticipates that its web site will contain various
parenting information including topic specific teaching tips, chat rooms and
featured articles written by pre-teachers, child psychologists, education
experts, pediatricians, parents and grandparents. The management of Creative
Products anticipates that it will develop content in-house as well as license
features from third parties. Given the targeted demographic orientation of
Creative Products' web site, the management of Creative Products also intends to
explore other revenue generating features of its web site, including banner
advertising, promotional features and coupon merchandising, sponsorship
arrangements and sale of other products that appeal to households with children
under the age of six.
PRODUCTS
Creative Products has developed a line of animated characters called
the Booster Kids and several animated animal characters including a bear, dog
and monkey which help the Booster Kids overcome fears, learn new skills,
recognize safety concerns, resolve disputes and promote good natured behavior at
home and in public. These characters are being incorporated into a library of
rhyming stories, various "kits" for learning new skills, such as toilet
training, song tapes and other educational products. In addition, Creative
Products intends to broaden its line of rhyming stories and develop
complementary song tapes, learning toy kits and videos that will be sold through
traditional retail outlets. Some of these learning toy kits will be topic
specific. For example, a toilet training kit may a child's first training pant,
guide book for parents, rhyming story for the child plus other purposeful games
and toys that promote faster toilet training.
Creative Products is also developing several parent guide books,
designed to help parents introduce new skills in sensible, child-friendly stages
to maximize child interest and retention. These books are designed for parent
convenience and do not contain gimmicks or untested parenting ideas or
activities.
Creative Products will seek to expand the range of products that
feature the Booster Kids and other Booster characters though licensing or
private label relationships with established consumer product companies and
media companies. Products that may be most conducive to licensing, private label
or promotional merchandising include bubble bath, soaps, sleepwear, wash cloths
and towels, bath toys, toothbrushes, birthday party ware and toy figurines.
PRODUCT MANUFACTURING AND SITE DEVELOPMENT
On December 4, 1998, Caring Products signed an agency agreement with
Janex Ltd., a Hong Kong based company for the identification of manufacturing
sources in China. The agreement expires on December 4, 2001. On August 25, 1999,
Caring Products and Janex agreed to transfer the agency
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agreement to Creative Products. As part of this agreement, Janex will receive an
immediately exercisable warrant to purchase 26,000 shares of Creative Products
common stock upon the first successful shipment of fully packaged product for
Creative Products by a manufacturing source identified by Janex. The exercise
price of the warrant will be determined based on the closing bid price of
Creative Products common stock on the date of final Board approval after product
shipment completion.
Creative Products believes that it can arrange the manufacture or
production of other non-toilet training products in the United States, Asia and
Mexico through other agents known to Creative Products or through potential
strategic partners, such as book publishers, which maintain their own
manufacturing facilities.
RAW MATERIALS
Creative Products does not have any raw material needs. Creative
Products expects that its products will be manufactured by third parties
pursuant to contractual relationships.
PRODUCT DISTRIBUTION
Creative Products is seeking marketing or strategic partner
relationships to distribute some or all of its Booster products to traditional
retail markets which include grocery chains, drug chains and mass merchandisers.
Other potential markets for Booster products include chain book stores,
catalogs, television home shopping networks and infomercials, independent
children's stores and the internet. Creative Products also may license some or
all of its characters for use on consumer products, soft goods and other items
in that animated characters help promote established product brands. As a
development stage company, Creative Products does not have any major customers.
COMPETITION
The market for children's books, video and song tapes is dominated by
large entertainment companies such as The Walt Disney Company and TimeWarner
Companies, Inc. Educational books for children under the age of six are also
offered by national and regional book publishers and imprints, such as Golden
Books Publishing Company, Inc., a subsidiary of Golden Books Family
Entertainment, Inc.; Scholastic, Inc.; Simon & Schuster, Inc.; Harcourt, Inc., a
subsidiary of Harcourt General; Nickelodeon, a Viacom International, Inc.
company; Red Wagon, L.L.C.; Little, Brown and Company, a Time Warner company;
The Walt Disney Company; Houghton Mifflin Company; and Random House, Inc. The
market for educational books and products is highly competitive requiring access
to national, regional and local chain books stores, children's books stores, and
internet-based book and video distributors such Amazon.com, Inc. Children's
books, videos and song tapes which feature a popular animated character
supported by advertising, national film presence, presence on commercial network
or public television, amusement park affiliation and other means of promotion
have a distinct advantage over new characters like the Booster Kids.
The market for internet-based activity centers for children under the
age of six is new. There are many sites under development and the market is
likely to become more competitive in the future. The management of Creative
Products believes that there is no single site which offers parents useful
parenting information and well-directed, topic specific learning programs as
well as an innovative on-line, interactive learning stories, games and other
activities which can capture and maintain a child's interest. The market for
banner and promotional advertising is becoming increasingly competitive as more
web sites seek revenues to support their internet operations.
The market for toilet training products as well as other consumer or
paper products geared to young children is highly competitive. Currently,
disposable and reusable training pants are produced and aggressively promoted by
Procter & Gamble Company ("Pampers Trainers"), Kimberly-Clark Corporation
("Pull-ups"), Gerbers, Inc. ("Gerbers") and Drypers Corporation ("Drypers").
There are several other
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manufacturers of disposable training pants including several regional and
national companies that produce private label products for grocery and mass
market retail chains. All of these competitors have significant operating and
financial advantages compared to Creative Products. These advantages include
greater financial, personnel, technical and marketing resources, superior
systems, stronger relationships with retailers and greater name recognition.
INTELLECTUAL PROPERTY
In November 1994, the U.S. Patent and Trademark Office issued a patent
to Caring Products covering a proprietary pant channel design. This patent
expires on July 30, 2012. Caring Products also has developed a series of
animated characters, rhyming stories, guide books for parents, other educational
print items. Many of these properties are protected under various copyright and
trademark laws. On June 30, 1999, Caring Products transferred the patent and
other intellectual property associated with the children's product line to
Creative Products. Creative Products has issued a perpetual, royalty free
license to Caring Products for use of the patented channel design in adult
incontinence products. Creative Products believes that its trademarks,
copyrights and logos are of considerable value to its future business and
intends to protect them to the fullest extent possible.
GOVERNMENTAL REGULATIONS
Creative Products is not subject to any governmental regulations other
than those generally applicable to all businesses.
EMPLOYEES
Creative Products currently has no employees, other than Susan
Schreter. Upon completion of the spin-off, Creative Products' success will
largely be dependent upon the decisions made by the Board of Directors of
Creative Products, until such time as a management team, independent of Caring
Products is organized. On September 24, 1999, Creative Products entered into a
three-year employment agreement with Susan Schreter, which is subject to
automatic one-year extensions unless terminated by Ms. Schreter or Creative
Products. Under the terms of the agreement, Ms. Schreter is to spend up to 25%
of her time working for Creative Products and is to receive a $25,000 salary for
her services to Creative Products. If in the opinion of Creative Product's Board
of Directors, Ms. Schreter needs to devote 100% of her efforts to the business
of Creative Products and Ms. Schreter is legally permitted to devote such effort
under the terms of her employment agreement with Caring Products, she will
receive a $150,000 salary. Also, as part of the employment agreement, Creative
Products sold 384,000 shares of its common stock to Ms. Schreter for an
aggregate cash consideration of $19,200. The 384,000 shares are being held in
escrow until the completion of the spin-off. In the event the spin-off is not
completed prior to March 31, 2000, Creative Products has the right to repurchase
for $19,200. Ms. Schreter is also entitled to participate in certain employee
benefit programs that are, or may in the future, be offered by Creative
Products. She is currently required to devote 75 percent of her time to the
business of Caring Products pursuant to an employment agreement between Ms.
Schreter and Caring Products. It is anticipated that she, and the other members
of the Board of Directors, will search for senior technical management, product
development, marketing and administrative staff to support Creative Products'
plans for growth after completion of the spin-off and as Creative Products'
capital resources permit.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Creative Products is a development stage company organized to
commercialize certain educational and consumer products geared to children under
the age of six. The management of Creative Products anticipates that these
products, once developed, will be offered to consumers through retail, catalog
and the internet. Creative Products plans to seek to finance the development of
its business through strategic partnerships in the publishing, media, video
production and consumer products markets.
PLAN OF OPERATION
The management of Creative Products believes that while there are many
educational products on the market which help teach young children the alphabet
and beginning arithmetic, there is no single brand of products or collection of
animated characters synonymous with helping parent teach young children all the
"basics" of good habits and behavior in a highly consistent and reliable way.
Creative Products is attempting to be the first such company. Creative Products'
line of merchandise incorporate educational activities and teaching techniques
into playful games, activities and story lines which feature engaging, "cool"
animated characters. It is expected that these underlying positive behavior
themes will be a strong competitive advantage affecting parent purchasing
decisions and support of the brand.
Creative Products intends to employ an innovative cross-media strategy
to market and promote the selected products and brand names to parents as a
source of high quality parenting information and products. Creative Products
intends to develop several parent guide books, designed to help parents
introduce new skills in sensible, child-friendly stages to maximize child
interest and retention. These books and companion products will be designed to
be sold through retail, catalog, television and internet distribution channels.
Creative Products has developed a line of 28 animated children's
characters, called the Booster Kids and several animated animal characters that
help the Booster Kids overcome fears, learn new skills, recognize safety
concerns, resolve disputes and promote good natured behavior at home and in
public. These characters will be incorporated into a library of 30 rhyming
stories, song tapes, video and children's television concepts and various other
"kit" and learning skills development products. The management of Creative
Products intends to explore opportunities for developing a presence for its
animated characters and branded, positive educational themes on public, cable or
major network television.
Creative Products expects that it will seek to expand the range of
products that feature the Booster Kids and other Booster characters through
licensing or private label relationships with established consumer product
companies and media companies. Products that may be most conducive to licensing,
private label or promotional merchandising include bubble bath, soaps,
sleepwear, wash cloths and towels, bath toys, toothbrushes, birthday party ware
and toy figurines.
Additionally, Creative Products intends to contract a feasibility study
to determine the capital and technical requirements associated with Creative
Products internet plans. Creative Products has reserved the domain name
BoosterBasics.com as one of its first intended sites for the promotion of
various children's animated properties and the sale of related Booster Basics
consumer and educational products. Creative Products anticipates that it will
offer parenting information, featured articles written by pre-school teachers,
child psychologists, education experts, pediatricians, parents and grandparents,
step-by-step topic specific teaching programs, topic specific gift sets of
related consumer and educational products, and an on-line children's animated
activity center through BoosterBasics.com. This activity center plans to
introduce several highly innovative features including an on-line "read to me"
story section with topic-driven and character selection flexibility. Contests,
free "printables" and posters and other features may be developed to frequently
draw both parents and children to the site.
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Given the targeted demographic orientation of BoosterBasics.com's
audience, the management of Creative Products will explore other revenue
generating features of its web site including banner advertising, coupon
distribution, promotional feature merchandising, sponsorship arrangements and
sale of other products that have appeal to households with children under the
age of six.
RESULTS OF OPERATIONS
Since the conclusion of the first test market of the BumberChute
product line in 1994 and 1995, there have been very limited revenues and
expenses generated by Caring Products of non-adult incontinence related
products. Other than through the amortization of intellectual property, no
revenues or expenses have been incurred by Creative Products since its
organization on March 25, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Creative Products' primary source of liquidity are cash deposits of
$50,000 and $300,000 made by Caring Products on March 25, 1999 and on September
27, 1999 respectively. In addition, the Company received $19,200 from the sale
of 384,000 shares of its Common Stock to Susan Schreter in connection with her
employment contract with the Company. Creative Products has no long-term debt or
other contingent obligations.
Creative Products expects that it will seek to raise additional capital
through the sale of Common Stock or other securities to strategic product
distribution partners and investors. Creative Products also will seek to license
some or all of its animated characters and developed books and video concepts to
potential media or publishing partners. There is no assurance that Creative
Products will be able to secure additional financing, through debt or equity,
which is required to complete development of its products, organize a workable
internet web site that can accept product orders or ultimately implement its
retail product commercialization plan.
YEAR 2000 COMPLIANCE
Creative Products has no software, computer equipment or other
electronic equipment that could be adversely affected by the rollover to the
year 2000 in place. It intends to purchase software, products and information
systems in the future, which it expects will use a four-digit year code. As a
result, Creative Products believes that its software, products and information
systems will function properly with respect to dates in the Year 2000 and
thereafter. Creative Products cannot assure you, however, that its technology,
products, software and systems or the products, software, and systems of our
manufacturers, distributors, vendors, or customers will function properly with
respect to dates in the Year 2000 and thereafter. Any resulting system failures
could harm Creative Products' business. Creative Products has identified its
critical manufacturers, distributors, vendors, or customers and is monitoring
their Year 2000 compliance programs. Creative Products is also in the process of
establishing its contingency plans, which it expects to substantially complete
by November 1999. The failure of any of its manufacturers, distributors,
vendors, or customers to adequately address the Year 2000 problem or the failure
by Creative Products to successfully implement its contingency plans could harm
Creative Products' business. The cost of the Year 2000 monitoring of Creative
Products' critical manufacturers, distributors, vendors, or customers is not
expected to be material to our results of operations or financial position.
ITEM 3. DESCRIPTION OF PROPERTY
Creative Products currently does not own or lease any real property.
Creative Products will seek suitable office space in the Seattle area after the
spin-off.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the expected based on
information obtained from the persons named below, with respect to the
beneficial ownership of the Common Stock by (i) each person known by Creative
Products to own beneficially 5% or more of the Common Stock, (ii) each director
and officer of Creative Products and all directors and officers as a group. The
number of shares of Common Stock owned are those "beneficially owned" as
determined under the rules of the Securities Exchange Commission, including any
shares of Common Stock as to which a person has sole or shared voting or
investment power and any shares of Common Stock which the person has the right
to acquire within 60 days through the exercise of any option, warrant or right.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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<CAPTION>
NUMBER OF %
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED OWNED
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<S> <C> <C>
Susan A. Schreter 468,447* 24.5%
c/o Creative Products International, Inc.
5843 Woodlawn Ave. N
Seattle, WA 98103
</TABLE>
* This number includes 384,000 shares that were sold to Ms. Schreter on October
4, 1999 in connection with her employment agreement with Creative Products.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
NUMBER OF %
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED OWNED
- ------------------------------------ ------------ -----
<S> <C> <C>
Susan A. Schreter 468,447* 24.5%
c/o Creative Products International, Inc.
5843 Woodlawn Ave. N
Seattle, WA 98103
Lisa Indovino -- --
118 Bellevue Ave
Upper Montclaire, NJ 07043
Joan Lundgren 32,500 1.7%
326 Prospect Ave.
Hackensack, NJ
All executive officers and directors as a group 500,947* 26.2%
</TABLE>
* This number includes 384,000 shares that were sold to Ms. Schreter on October
4, 1999 in connection with her employment agreement with Creative Products.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each
director and executive officer of Creative Products as of the date hereof.
<TABLE>
<S> <C> <C>
Susan A. Schreter 38 Chairman of the Board, CEO and Director
Lisa Indovino 37 Director
Joan Lundgren 46 Director
</TABLE>
Creative Products' by-laws provide that the size of the Board of
Directors shall initially be fixed by the Incorporator, and thereafter may be
changed by resolution of the Board. Creative Products' Board of Directors
currently is fixed at 3 members. Creative Products anticipates that it will name
other directors during the next 12 months. Members of the Board serve until the
next annual meeting of stockholders and until their successors are elected and
qualified. Meetings of the Board are held when and as deemed necessary or
appropriate. Officers are appointed by and serve at the discretion of the Board.
There are no family relationships among any of Creative Products' directors.
Susan A. Schreter has been president and a director of Caring Products
International, Inc. since January 1993 where she was responsible for the design
and commercialization of Caring Products' products as well as other executive
functions. She will continue to serve as president and a director of Caring
Products International, Inc. following the spin-off. From July 1985 to December
1992 she was president of Beta International, Inc., New York, New York, a firm
providing consulting services to growing companies, private business investors
and buy-out funds in the areas of acquisition due diligence, cash flow planning,
strategic business planning and capital investment. From February 1992 to
January 1995, Ms. Schreter served as a director of Omnicorp Limited, a provider
of environmental services.
Lisa Indovino is a telecommunications expert with over 15 years of
specialization in the commercialization planning and market introductions of new
internet and cellular technologies. Since 1997 she has been Director of Business
Development at Lucent Technologies where she is responsible for identifying
internet based acquisition and joint venture opportunities. From 1993 to 1996,
Ms. Indovino was Executive Vice President and a founding partner of Customer
Information, Inc. of Randallstown, Maryland, a firm which provided
telecommunications technology research and consulting to Fortune 500 companies
including IBM. From 1992 to 1993, Ms. Indovino was a Program Manager for
Mercedes-Benz of North America, Montvale, New Jersey where she was responsible
for the design and implementation of the company's first nationwide cellular
program to Mercedes dealerships.
Joan Lundgren served as Vice President of Retail Chain Sales for Caring Products
International, Inc. from February 1995 to August 1999 where she was responsible
for product introduction to retail chains and development of in-store
advertising programs and "roto's" promotional programs. From March 1988 to
January 1995, Ms. Lundgren worked as Senior Vice President for Yegen Associates
and an affiliate of Yegen Associates, Lion Associates, in Paramus, New Jersey.
Ms. Lundgren was responsible for the marketing program development and credit
quality standard review for a privately-held consumer lending organization which
had 75 offices nationwide. Ms. Lundgren has served in other marketing and sales
capacities in the financial services and banking sector.
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ITEM 6. EXECUTIVE AND DIRECTOR'S COMPENSATION
Creative Products has not paid any compensation to its current
executives or directors and none is currently accrued. Creative Products expects
to pay reasonable compensation at such time as Creative Products' business
develops.
On September 24, 1999, Creative Products entered into a three-year
employment agreement with Susan Schreter, which is subject to automatic one-year
extensions unless terminated by Ms. Schreter or Creative Products. Under the
terms of the agreement, Ms. Schreter is to spend up to 25% of her time working
for Creative Products and is to receive a $25,000 salary for her services to
Creative Products. If in the opinion of Creative Product's Board of Directors,
Ms. Schreter needs to devote 100% of her efforts to the business of Creative
Products and Ms. Schreter is legally permitted to devote such effort under the
terms of her employment agreement with Caring Products, she will receive a
$150,000 salary. Also, as part of the employment agreement, Creative Products
sold 384,000 shares of its common stock to Ms. Schreter for an aggregate cash
consideration of $19,200. The 384,000 shares are being held in escrow until the
completion of the spin-off. In the event the spin-off is not completed prior to
March 31, 2000, Creative Products has the right to repurchase the 384,000 shares
for $19,200. Ms. Schreter is also entitled to participate in certain employee
benefit programs that are, or may in the future be, offered by Creative
Products.
On November 22, 1999, Creative Products' Board of Directors adopted,
and its shareholders approved, the Creative Products International, Inc. 1999
Incentive Program to allow Creative Products to grant incentive stock options
nonqualified stock options, stock appreciation rights, and restricted stock to
employees, officers, directors, and certain consultants of Creative Products
and its direct and indirect subsidiaries. Pursuant to the terms of the 1999
Incentive Program up to 1,000,000 shares of Creative Products common stock may
be issued under the 1999 Incentive Program, subject to certain anti-dilution
provisions and subject to the proviso that no grants may be made which would
cause the number of shares subject to grants made under the 1999 Incentive
Program to exceed 15 percent of the then issued and outstanding common stock of
Creative Products. The 1999 Incentive Program will terminate on November 22,
2009, unless it is terminated earlier by Creative Products' Board of Directors.
As of the date of this Form 10-SB/A, no grants have been made under the 1999
Incentive Program.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As part of the negotiation of Creative Products' employment agreement with Susan
Schreter, Creative Products sold 384,000 shares of its common stock to Ms.
Schreter on October 4, 1999 for $19,200, which consideration the independent
directors of Creative Products concluded represented no less than the fair value
of such shares. In reaching such conclusion, the independent directors took
into consideration, among other things, an appraisal of such shares that was
conducted by an independent valuation firm.
Creative Products currently receives office space on a rent free basis from
Caring Products. Upon the completion of the spin-off, Creative Products expects
to obtain its own office space in the Seattle area.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of Creative Products consists of
15,000,000 shares of common stock, $0.01 par value per share, of which 1,912,172
shares are issued or outstanding, and 1,000,000 shares of preferred stock (the
"Preferred Stock"), of which no shares are issued or outstanding. The issued and
outstanding common stock is fully-paid and nonassessable. Creative Products
issued a total of 1,528,172 shares to Caring Products in anticipation of the
spin-off, which will be distributed to Caring Products' shareholders as of the
June 30, 1999 record date. As discussed above, Caring Products also issued
384,000 shares of its common stock to Susan Schreter on October 4, 1999,
pursuant to the terms of her employment agreement.
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed
by law, to provide for the issuance of the Preferred Stock in series and by
filing a certificate pursuant to the Delaware General Corporation Law to
establish the number of shares to be included in each series. The Preferred
Stock may be issued either as a class without series, or if so determined from
time to time by the Board of Directors, either in whole or in part in one or
more series, each series to be appropriately designated by a distinguishing
number, letter or title prior to the issue of any shares thereof.
The Board of Directors has the authority to fix the voting power, the
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Preferred
Stock in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of the Preferred Stock.
10
<PAGE> 13
COMMON STOCK
Subject to the provisions of law and the preferences of the Preferred
Stock, dividends may be paid on the Common Stock at such time and in such
amounts as the Board of Directors may deem advisable.
The Board of Directors is authorized to effect the elimination of
shares of Common Stock purchased or otherwise reacquired by Creative Products
from the authorized capital stock or number of shares of Creative Products in
the manner provided for in the General Corporation Law of Delaware.
GENERAL PROVISIONS APPLICABLE TO BOTH COMMON AND PREFERRED STOCK
No holder of Common Stock or Preferred Stock has any pre-emptive right
to subscribe to stock, obligations, warrants, rights to subscribe to stock or
other securities of any class.
Subject to the provisions of law and the provisions of Creative
Products' Certificate of Incorporation, as amended, Creative Products may issue
shares of its Preferred Stock or Common Stock, from time to time for such
consideration (not less than the par value or stated value thereof) as may be
fixed by the Board of Directors. Shares so issued, for which the consideration
has been paid or delivered to Creative Products, shall be deemed fully paid
stock, and shall not be liable to any further call or assessments thereon, and
the holders of such shares shall not be liable for any further payments in
respect of such shares.
PENNY STOCK RULES
The Securities and Exchange Commission has adopted Rule 15g-9 which
established the definition of a "penny stock", for the purposes relevant to
Creative Products, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (I) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (I)
obtain financial information and investment experience objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (I)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading and about the commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. If Creative Products' stock is listed at a price
of less that $5.00 the stock will be a penny stock. As a penny stock the shares
could be less liquid than if the stock was not so classified.
11
<PAGE> 14
PART II
ITEM 1. MARKET PRICE OF OUR SECURITIES, OUR DIVIDEND POLICY AND OTHER
SHAREHOLDER MATTERS
As of the date of this filing, there is no public market for Creative
Products' securities. Creative Products plans to file for trading on the OTC
Electronic Bulletin Board as soon as practicable following the completion of the
spin-off. There can be no assurance that the Common Stock will
be registered on the OTC Bulletin Board or, if registered, a market for the
Common Stock will develop or be maintained. Creative Products has paid no cash
dividends. As of the date of this filing, there is an outstanding obligation to
issue a warrant to purchase up to 26,000 shares of Creative Products' common
stock upon the occurrence of certain events. There are no issued, or outstanding
securities that are convertible into Creative Products' common stock or eligible
for sale pursuant to Rule 144 under the Securities Act of 1933, as amended.
Creative Products has no plans to register any of its securities under the
Securities Act for sale by security holders.
ITEM 2. LEGAL PROCEEDINGS
As of the date hereof, Creative Products is not a party to any legal
proceeding and is not aware of any threatened legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in principal independent accountants or
reported disagreements on any matter of accounting principles or procedures or
financial statement disclosures during Creative Products' history.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On October 4, 1999, Creative Products sold 384,000 shares of its common
stock to Susan A. Schreter for an aggregate cash consideration of $19,200,
subject to certain buy-back provisions, as part of her employment agreement with
Creative Products.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Creative Products' Certificate of Incorporation, as amended, provides
that Creative Products must, to the fullest extent permitted by the General
Corporation Law of the State of Delaware, indemnify all persons whom it has the
power to indemnify from and against all expenses, liability or other matters.
Creative Products' By-laws further provide that Creative Products must indemnify
its directors, officers, employees and agents to the fullest extent permitted by
the Delaware General Corporation Law and provides for the advancement of
expenses incurred by such persons in advance of final disposition of any civil
or criminal action, suit or proceeding, subject to repayment if it is ultimately
determined that he or she was not entitled to indemnification. The
indemnification and advancement of expenses provided in the By-laws are
expressly deemed to not be exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may otherwise be entitled.
12
<PAGE> 15
PART F/S
The following financial statements of Creative Products International, Inc. are
included in this Part F/S.
[ON PETERSON SULLIVAN P.L.L.C. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Creative Products International, Inc.
Seattle, Washington
We have audited the accompanying balance sheet of Creative Products
International, Inc. (a development stage company) as of September 30, 1999,
and the related statements of income, stockholder's equity, and cash flows
for the period March 25, 1999 (date of incorporation) to September 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 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 the Company as of September
30, 1999, and the results of its operations and its cash flows for the period
from March 25, 1999 (date of incorporation) to September 30, 1999, in
conformity with generally accepted accounting principles.
/s/ PETERSON SULLIVAN P.L.L.C.
October 5, 1999
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEET
September 30, 1999
<TABLE>
<S> <C>
Current asset - cash $ 350,000
Intangible assets 160,981
---------
$ 510,981
=========
Stockholder's Equity
Common stock, par value $.01 per share, 15,000,000 shares
authorized, 1,528,172 shares issued and outstanding $ 15,282
Additional paid-in capital 500,370
Retained earnings (deficit) (4,671)
---------
$ 510,981
=========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 16
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF INCOME
March 25, 1999 (Date of Incorporation) to September 30, 1999
<TABLE>
<S> <C>
Amortization expense $ 4,671
-------
Net (loss) $(4,671)
=======
Net (loss) per common share $ (0.14)
=======
</TABLE>
See Notes to Financial Statements
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY
March 25, 1999 (Date of Incorporation) to September 30, 1999
<TABLE>
<CAPTION>
Common Stock
-----------------------
Additional Retained
Date of Number Paid-In Earnings
Transaction of Shares Par Value Capital (Deficit) Total
------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares issued to parent
for cash March 25, 1999 1 $ -- $ 50,000 $ -- $ 50,000
Intangible assets contributed
by parent at historical cost June 30, 1999 -- -- 165,652 -- 165,652
Shares issued to parent
for cash September 27, 1999 1,528,171 15,282 284,718 -- 300,000
Net loss
-- -- -- (4,671) (4,671)
---------- ---------- ---------- ---------- ----------
1,528,172 $ 15,282 $ 500,370 $ (4,671) $ 510,981
========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 17
CREATIVE PRODUCTS INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS March 25,
1999 (Date of Incorporation) to September 30, 1999
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss $ (4,671)
Amortization expense 4,671
---------
Net cash provided from operating activities --
Cash Flows from Financing Activities, proceeds from issuance
of common stock to parent 350,000
Cash at March 25, 1999 (date of incorporation) --
---------
Cash at September 30, 1999 $ 350,000
=========
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Description of Business
Creative Products International, Inc. ("the Company") was incorporated on March
25, 1999, in Delaware as a wholly-owned subsidiary of Caring Products
International, Inc. In June 1999, Caring Products International, Inc. announced
the spin-off of the Company's outstanding common shares as a dividend to its
shareholders. The spin-off is expected to occur prior to December 31, 1999.
The Company is in the development stage. The Company's objective is to
commercialize educational and consumer products for children under the age of
six, as well as other Internet-based promotion, marketing and merchandising.
Management anticipates that these products, once developed, will be offered to
consumers through retail, catalog and Internet sources. The Company plans to
seek additional financing through strategic partnerships in the publishing,
media, video production, consumer products and electronic commerce markets. At
June 30, 1999, Caring Products International, Inc. transferred its intellectual
property associated with toddler training products together with other
complementary items to the Company to assist in achieving its business
objective.
The Company's fiscal year will end annually on December 31.
15
<PAGE> 18
Note 2. Summary of Significant Accounting Policies
Cash
Cash consists of an amount held in a demand deposit account. The amount held in
this account at September 30, 1999, exceeds the Federally insured limit.
Intangible Assets
Intangible assets consist of the following:
<TABLE>
<S> <C>
Purchased technology $ 72,656
Patent 43,181
Copyright 29,583
Trademark 20,232
---------
165,652
Less accumulated amortization (4,761)
---------
$ 160,981
=========
</TABLE>
These assets were transferred to the Company by Caring Products International,
Inc. at historical cost at June 30, 1999. Amortization is recorded using the
straight-line method over the estimated useful lives of the assets which does
not exceed ten years.
The Company periodically reviews intangible assets to assess recoverability.
Impairment will be recognized in results of operations when intangible assets
are deemed unrecoverable. Management has determined that these intangible assets
will be recoverable.
Revenue Recognition
The Company will recognize revenue as contractual terms are satisfied.
Advertising
Advertising costs will be expensed during the period incurred.
Research and Development
Research and development costs will be expensed during the period incurred.
Stock-Based Compensation
Compensation expense for employee stock option or purchase plans is to be
measured by the excess, if any, of the market price of the Company's stock at
the measurement date over the amount an employee is required to pay for the
stock. There was no stock-based compensation for the period ended September 30,
1999.
Income Taxes
Income taxes are accounted for using the asset and liability approach, which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes will be provided for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and
16
<PAGE> 19
liabilities. A valuation allowance will be recognized for deferred tax assets
not likely to be realized. Deferred taxes are to be measured by the provisions
of currently enacted tax laws. The deferred tax asset (approximately $1,400)
resulting from the loss at September 30, 1999, has been fully reserved.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares; however, there are no dilutive securities. The weighted average
number of shares outstanding was 32,343 for the period ended September 30, 1999.
Preferred Stock
The Company has authorized 1,000,000 shares of preferred stock at a par value of
$.01 per share. No preferred shares had been issued nor had preferences been
determined as of September 30, 1999.
Use of Accounting Estimates in the Preparation of the Financial Statements
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Comprehensive Income
The Company had no elements of comprehensive income for the period ended
September 30, 1999. Further, there are no other new financial accounting
standards which would have an effect on these financial statements.
Note 3. Employment Agreement
On September 24, 1999, the Company entered into a three-year employment
agreement with its chairperson, Susan Schreter. The agreement may be extended in
one-year increments. Ms. Schreter is obligated to spend up to 25% of her time on
Company business at an annual compensation of $25,000. In the event she devotes
100% of her time to the Company, she will receive an annual salary of $150,000.
On October 4, 1999, the Company sold 384,000 shares of the Company's common
stock to Ms. Schreter for $19,200 in cash. As part of the employment agreement,
these shares are held in escrow until the spin-off discussed in Note 1 is
completed. If the spin-off is not completed before March 31, 2000, the Company
has the right to purchase the escrowed shares for $19,200.
Note 4. Warrant
On August 25, 1999, the Company entered into an agreement with a Hong Kong based
company for the identification of product manufacturing sources in China. As
part of the agreement, the Company is obligated to issue a warrant to purchase
26,000 shares of its common stock upon the first successful shipment of product
from China. The exercise price of the warrant is to be determined by the closing
bid price of the Company's shares on the date of approval of the product by the
Company's board of directors which is to occur within 30-days of shipment. The
warrant is for a five-year period beginning on the date of Board approval.
17
<PAGE> 20
PART III
See the attached Exhibit Index.
18
<PAGE> 21
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
October 11, 1999 CREATIVE PRODUCTS INTERNATIONAL, INC.
By: /s/ Susan A. Schreter
--------------------------------------------
Susan A. Schreter, its Chief Executive Officer
19
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of Creative Products*
3.2 Certificate of Amendment of Certificate of Incorporation of Creative
Products*
3.3 By-laws of Creative Products*
4.1 Creative Products International, Inc. 1999
Incentive Program**
10.1 Assignment of Intellectual Property dated June 30, 1999 by and between
Creative Products and Caring Products International, Inc.*
10.2 Employment Agreement dated September 24, 1999 by and between Creative
Products and Susan A. Schreter*
10.3 License Agreement dated as of June 30, 1999 by and between Creative
Products and Caring Products*
10.4 Escrow Agreement dated October 4, 1999 by and Between Creative
Products, Susan A. Schreter, and Bryan Cave LLP*
23.1 Consent of Peterson Sullivan P.L.L.C.*
* Previously filed with form 10-SB
** Filed herewith
</TABLE>
20
<PAGE> 1
EXHIBIT 4.1
CREATIVE PRODUCTS INTERNATIONAL, INC.
1999 INCENTIVE PROGRAM
The 1999 Incentive Program (the "Program") provides for the
grant to officers, directors and employees of Creative Products International,
Inc. and its direct and indirect subsidiaries (collectively, the "Company"), and
certain consultants to the Company, with certain rights to acquire shares of the
Company's common stock, par value $.01 per share (the "Common Stock"). The
Company believes that this Program will cause those persons to contribute
materially to the growth and success of the Company, thereby benefiting its
stockholders.
1. ADMINISTRATION.
The Program shall be administered and interpreted by the Board
of Directors of the Company or by one or more Committees appointed by the Board
of Directors of the Company from among its members (the "Plan Administrator").
The Board of Directors may appoint different Committees to handle different
duties under the Program. The Plan Administrator's decisions shall be final and
conclusive with respect to the interpretation and administration of the Program
and any Grant made under it.
2. GRANTS.
Incentives under the Program shall consist of incentive stock
options, non-qualified stock options, stock appreciation rights in tandem with
stock options or freestanding, and restricted stock grants (any of the
foregoing, in any combination, collectively, "Grants"). All Grants shall be
subject to the terms and conditions set out herein and to such other terms and
conditions consistent with this Program as the Plan Administrator deems
appropriate. The Plan Administrator shall approve the form and provisions of
each Grant. Grants under a particular section of the Program need not be
uniform, and Grants under two or more sections may be combined in one
instrument.
3. ELIGIBILITY FOR GRANTS.
Grants may be made to any employee, officer, key executive,
director, professional or administrative employee, consultant or advisor to the
Company or any subsidiary of the Company selected by the Plan Administrator to
receive Grants under the Program (persons so selected, the "Grantees").
Provided, that incentive stock options may only be granted to employees of the
Company.
4. SHARES AVAILABLE FOR GRANT.
(a) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 4(b), the aggregate number of shares of Common
Stock (the "Shares") that may be issued or transferred under the Program is
1,000,000 Shares, plus, (i) any Shares which are forfeited under
1
<PAGE> 2
the Program after the adoption of the Program by the Company's Board of
Directors (the "Adoption Date"); plus (ii) the number of Shares repurchased by
the Company in the open market and otherwise with an aggregate price no greater
than the cash proceeds received by the Company from the sale of Shares under the
Program; plus (iii) any Shares surrendered to the Company in payment of the
exercise price of options issued under the Program. However, no award may be
issued that would bring the total of all outstanding awards under the Program to
more than 15% of the total number of Shares of Common Stock of the Company at
the time outstanding. The Shares may be authorized but unissued Shares or
treasury Shares. The number of Shares available for Grants at any given time
shall be reduced by the aggregate of all Shares previously issued or transferred
pursuant to the Program plus the aggregate of all Shares which may become
subject to issuance or transfer under then-outstanding and then-currently
exercisable Grants under the Program. The maximum number of Shares for which
options and stock appreciation rights may be granted under the Program to any
person during any calendar year is 150,000 (subject to appropriate adjustment in
the event of any changes in capitalization of the Company).
(b) Adjustments Upon Changes in Capitalization or Other
Events. Upon changes in the Common Stock of the Company by reason of a stock
dividend, stock split, reverse split, recapitalization, merger, consolidation,
combination or exchange of shares, separation, reorganization or liquidation,
the number and class of Shares available under the Program as to which Grants
may be made (both in the aggregate and to any one Grantee), the number and class
of Shares under each then-outstanding Stock Option and the Option Price per
share of such options, and the terms of stock appreciation rights shall be
correspondingly adjusted by the Plan Administrator, such adjustments to be made
in the case of outstanding Stock Options without change in the total price
applicable to such options. In the event of a merger, consolidation,
combination, reorganization or other transaction in which the Company will not
be the surviving corporation, or in which the Company becomes a wholly-owned
subsidiary of the new corporation, a Grantee of Stock Options under the Program
shall be entitled to options on that number of shares of stock in the new
corporation which the Grantee would have received had the Grantee exercised all
of the unexercised options available to the Grantee under the Program, whether
or not then exercisable, at the instant immediately prior to the effective date
of such transaction, and, if such unexercised options had related stock
appreciation rights, the Grantee also will receive new stock appreciation rights
related to the new options. Thereafter, adjustments as provided above shall
relate to the options or stock appreciation rights of the new corporation.
Except as otherwise specifically provided in the instrument of Grant, in the
event of a Change in Control (as defined below), merger, consolidation,
combination, reorganization or other transaction in which the shareholders of
the Company will receive cash or securities (other than Common Stock) or in the
event that an offer is made to the holders of Common Stock of the Company to
sell or exchange such Common Stock for cash, securities or stock of another
corporation and such offer, if accepted, would result in the offeror becoming
the owner of (a) at least 50% of the outstanding Common Stock of the Company or
(b) such lesser percentage of the outstanding Common Stock which the Plan
Administrator in its sole discretion determines will materially adversely affect
the market value of the Common Stock after the tender or exchange offer, the
Plan Administrator shall have the right, but not the obligation, in the exercise
of its business judgment, prior to the shareholders' vote on such transaction or
prior to the expiration date (without extensions) of the tender or exchange
offer, (i) accelerate the time of exercise so that all Stock Options and stock
appreciation
2
<PAGE> 3
rights which are outstanding shall become immediately exercisable in full, and
all Restricted Stock Grants shall immediately vest in full, without regard to
any limitations of time, performance or amount otherwise contained in the
Program or in the instruments of Grant and/or (ii) determine that the options
and stock appreciation rights shall be adjusted and make such adjustments by
substituting for Common Stock of the Company subject to options and stock
appreciation rights, common stock of the surviving corporation or offeror if
such stock of such corporation is publicly traded or, if such stock is not
publicly traded, by substituting common stock of a parent of the surviving
corporation or offeror if the stock of such parent is publicly traded, in which
event the aggregate option price shall remain the same and the number of shares
subject to outstanding grants shall be the number of shares which could have
been purchased on the closing day of such transaction or the expiration date of
the offer with the proceeds which would have been received by the Grantee if the
option had been exercised in full prior to such transaction or expiration date
and the Grantee had exchanged all of such shares in the transaction or sold or
exchanged all of such shares pursuant to the tender or exchange offer, and if
any such option has related stock appreciation rights, the stock appreciation
rights shall likewise be adjusted. For purposes of this Section 4(b), "Change in
Control" means (i) any "person", as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportion as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities without the
approval of the Board of Directors of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (i), (iii), or (iv) of this sentence) whose election by the
Board or nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved cease for any reason to
constitute at least a majority thereof; (iii) the shareholders of the Company
approve a merger or consolidation of the Company with any other company, other
than (1) a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or (iv) the shareholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets and properties.
5. STOCK OPTIONS.
3
<PAGE> 4
The Plan Administrator may grant options qualifying as
incentive stock options under the Internal Revenue Code of 1986, as amended
("Incentive Stock Options"), or non-qualified options not entitled to special
tax treatment under Section 422 of the Internal Revenue Code of 1986 (the
"Code"), as amended (collectively, "Stock Options"). The following provisions of
this Section 5 are applicable to Stock Options:
(a) Exercise of Option. A Grantee may exercise a Stock Option
by delivering a notice of exercise to the Company, either with or without
accompanying payment of the option price (the "Option Price"). The notice of
exercise, once delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Grantee shall pay the
Option Price in cash or with the Program Administrator's permission, by
delivering shares of Common Stock already owned by the Grantee and having a Fair
Market Value on the date of exercise equal to the Option Price, or a combination
of cash and Shares. The Grantee shall pay the Option Price not later than thirty
(30) days after the date of a statement from the Company following exercise
setting forth the Option Price, Fair Market Value of Common Stock on the
exercise date, the number of shares of Common Stock that may be delivered in
payment of the Option Price, and the amount of withholding tax due, if any. If
the Grantee fails to pay the Option Price within the thirty (30) day period, the
Plan Administrator shall have the right to take whatever action it deems
appropriate, including voiding the option exercise. The Company shall not issue
or transfer shares of Common Stock upon exercise of a Stock Option until the
Option Price is fully paid.
(c) Share Withholding. With respect to any non-qualified
option or SAR (as defined below), the Plan Administrator may, in its discretion
and subject to such rules as the Plan Administrator may adopt, permit the
Grantee to satisfy, in whole or in part, any withholding tax obligation which
may arise in connection with the exercise of the non-qualified option or SAR by
electing to have the Company withhold shares of Common Stock having a Fair
Market Value equal to the amount of the withholding tax. Notwithstanding the
foregoing, as a condition of the Grant of any Stock Option or SAR to any officer
or director of the Company subject to the reporting requirements (a "Reporting
Person") of Section 16 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Plan Administrator shall require, upon the
exercise of any Stock Option or SAR by any Reporting Person, at a time when the
Company shall be required to file periodic reports under Section 13 of the
Exchange Act, that the number of shares of Common Stock otherwise issuable upon
the exercise of such Stock Option or SAR shall be reduced by the number of
shares of Common Stock having an aggregate Fair Market Value equal to the amount
of the Reporting Person's liability for any and all taxes required by law to be
withheld.
(d) Price and Term. The Option Price per share, term and other
provisions of Stock Options granted under the Program shall be specified by the
Grant, as limited, in the case of Incentive Stock Options, by the provisions of
Section 5(e) below, if granted pursuant to such Section. In addition, the Plan
Administrator may prescribe such other conditions as it may deem appropriate,
which conditions shall be specified in the instrument of Grant.
(e) Limits on Incentive Stock Options. The aggregate fair
market value of the stock covered by Incentive Stock Options granted under the
Program or any other stock option plan
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of the Company or any subsidiary or parent of the Company that become
exercisable for the first time by any employee in any calendar year shall not
exceed $100,000. The aggregate Fair Market Value will be determined at the time
of grant. The period for exercise of an Incentive Stock Option shall not exceed
ten (10) years from the date of the Grant (or five years if the Grantee is also
a 10% stockholder). The Option Price at which Common Stock may be purchased by
the Grantee under an Incentive Stock Option shall be the Fair Market Value (or
110% of the Fair Market Value if the Grantee is a 10% stockholder) of the Common
Stock on the date of the Grant. Incentive Stock Options may only be granted to
employees of the Company or any subsidiary or parent of the Company. Incentive
Stock Options by their terms shall not be transferable by the Grantee other than
by the laws of descent and distribution, and shall be exercisable, during the
lifetime of the Grantee, only by the Grantee.
(f) Restored Options. Stock Options granted under the Program
may, with the Plan Administrator's permission, include the right to acquire a
restored option (a "Restored Option"). If a Stock Option grant contains a
Restored Option feature and if a Grantee pays all or part of the Option Price of
such Stock Option with shares of Common Stock held by the Grantee, then upon
exercise of such Stock Option the Grantee shall be granted a Restored Option to
purchase, at the Fair Market Value of the Common Stock as of the date of the
grant of the Restored Option, the number of shares of Common Stock of the
Company equal to the sum of the number of whole shares used by the Grantee in
payment of the Option Price and the number of whole shares, if any, withheld by
the Company as payment for withholding taxes. A Restored Option may be exercised
between the date of grant and the date of expiration, which will be the same as
the date of expiration of the Stock Option to which such Restored Option is
related.
6. STOCK APPRECIATION RIGHT.
The Plan Administrator may grant a Stock Appreciation Right
("SAR") either independently or in conjunction with any Stock Option granted
under the Program. The following provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR which is issued
in conjunction with a Stock Option shall specify the Stock Option to which the
SAR is related, together with the Option Price and number of option shares
subject to the SAR at the time of its grant.
(b) Requirement of Employment. An SAR may be exercised only
while the Grantee is in the employment or consultancy of the Company, except
that the Plan Administrator may provide for partial or complete exceptions to
this requirement as it deems equitable.
(c) Exercise. A Grantee may exercise an SAR in whole or in
part by delivering a notice of exercise to the Company, except that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
(d) Payment and Form of Settlement. If a Grantee exercises an
SAR which is issued in conjunction with a Stock Option, he shall receive the
aggregate of the excess of the fair market value of each share of Common Stock
with respect to which the SAR is being exercised
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over the Option Price of each such share. Payment, in any event, may be made in
cash, Common Stock or a combination of the two, in the discretion of the Plan
Administrator. Fair Market Value shall be determined as of the date of exercise.
(e) Expiration and Termination. Each SAR shall expire on a
date determined by the Plan Administrator at the time of grant. If a Stock
Option is exercised in whole or in part, any SAR related to the Shares purchased
in connection with such exercise shall terminate immediately.
7. RESTRICTED STOCK GRANTS.
The Plan Administrator may issue or transfer shares of Common
Stock ("Restricted Stock") to a Grantee under a Restricted Stock Grant. Shares
of Restricted Stock are subject to forfeiture unless and until specified
employment vesting and/or performance vesting conditions are met, as determined
by the Plan Administrator. Until the shares vest or are forfeited, as the case
may be, the Grantee shall be entitled to vote the shares and to receive any
dividends paid. The following provisions are applicable to Restricted Stock
Grants:
(a) Requirement of Employment. If the Grantee's employment
terminates prior to the fulfillment of the conditions for vesting of the
Restricted Stock, as set forth in the specific instrument of Grant, all shares
of Restricted Stock held by him or her and still subject to restriction will be
forfeited and must be returned immediately to the Company. However, the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
(b) Restrictions of Transfer and Legend on Stock Certificate.
Prior to the fulfillment of the conditions for vesting, a Grantee may not sell,
assign, transfer, pledge, or otherwise dispose of the shares of Common Stock
except to a Successor Grantee under Section 9(a). Each certificate for shares
issued or transferred under a Restricted Stock Grant shall contain a legend
giving appropriate notice of the restrictions applicable to the Grant. The Plan
Administrator may, in its sole discretion, require that such certificates be
placed into escrow with the Company until vesting.
(c) Lapse of Restrictions. All restrictions imposed under a
Restricted Stock Grant shall lapse upon the fulfillment of the conditions for
vesting set forth in the instrument of Grant provided that all of the conditions
stated in Sections 7(a) and (b) have been met as of the date of such lapse. The
Grantee shall then be entitled to have the legend removed from the certificate.
8. AMENDMENT AND TERMINATION OF THE PROGRAM.
(a) Amendment. The Administrator may from time to time amend,
alter, suspend or discontinue the Program, subject to any requirement of
stockholder approval required by applicable law, rule or regulation, including
Section 162(m) of the Code or, if the Common Stock is then listed or admitted
for trading on any United States securities exchange or on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"),
any
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requirement for stockholder approval required under the rules of such exchange
or NASDAQ, as the case may be; provided, however, that no amendment shall be
made without stockholder approval if such amendment would (1) increase the
maximum number of shares of Common Stock available for issuance under this
Program (subject to Section 4(b)), (2) reduce the minimum Option Price in the
case of an option or the base price in the case of an SAR, (3) effect any change
inconsistent with Section 422 of the Code or (4) extend the term of this
Program.
(b) Termination of the Program. The Program shall terminate on
the tenth anniversary of its effective date unless terminated earlier by the
Board or unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Program that occurs after a Grant is made shall
not result in the termination or amendment of the Grant unless the Grantee
consents or unless the Plan Administrator acts under Section 9(d). The
termination of the Program shall not impair the power and authority of the Plan
Administrator with respect to outstanding Grants. Whether or not the Program has
terminated, an outstanding Grant may be terminated or amended under Section 9(d)
or may be amended by agreement of the Company and the Grantee on terms
consistent with the Program.
9. GENERAL PROVISIONS.
(a) Prohibitions Against Transfer. Only a Grantee or his or
her authorized representative may exercise rights under a Grant. Such persons
may not transfer those rights, except upon the express written consent of the
Company, which may be granted or denied in the Company's discretion. Except as
otherwise expressly provided herein or in the instrument of grant, when a
Grantee dies, the personal representative or other person entitled under a Grant
under the Program to succeed to the rights of the Grantee ("Successor Grantee")
may exercise the rights. A Successor Grantee must furnish proof satisfactory to
the Plan Administrator of his or her right to receive the Grant under the
Grantee's will or under the applicable laws of descent and distribution.
(b) Suitable Grants. The Plan Administrator may make a Grant
to an employee of another corporation who becomes an Eligible Grantee by reason
of a corporate merger, consolidation, acquisition of stock or property, share
exchange, reorganization or liquidation involving the Company in substitution
for a stock option, stock appreciation right, performance award, or restricted
stock grant previously granted by such corporation (the "Original Incentives").
The terms and conditions of the substitute Grant may vary from the terms and
conditions required by the Program and from those of the Original Incentives.
The Plan Administrator shall prescribe the exact provisions of the substitute
Grants, preserving where possible the provisions of the Original Incentives.
(c) Subsidiaries. The term "subsidiary" means a corporation in
which the Company owns directly or indirectly 50% or more of the voting power.
(d) Compliance with Law. The Program, the exercise of Grants,
and the obligations of the Company to issue or transfer shares of Common Stock
under Grants shall be
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subject to all applicable laws and to approvals by any governmental or
regulatory agency as may be required. The Plan Administrator may revoke any
Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Plan Administrator may
also adopt rules regarding the withholding of taxes on payment to Grantees.
(e) Ownership of Stock. A Grantee or Successor Grantee shall
have no rights as a stockholder of the Company with respect to any Shares
covered by a Grant until the Shares are issued or transferred to the Grantee or
Successor Grantee on the Company's books.
(f) No Right to Employment. The Program and the Grants under
it shall not confer upon any Grantee the right to continue in the employment of
the Company or affect in any way the right of the Company to terminate the
employment of a Grantee at any time.
(g) Effective Date of the Program. The Program shall become
effective upon its approval by the Company's stockholders under applicable law
and regulatory requirements. Grants may be made prior to such approval but no
Grant may be exercised until such approval is obtained.
(h) Fair Market Value. For the purposes of the Program, the
term "Fair Market Value" means, as of any date, the closing price of a share of
Common Stock of the Company on such date. The closing price shall be (i) if the
Common Stock is then listed or admitted for trading on any national securities
exchange, or if not so listed or admitted for trading, is listed or admitted for
trading on NASDAQ, the last sale price of the Common Stock, regular way, or the
mean of the bid and asked prices thereof for any trading day on which no such
sale occurred, in each case as officially reported on the principal securities
exchange on which the Common Stock is listed or admitted for trading or on
NASDAQ, as the case may be, or (ii) if not so listed or admitted for trading on
a national securities exchange or NASDAQ, the mean between the closing high bid
and low asked quotations for the Common Stock in the over-the-counter market as
reported by NASDAQ, or any similar system for the automated dissemination of
securities prices then in common use, if so quoted, as reported by any member
firm of the New York Stock Exchange selected by the Company; provided, however,
that if, by reason of extended or continuous trading hours on any exchange or in
any market or for any other reason, the time, with respect to any trading day,
of the close of trading for the purpose of determining the "last sale price" or
the "closing" bid and asked prices is not objectively determinable, the time on
such trading day used for the purpose of reporting any compilation of last sale
prices or closing bid and asked prices in The Wall Street Journal shall be the
time on such trading day as of which the "last sale price" or "closing" bid and
asked prices are determined for purposes of this definition. If the Common Stock
is quoted on a national securities or central market system in lieu of a market
or quotation system described above, the closing price shall be determined in
the manner set forth in clause (i) of the preceding sentence if actual
transaction are reported, and in the manner set forth in clause (ii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not. If on the date in question, there is no exchange or
over-the-counter market for the Common Stock, the "fair market value" of such
Common Stock shall be determined by the Plan Administrator acting in good faith.
(i) Application of Funds. The proceeds received by the Company
from the issuance of Grants pursuant to the Program will be used for general
corporate purposes.
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(j) No Obligation to Exercise Option. The granting of an
option to any Grantee under the Program shall impose no obligation upon such
Grantee to exercise such option.
(k) Severability. If any provision of the Program, or any term
or condition of any Grant granted or form executed or to be executed thereunder,
or any application thereof to any person or circumstances is invalid, such
provision, term, condition or application shall to that extent be void (or, in
the discretion of the Plan Administrator, such provision, term or condition may
be amended so as to avoid such invalidity or failure), and shall not affect
other provisions, terms or conditions or applications thereof, and to this
extent such provisions, terms and conditions are severable.
(l) Instrument of Grant. Each Grant under this Program shall
be evidenced by an agreement (i.e., an instrument of Grant) setting forth the
terms and conditions applicable to such Grant. No Grant shall be valid until an
agreement is executed by the Company and the recipient of such award and, upon
execution by each party and delivery of the agreement to the Company, such award
shall be effective as of the effective date set forth in the Agreement.
(m) Restricted Shares. Each award made hereunder shall be
subject to the requirement that if at any time the Company determines that the
listing, registration or qualification of the shares of Common Stock subject to
such award upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery of
shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any award made hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
(n) Program Controls. In the case of any conflict or
inconsistency between the terms of this Program and the terms of any instrument
of Grant, the terms of this Program will control, unless the instrument of grant
expressly provides that the terms of such instrument of grant will control.
9
